-----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, Rm8Z7KPkw3vtXar9lWEpgFUqH2zAEoXxQHhm+LCTsfIF1yAPh88ILidItBUBt7PF Mh40bjXf/M8AQkOe1Ace9w== 0000950137-09-002972.txt : 20090415 0000950137-09-002972.hdr.sgml : 20090415 20090415142703 ACCESSION NUMBER: 0000950137-09-002972 CONFORMED SUBMISSION TYPE: N-14/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20090415 DATE AS OF CHANGE: 20090415 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: N-14/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-157592 FILM NUMBER: 09750697 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 CENTRAL INDEX KEY: 0000764802 S000003306 RiverSource Short Duration U.S. Government Fund C000008828 RiverSource Short Duration U.S. Government Fund Class A IFINX CENTRAL INDEX KEY: 0000752372 S000002553 Seligman U.S. Government Securities Fund C000007030 Seligman U.S. Government Securities Fund, Class A SUSGX CENTRAL INDEX KEY: 0000764802 S000003306 RiverSource Short Duration U.S. Government Fund C000008829 RiverSource Short Duration U.S. Government Fund Class B ISHOX CENTRAL INDEX KEY: 0000752372 S000002553 Seligman U.S. Government Securities Fund C000007031 Seligman U.S. Government Securities Fund, Class B SXGMX CENTRAL INDEX KEY: 0000764802 S000003306 RiverSource Short Duration U.S. Government Fund C000008830 RiverSource Short Duration U.S. Government Fund Class C AXFCX CENTRAL INDEX KEY: 0000752372 S000002553 Seligman U.S. Government Securities Fund C000007032 Seligman U.S. Government Securities Fund, Class C SGVCX CENTRAL INDEX KEY: 0000764802 S000003306 RiverSource Short Duration U.S. Government Fund C000076520 CLASS R2 CENTRAL INDEX KEY: 0000752372 S000002553 Seligman U.S. Government Securities Fund C000007034 Seligman U.S. Government Securities Fund, Class R SGVRX N-14/A 1 n49430cnv14za.txt FORM N-14/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. 1 (File No. 333-157592) [ ] Post-Effective Amendment No. [ ] (Check Appropriate Box or Boxes) RiverSource Government Income Series, Inc. (Exact Name of Registrant as Specified in Charter) (612) 671-1947 (Area Code and Telephone Number) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (Address of Principal Executive Offices: Number, Street, City, State, Zip Code) Scott R. Plummer (Name and Address of Agent for Service) 5228 Ameriprise Financial Center Minneapolis MN 55474 (Number and Street) (City) State) (Zip Code) Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement. Title of Securities Being Registered: Common Stock No filing fee is due because of reliance on Section 24(f) of the Investment Company Act of 1940. This Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933. It is proposed that this filing will become effective on April 17, 2009. SELIGMAN FUNDS 734 Ameriprise Financial Center Minneapolis, Minnesota 55474 NOTICE OF A JOINT SPECIAL MEETING OF SHAREHOLDERS SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman International Growth Fund SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman High-Yield Fund Seligman U.S. Government Securities Fund TO BE HELD JUNE 2, 2009 A Joint Special Meeting of Shareholders (the "Meeting") of each of the Seligman Funds listed above will be held at 10:00 a.m. CDT on June 2, 2009, at The Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota 55402 in the Minnesota River Room on the Third floor. At the Meeting, shareholders will consider the following proposals with respect to their Selling Fund: THE REORGANIZATION PROPOSALS: Shareholders of each Selling Fund will vote separately to approve an Agreement and Plan of Reorganization by and among each Selling Fund, its corresponding Buying Fund and RiverSource Investments, LLC (each an "Agreement and Plan of Reorganization"), as shown below:
PROPOSAL SELLING FUND BUYING FUND 1. Seligman Core Fixed Income Fund, Inc. RiverSource Diversified Bond Fund 2. Seligman Emerging Markets Fund Threadneedle Emerging Markets Fund 3. Seligman Global Growth Fund Threadneedle Global Equity Fund 4. Seligman High-Yield Fund RiverSource High Yield Bond Fund 5. Seligman Income and Growth Fund, Inc. RiverSource Balanced Fund 6. Seligman International Growth Fund RiverSource Partners International Select Growth Fund 7. Seligman U.S. Government Securities Fund RiverSource Short Duration U.S. Government Fund
Pursuant to each Agreement and Plan of Reorganization, each Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. THE MANAGER OF MANAGERS PROPOSALS: Shareholders of each Seligman Subadvised Fund, as listed below, will consider the following proposal with respect to their Seligman Subadvised Fund:
PROPOSAL SELIGMAN SUBADVISED FUND 8. Seligman Emerging Markets Fund To approve a policy authorizing RiverSource - ----------------------------------------------------- Investments, LLC, with the approval of the 9. Seligman Global Growth Fund Board of Directors, to retain and to replace subadvisers, or to modify subadvisory agreements, without obtaining shareholder approval. - ----------------------------------------------------- 10. Seligman International Growth Fund
Please take some time to read the combined proxy statement/prospectus. It discusses these proposals in more detail. If you were a shareholder on April 3, 2009, you may vote at the Meeting or at any adjournment or postponement of the Meeting. We hope you can attend the Meeting. Even if you plan to attend the Meeting, please vote by telephone, internet or mail. Just follow the instructions on the enclosed proxy card. If you have questions, please call toll free at (866) 438-8932. It is important that you vote. The Board of Directors/Trustees of each Selling Fund and Seligman Subadvised Fund recommends that you vote FOR the proposal(s) applicable to it. The combined proxy statement/prospectus is expected to be mailed to shareholders on or about April 17, 2009. By order of the Boards of Directors/Trustees -s- Scott R. Plummer Scott R. Plummer, Secretary April 17, 2009 THIS PAGE LEFT BLANK INTENTIONALLY SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman International Growth Fund SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman High-Yield Fund Seligman U.S. Government Securities Fund COMBINED PROXY STATEMENT/PROSPECTUS DATED APRIL 17, 2009 This document is a proxy statement for each Selling Fund and each Seligman Subadvised Fund (each as defined below), and a prospectus for each Buying Fund (as defined below). The address and telephone number of each Selling Fund and Buying Fund is 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 and (888) 791-3380. This combined proxy statement/prospectus and the enclosed proxy card are expected to be mailed to shareholders ("shareholders" or "stockholders") beginning on or about April 17, 2009. This combined proxy statement/prospectus contains information you should know before voting on the following proposal(s) with respect to your Fund (as indicated below):
TO BE VOTED ON PROPOSAL BY SHAREHOLDERS OF: - --------------------------------------------------------------------------------------------------------------------------- 1. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman Core Fixed Income Fund, Inc. and among Seligman Core Fixed Income Fund, Inc. ("Seligman Core Fixed Income Fund" or the "Selling Fund"), RiverSource Diversified Bond Fund (the "Buying Fund"), a series of RiverSource Diversified Income Series, Inc., and RiverSource Investments, LLC ("RiverSource Investments"). Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 Class I* Class R5 - --------------------------------------------------------------------------------------------------------------------------- 2. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman Emerging Markets Fund and among Seligman Emerging Markets Fund (the "Selling Fund"), a series of Seligman Global Fund Series, Inc., Threadneedle Emerging Markets Fund (the "Buying Fund"), a series of RiverSource Global Series, Inc., and RiverSource Investments, LLC. Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 Class I* Class R5 - ---------------------------------------------------------------------------------------------------------------------------
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TO BE VOTED ON PROPOSAL BY SHAREHOLDERS OF: - --------------------------------------------------------------------------------------------------------------------------- 3. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman Global Growth Fund and among Seligman Global Growth Fund (the "Selling Fund"), a series of Seligman Global Fund Series, Inc., Threadneedle Global Equity Fund (the "Buying Fund"), a series of RiverSource Global Series, Inc., and RiverSource Investments, LLC. Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 Class I* Class R5 - --------------------------------------------------------------------------------------------------------------------------- 4. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman High-Yield Fund and among Seligman High-Yield Fund (the "Selling Fund"), a series of Seligman High Income Fund Series, RiverSource High Yield Bond Fund (the "Buying Fund"), a series of RiverSource High Yield Income Series, Inc., and RiverSource Investments, LLC. Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 Class I* Class R5 - --------------------------------------------------------------------------------------------------------------------------- 5. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman Income and Growth Fund, Inc. and among Seligman Income and Growth Fund, Inc. ("Seligman Income and Growth Fund" or the "Selling Fund"), RiverSource Balanced Fund (the "Buying Fund"), a series of RiverSource Investment Series, Inc., and RiverSource Investments, LLC. Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 Class I* Class R5 - ---------------------------------------------------------------------------------------------------------------------------
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TO BE VOTED ON PROPOSAL BY SHAREHOLDERS OF: - --------------------------------------------------------------------------------------------------------------------------- 6. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman International Growth Fund and among Seligman International Growth Fund (the "Selling Fund"), a series of Seligman Global Fund Series, Inc., RiverSource Partners International Select Growth Fund (the "Buying Fund"), a series of RiverSource International Managers Series, Inc., and RiverSource Investments, LLC. Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 Class I* Class R5 - --------------------------------------------------------------------------------------------------------------------------- 7. To approve the Agreement and Plan of Reorganization (the "Agreement") by Seligman U.S. Government Securities Fund and among Seligman U.S. Government Securities Fund (the "Selling Fund"), a series of Seligman High Income Fund Series, RiverSource Short Duration U.S. Government Fund (the "Buying Fund"), a series of RiverSource Government Income Series, Inc., and RiverSource Investments, LLC. Under this Agreement, the Selling Fund will transfer all of its assets attributable to each class of its shares to the corresponding Buying Fund, as indicated below, in exchange for shares of the corresponding class of the Buying Fund and the assumption by the Buying Fund of all of the liabilities of the Selling Fund. The Buying Fund shares will be distributed proportionately to shareholders of the relevant class of the Selling Fund. Selling Fund Buying Fund Class A Class A Class B Class B Class C Class C Class R* Class R2 - --------------------------------------------------------------------------------------------------------------------------- 8. To approve a policy authorizing RiverSource Investments, LLC, the Seligman Emerging Markets Fund investment adviser to Seligman Emerging Markets Fund (a "Seligman Subadvised Fund" and a "Seligman Fund"), with the approval of the Board of Directors (the "Board") to enter into and materially amend a subadvisory agreement, without obtaining shareholder approval (the "Manager of Managers Proposal"). - --------------------------------------------------------------------------------------------------------------------------- 9. To approve a policy authorizing RiverSource Investments, LLC, the Seligman Global Growth Fund investment adviser to Seligman Global Growth Fund (a "Seligman Subadvised Fund" and a "Seligman Fund"), with the approval of the Board of Directors (the "Board") to enter into and materially amend a subadvisory agreement, without obtaining shareholder approval (the "Manager of Managers Proposal"). - --------------------------------------------------------------------------------------------------------------------------- 10. To approve a policy authorizing RiverSource Investments, LLC, the Seligman International Growth Fund investment adviser to Seligman International Growth Fund (a "Seligman Subadvised Fund" and a "Seligman Fund"), with the approval of the Board of Directors (the "Board") to enter into and materially amend a subadvisory agreement, without obtaining shareholder approval (the "Manager of Managers Proposal"). - ---------------------------------------------------------------------------------------------------------------------------
* Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman Funds will be redesignated as Class R2 and Class R5 shares, respectively. However, for convenience of reference, this combined proxy statement/prospectus refers to each class of shares by its designation as of the date of this proxy statement/prospectus. These proposals will be considered by shareholders of the Selling Funds (including the Seligman Subadvised Funds) at a joint special meeting of such shareholders (the "Meeting") that will be held at 10:00 a.m. CDT on June 2, 2009, at The Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota 55402 in the Minnesota River Room on the Third floor. Each of the Selling Funds and the Buying Funds (collectively, the "Funds") is a registered open-end management investment company (or a series thereof) and is part of the RiverSource Family of Funds, which includes funds branded "RiverSource," "RiverSource Partners," "Threadneedle" and "Seligman." Please read this combined proxy statement/prospectus and keep it for future reference. The Board of Directors/Trustees of each Selling Fund (including the Seligman Subadvised Funds) (the "Board" or the "Board of Directors/Trustees") has reviewed these proposals and recommends that you approve them. 3 Although the Board of each Selling Fund recommends that shareholders approve the reorganization of each Selling Fund with the corresponding Buying Fund (each a "Reorganization"), the Reorganization of each Selling Fund is not conditioned upon the Reorganization of any other Selling Fund (or upon approval of the Manager of Managers Proposal by any Seligman Subadvised Fund). Accordingly, if shareholders of one Selling Fund approve its Reorganization, but shareholders of another Selling Fund do not approve that Selling Fund's Reorganization, it is expected that the Reorganization of the first Selling Fund will take place as described in this combined proxy statement/prospectus. Similarly, although the Board recommends that shareholders of each Seligman Subadvised Fund approve the Manager of Managers Proposal, each Manager of Managers Proposal is not conditioned upon the approval of the Manager of Managers Proposal for any other Seligman Subadvised Fund (or upon approval of the Reorganization of the Seligman Subadvised Fund). HOW EACH REORGANIZATION WILL WORK - - Each Selling Fund will transfer all of its assets to the corresponding Buying Fund in exchange for shares of the corresponding Buying Fund ("Reorganization Shares") and the assumption by the corresponding Buying Fund of all of the Selling Fund's liabilities. - - Each Buying Fund will issue Reorganization Shares with an aggregate net asset value equal to the aggregate value of the assets that it receives from the corresponding Selling Fund, less the liabilities it assumes from the corresponding Selling Fund. The Reorganization Shares of each class of each Buying Fund will be distributed to the shareholders of the corresponding class of the corresponding Selling Fund in proportion to their holdings of such class of such Selling Fund. For example, holders of Class A shares of a Selling Fund will receive Class A shares of the corresponding Buying Fund with the same aggregate net asset value as the aggregate net asset value of the corresponding Selling Fund Class A shares at the time of the Reorganization. You will not pay any sales charge in connection with this distribution of Reorganization Shares. If you already have a Buying Fund account with the exact registration as the Selling Fund account, shares distributed in the Reorganization are typically added to that account. As a result, when average cost is calculated for federal income tax purposes, the cost of the shares in the two accounts you owned will be combined. WHERE TO GET MORE INFORMATION The following documents have been filed with the Securities and Exchange Commission (the "SEC") and are incorporated into this combined proxy statement/prospectus by reference: - - the prospectus of Seligman Core Fixed Income Fund, dated Feb. 2, 2009, as supplemented to date; - - the prospectuses of Seligman Global Growth Fund, Seligman Emerging Markets Fund and Seligman International Growth Fund, each dated March 2, 2009, as supplemented to date; - - the prospectuses of Seligman U.S. Government Securities Fund, Seligman High- Yield Fund and Seligman Income and Growth Fund, each dated May 1, 2008, as supplemented to date; - - the Statement of Additional Information of Seligman Core Fixed Income Fund, dated Feb. 2, 2009, as supplemented to date; - - the Statement of Additional Information of Seligman Global Growth Fund, Seligman Emerging Markets Fund and Seligman International Growth Fund, each dated March 2, 2009, as supplemented to date; - - the Statement of Additional Information of Seligman U.S. Government Securities Fund and Seligman High-Yield Fund, dated May 1, 2008, as supplemented to date; - - the Statement of Additional Information of Seligman Income and Growth Fund, dated May 1, 2008, as supplemented to date; - - the Statement of Additional Information relating to the Reorganizations, dated April 17, 2009 (the "Reorganization SAI"); - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of Seligman Core Fixed Income Fund, for the period ended Sept. 30, 2008; - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of Seligman Global Growth Fund, Seligman Emerging Markets Fund and Seligman International Growth Fund, for the period ended Oct. 31, 2008; - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of Seligman High-Yield Fund for the period ended Dec. 31, 2008; - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of Seligman Income and Growth Fund, for the period ended Dec. 31, 2008; - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of Seligman U.S. Government Securities Fund for the period ended Dec. 31, 2008. 4 - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of RiverSource Diversified Bond Fund, for the period ended Aug. 31, 2008; - - the Reports of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Reports to Shareholders of Threadneedle Emerging Markets Fund, Threadneedle Global Equity Fund and RiverSource Partners International Select Growth Fund, each for the period ended Oct. 31, 2008; - - the Reports of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Reports to Shareholders of RiverSource High Yield Bond Fund and RiverSource Short Duration U.S. Government Fund each for the period ended May 31, 2008 and the unaudited financial statements included in the Semiannual Reports to Shareholders of RiverSource High Yield Bond Fund and RiverSource Short Duration U.S. Government Fund, each for the period ended Nov. 30, 2008; and - - the Report of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of RiverSource Balanced Fund, for the period ended Sept. 30, 2008. For a copy, at no charge, of any of the documents listed above and/or to ask questions about this combined proxy statement/prospectus, please call your Fund's proxy solicitor toll free at (866) 438-8932. If the Reorganization is approved by shareholders at the meeting scheduled to be held on June 2, 2009, and occurs prior to the required mailing date of the shareholder report, any shareholder may request a copy free of charge of the semiannual report for Seligman Income and Growth Fund, Seligman High-Yield Fund and/or Seligman U.S. Government Securities Fund for the period ended June 30, 2008, by calling toll free at (888) 791-3380. Each of the Funds is subject to the information requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (the "1940 Act") and files reports, proxy materials and other information with the SEC. These reports, proxy materials and other information can be inspected and copied at the Public Reference Room maintained by the SEC. Copies may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing to the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549-0102. In addition, copies of these documents may be viewed on-line or downloaded from the SEC's website at www.sec.gov. PLEASE NOTE THAT THE FUNDS ARE NOT BANK DEPOSITS, ARE NOT FEDERALLY INSURED, ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY AND ARE NOT GUARANTEED TO ACHIEVE THEIR INVESTMENT OBJECTIVES. As with all mutual funds, the SEC has not approved or disapproved these securities or passed on the adequacy of this combined proxy statement/prospectus. Any representation to the contrary is a criminal offense. 5 TABLE OF CONTENTS
PAGE ---- SECTION A -- REORGANIZATION PROPOSALS............................................ 9 SUMMARY........................................................................ 9 How Each Reorganization Will Work............................................ 9 Tax Consequences............................................................. 9 Fees and Expenses............................................................ 10 Proposal 1. Reorganization of Seligman Core Fixed Income Fund into RiverSource Diversified Bond Fund........................................ 10 Proposal 2. Reorganization of Seligman Emerging Markets Fund into Threadneedle Emerging Markets Fund....................................... 13 Proposal 3. Reorganization of Seligman Global Growth Fund into Threadneedle Global Equity Fund....................................................... 15 Proposal 4. Reorganization of Seligman High-Yield Fund into RiverSource High Yield Bond Fund..................................................... 17 Proposal 5. Reorganization of Seligman Income and Growth Fund into RiverSource Balanced Fund................................................ 19 Proposal 6. Reorganization of Seligman International Growth Fund into RiverSource Partners International Select Growth Fund.................... 21 Proposal 7. Reorganization of Seligman U.S. Government Securities Fund into RiverSource Short Duration U.S. Government Fund.......................... 24 PROPOSAL 1. REORGANIZATION OF SELIGMAN CORE FIXED INCOME FUND INTO RIVERSOURCE DIVERSIFIED BOND FUND........................................................ 26 Comparison of Investment Objectives.......................................... 26 Comparison of Principal Investment Strategies................................ 26 Comparison of Fundamental Policies........................................... 29 Comparison of Nonfundamental Policies and Related Investment Strategies...... 30 Comparison of Principal Risk Factors......................................... 31 Performance.................................................................. 32 PROPOSAL 2. REORGANIZATION OF SELIGMAN EMERGING MARKETS FUND INTO THREADNEEDLE EMERGING MARKETS FUND........................................................ 36 Comparison of Investment Objectives.......................................... 36 Comparison of Principal Investment Strategies................................ 36 Comparison of Fundamental Policies........................................... 38 Comparison of Nonfundamental Policies and Related Investment Strategies...... 39 Comparison of Principal Risk Factors......................................... 40 Performance.................................................................. 43 PROPOSAL 3. REORGANIZATION OF SELIGMAN GLOBAL GROWTH FUND INTO THREADNEEDLE GLOBAL EQUITY FUND........................................................... 47 Comparison of Investment Objectives.......................................... 47 Comparison of Principal Investment Strategies................................ 47 Comparison of Fundamental Policies........................................... 49 Comparison of Nonfundamental Policies and Related Investment Strategies...... 50 Comparison of Principal Risk Factors......................................... 51 Performance.................................................................. 53
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PAGE ---- PROPOSAL 4. REORGANIZATION OF SELIGMAN HIGH-YIELD FUND INTO RIVERSOURCE HIGH YIELD BOND FUND.............................................................. 58 Comparison of Investment Objectives.......................................... 58 Comparison of Principal Investment Strategies................................ 58 Comparison of Fundamental Policies........................................... 60 Comparison of Nonfundamental Policies and Related Investment Strategies...... 61 Comparison of Principal Risk Factors......................................... 62 Performance.................................................................. 64 PROPOSAL 5. REORGANIZATION OF SELIGMAN INCOME AND GROWTH FUND INTO RIVERSOURCE BALANCED FUND................................................................ 69 Comparison of Investment Objectives.......................................... 69 Comparison of Principal Investment Strategies................................ 69 Comparison of Fundamental Policies........................................... 72 Comparison of Nonfundamental Policies and Related Investment Strategies...... 74 Comparison of Principal Risk Factors......................................... 74 Performance.................................................................. 76 PROPOSAL 6. REORGANIZATION OF SELIGMAN INTERNATIONAL GROWTH FUND INTO RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND........................ 80 Comparison of Investment Objectives.......................................... 80 Comparison of Principal Investment Strategies................................ 80 Comparison of Fundamental Policies........................................... 82 Comparison of Nonfundamental Policies and Related Investment Strategies...... 84 Comparison of Principal Risk Factors......................................... 85 Performance.................................................................. 87 PROPOSAL 7. REORGANIZATION OF SELIGMAN U.S. GOVERNMENT SECURITIES FUND INTO RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND.............................. 91 Comparison of Investment Objectives.......................................... 91 Comparison of Principal Investment Strategies................................ 91 Comparison of Fundamental Policies........................................... 92 Comparison of Nonfundamental Policies and Related Investment Strategies...... 94 Comparison of Principal Risk Factors......................................... 94 Performance.................................................................. 96 ADDITIONAL INFORMATION ABOUT EACH REORGANIZATION............................... 99 Terms of the Reorganizations................................................. 99 Conditions to Closing Each Reorganization.................................... 99 Termination of the Agreement................................................. 99 Tax Status of the Reorganizations............................................ 99 Reasons for the Proposed Reorganizations and Board Deliberations............. 103 Board Determinations......................................................... 106 Board Recommendation and Required Vote....................................... 106 SECTION B -- MANAGER OF MANAGERS PROPOSALS....................................... 108 PROPOSAL 8. MANAGER OF MANAGERS PROPOSAL FOR SELIGMAN EMERGING MARKETS FUND.... 108 PROPOSAL 9. MANAGER OF MANAGERS PROPOSAL FOR SELIGMAN GLOBAL GROWTH FUND....... 108
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PAGE ---- PROPOSAL 10. MANAGER OF MANAGERS PROPOSAL FOR SELIGMAN INTERNATIONAL GROWTH FUND......................................................................... 108 Additional Information About Each Manager of Managers Proposal............... 108 Comparison of Present and Proposed Selection Process for Subadvisers......... 109 Board Recommendation and Required Vote....................................... 110 SECTION C -- PROXY VOTING AND SHAREHOLDER MEETING INFORMATION.................... 111 SECTION D -- CAPITALIZATION, OWNERSHIP OF FUND SHARES AND FINANCIAL HIGHLIGHTS... 114 Capitalization of Selling Funds and Buying Funds............................. 114 Ownership of Shares of Selling Funds, including Seligman Subadvised Funds, and Buying Funds........................................................... 119 Financial Highlights......................................................... 125 EXHIBITS A. Form of Agreement and Plan of Reorganization.................................. A.1 B. Additional Information Applicable to the Buying Funds......................... B.1 C. Summary of Integration Related Changes........................................ C.1 D. Massachusetts Appraisal Rights................................................ D.1 E. Comparison of Organizational Documents........................................ E.1 F. RiverSource Family of Funds Private Notice.................................... F.1
8 SECTION A -- REORGANIZATION PROPOSALS The following information describes each proposed Reorganization. SUMMARY This combined proxy statement/prospectus is being used by each Selling Fund to solicit proxies to vote at a joint special meeting of shareholders. Shareholders of each Selling Fund will consider a proposal to approve the Agreement and Plan of Reorganization (the "Agreement") providing for the Reorganization of their Selling Fund into the corresponding Buying Fund. The form of the Agreement is attached as Exhibit A. The following is a summary. More complete information appears later in this proxy statement/prospectus. You should read the entire combined proxy statement/prospectus and the exhibits because they contain details that are not included in the summary. HOW EACH REORGANIZATION WILL WORK - - Each Selling Fund will transfer all of its assets to the corresponding Buying Fund in exchange for shares of the corresponding Buying Fund ("Reorganization Shares") and the assumption by the corresponding Buying Fund of all of the Selling Fund's liabilities. - - Each Buying Fund will issue Reorganization Shares with an aggregate net asset value equal to the aggregate value of the assets that it receives from the corresponding Selling Fund, less the liabilities it assumes from the corresponding Selling Fund. The Reorganization Shares of each class of each Buying Fund will be distributed to the shareholders of the corresponding class of the corresponding Selling Fund in proportion to their holdings of such class of such Selling Fund. For example, holders of Class A shares of a Selling Fund will receive Class A shares of the corresponding Buying Fund with the same aggregate net asset value as the aggregate net asset value of the corresponding Selling Fund Class A shares at the time of the Reorganization. If you already have a Buying Fund account with the exact registration as the Selling Fund account, shares distributed in the Reorganization are typically added to that account. As a result, when average cost is calculated for federal income tax purposes, the cost of the shares in the two accounts you owned will be combined. - - As part of the Reorganization, systematic transactions (such as bank authorizations and systematic payouts) currently set up for your Selling Fund account may be transferred to your new Buying Fund account. Please contact your financial institution for additional details. - - Neither the Selling Fund nor the shareholders of the Selling Fund will pay any sales charge in connection with its Reorganization. - - After a Reorganization is completed, Selling Fund shareholders will be shareholders of the corresponding Buying Fund, and the Selling Fund will be dissolved. TAX CONSEQUENCES Each Reorganization is expected to be tax-free for federal income tax purposes and will not take place unless the Selling Fund and the corresponding Buying Fund receive a satisfactory opinion of tax counsel substantially to that effect. Accordingly, no gain or loss is expected to be recognized by the Selling Fund or its shareholders as a direct result of a Reorganization. Some or all of the portfolio assets of a Selling Fund may be sold in connection with its Reorganization. The actual tax impact of such sales will depend on the difference between the price at which such portfolio assets are sold and the Selling Fund's tax basis in such assets. Any net capital gains recognized in these sales will be distributed to shareholders as capital-gain dividends (to the extent of net realized long-term capital gains over net realized short-term capital losses) and/or ordinary dividends (to the extent of net realized short- term capital gains over net realized long-term capital losses) during or with respect to the year of sale, and such distributions will be taxable to shareholders. Additionally, because each Reorganization will end the tax year of the applicable Selling Fund, it will accelerate distributions to shareholders from the Selling Fund for its short tax year ending on the date of the Reorganization. Those tax year-end distributions will be taxable and will include any capital gains resulting from portfolio turnover prior to the Reorganization that were not previously distributed. At any time prior to a Reorganization, a shareholder may redeem shares of a Selling Fund. This would likely result in the recognition of gain or loss to the shareholder for federal income tax purposes if the shareholder holds the shares in a taxable account. The tax basis and holding period of the shareholders' Selling Fund shares are expected to carry over to the shareholders' Reorganization Shares in the Buying Fund. For more information about the federal income tax consequences of the Reorganizations, see the section entitled "Tax Status of the Reorganizations." 9 FEES AND EXPENSES The following tables describe the fees and expenses that you pay if you buy and hold shares of a Selling Fund or shares of a Buying Fund. The tables also show pro forma fees and expenses of each Buying Fund assuming the proposed Reorganization relating to such Buying Fund had been effective at the beginning of the most recent fiscal year. The tables reflect adjustments to fees and expenses that were approved by the Board Jan. 8, 2009, a summary of which is included in Exhibit C. The expenses shown in the tables do not include any one time costs, including any expenses related to the Reorganizations that may be borne by the Funds. See "Reasons for the Proposed Reorganizations and Board Deliberations" for more information. The tables have not been adjusted based on current net assets of the Funds, which will vary throughout the year and from year to year. In general, the annual operating expenses of a Fund will increase as the Fund's assets decrease. Due to recent unprecedented market volatility, the current total annual fund operating expenses listed for the Funds in the tables may be higher than the expense information presented, which are as of the most recent fiscal year. To the extent the investment manager and its affiliates have agreed to waive fees or cap (reimburse) expenses, the impact of the market volatility on the total annual (net) operating expenses in the current fiscal year will be limited. PROPOSAL 1. REORGANIZATION OF SELIGMAN CORE FIXED INCOME FUND INTO RIVERSOURCE DIVERSIFIED BOND FUND ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R CLASS I SELIGMAN CORE FIXED INCOME FUND (ACTUAL) (SELLING (TO BE KNOWN (TO BE KNOWN FUND) CLASS A CLASS B CLASS C AS R2) AS R5) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a)(b) None None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None(d) None RIVERSOURCE DIVERSIFIED BOND FUND (ACTUAL) (BUYING CLASS R2 AND FUND) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None RIVERSOURCE DIVERSIFIED BOND FUND (PRO FORMA CLASS R2 AND COMBINED) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None
(a) Effective on or about June 13, 2009, prior to the Reorganization, the maximum front-end sales charge for Class A shares will increase from 4.50% to 4.75%. This change is not due to the Reorganization. (b) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (c) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (d) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). 10 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R CLASS I SELIGMAN CORE FIXED INCOME FUND (ACTUAL) (TO BE KNOWN AS (TO BE KNOWN AS (SELLING FUND) CLASS A CLASS B CLASS C CLASS R2) CLASS R5) Management fees 0.50% 0.50% 0.50% 0.50% 0.50% Distribution and/or service (12b-1) fees 0.25% 1.00% 0.98% 0.50% 0.00% Other expenses(a)(b) 1.26% 1.27% 1.27% 1.34% 1.09% Total annual fund operating expenses 2.01% 2.77% 2.75% 2.34% 1.59% Fee waiver/expense reimbursement 0.76% 0.77% 0.77% 0.84% 0.59% Total annual (net) fund operating expenses(a) 1.25% 2.00% 1.98% 1.50% 1.00% RIVERSOURCE DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees 0.45% 0.45% 0.45% 0.45% 0.45% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(c) 0.25% 0.26% 0.25% 0.39% 0.14% Total annual fund operating expenses 0.95% 1.71% 1.70% 1.34% 0.59% Fee waiver/expense reimbursement 0.12% 0.12% 0.12% 0.07% 0.07% Total annual (net) fund operating expenses(d) 0.83% 1.59% 1.58% 1.27% 0.52%
RIVERSOURCE DIVERSIFIED BOND FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees 0.45% 0.45% 0.45% 0.45% 0.45% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(c) 0.23% 0.24% 0.24% 0.40% 0.15% Total annual fund operating expenses 0.93% 1.69% 1.69% 1.35% 0.60% Fee waiver/expense reimbursement 0.10% 0.10% 0.11% 0.08% 0.08% Total annual (net) fund operating expenses(d) 0.83% 1.59% 1.58% 1.27% 0.52%
(a) Through at least Jan. 31, 2010, RiverSource Investments has contractually agreed to waive its management fee and/or to reimburse Seligman Core Fixed Income Fund's expenses to the extent that the Fund's "other expenses" (i.e., those expenses other than management fees, 12b-1 fees, interest on borrowings, and extraordinary expenses, including litigation expenses) exceed 0.50% per annum of the Fund's average daily net assets. (b) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5, and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). (c) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses, and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B and Class C direct at fund accounts only), effective on or about June 13, 2009. 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 fund fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the RiverSource Diversified Bond 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 0.83% for Class A, 1.59% for Class B, 1.58% for Class C, 1.27% for Class R2 and 0.52% for Class R5. 11 EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN CORE FIXED INCOME FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $596 $1,006 $1,441 $2,649 Class B $703(b) $1,087(b) $1,597(b) $2,864(c) Class C $301(b) $ 781 $1,387 $3,028 Class R $153 $ 650 $1,175 $2,617 Class I $102 $ 444 $ 811 $1,845 RIVERSOURCE DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $556 $ 752 $ 965 $1,580 Class B $662(b) $ 827(b) $1,118(b) $1,812(c) Class C $261(b) $ 524 $ 913 $2,004 Class R2 $129 $ 418 $ 728 $1,612 Class R5 $ 53 $ 182 $ 323 $ 734 RIVERSOURCE DIVERSIFIED BOND FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $556 $ 748 $ 957 $1,559 Class B $662(b) $ 823(b) $1,109(b) $1,792(c) Class C $261(b) $ 522 $ 908 $1,994 Class R2 $129 $ 420 $ 733 $1,622 Class R5 $ 53 $ 184 $ 328 $ 746
(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. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN CORE FIXED INCOME FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $203 $787 $1,397 $2,864(a) Class C $201 $781 $1,387 $3,028 RIVERSOURCE DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $162 $527 $ 918 $1,812(a) Class C $161 $524 $ 913 $2,004 RIVERSOURCE DIVERSIFIED BOND FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $162 $523 $ 909 $1,792(a) Class C $161 $522 $ 908 $1,994
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 12 PROPOSAL 2. REORGANIZATION OF SELIGMAN EMERGING MARKETS FUND INTO THREADNEEDLE EMERGING MARKETS FUND ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R CLASS I SELIGMAN EMERGING MARKETS FUND (ACTUAL) (SELLING (TO BE KNOWN (TO BE KNOWN FUND) CLASS A CLASS B CLASS C AS R2) AS R5) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None(c) None THREADNEEDLE EMERGING MARKETS FUND (ACTUAL)(BUYING CLASS R2 AND FUND) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None THREADNEEDLE EMERGING MARKETS FUND (PRO FORMA CLASS R2 AND COMBINED) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
(a) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (b) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (c) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R CLASS I SELIGMAN EMERGING MARKETS FUND (ACTUAL) (TO BE KNOWN AS (TO BE KNOWN AS (SELLING FUND) CLASS A CLASS B CLASS C CLASS R2) CLASS R5) Management fees 1.25% 1.25% 1.25% 1.25% 1.25% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(a)(b) 0.88% 0.89% 0.91% 0.81% 0.56% Total annual fund operating expenses 2.38% 3.14% 3.16% 2.56% 1.81% Fee waiver/expense reimbursement 0.03% 0.04% 0.06% 0.00% 0.00% Total annual (net) fund operating expenses(a) 2.35% 3.10% 3.10% 2.56% 1.81%
THREADNEEDLE EMERGING MARKETS FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(c) 1.16% 1.16% 1.16% 1.16% 1.16% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(d) 0.46% 0.46% 0.47% 0.57% 0.31% Total annual fund operating expenses 1.87% 2.62% 2.63% 2.23% 1.47% THREADNEEDLE EMERGING MARKETS FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(c) 1.16% 1.16% 1.16% 1.16% 1.16% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(d) 0.48% 0.49% 0.49% 0.56% 0.31% Total annual fund operating expenses 1.89% 2.65% 2.65% 2.22% 1.47%
(a) Through at least Feb. 28, 2010, RiverSource Investments has contractually agreed to waive its management fee and/or to reimburse Seligman Emerging Market Fund's expenses to the extent that the Fund's "other expenses" (i.e., those expenses other than management fees, 12b-1 fees, interest on borrowings, and extraordinary expenses, including litigation expenses) exceed 0.85% per annum of the Fund's average daily net assets. (b) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5 and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). 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 fund 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. 13 (c) Includes the impact of a performance incentive adjustment fee that increased the management fee by 0.08% for the most recent fiscal year. The adjustment is computed by measuring the percentage differences over a rolling 12-month period between the performance of the Fund and the performance of an index of comparable funds published by Lipper Inc. The index against which the Threadneedle Emerging Market Fund's performance is measured for purposes of determining the performance incentive adjustment is the Lipper Emerging Markets Funds Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.12% of the Fund's average net assets on an annual basis. See Fund Management and Compensation in Exhibit B for more information. Additional information on the calculation methodology is set forth in the Reorganization SAI. (d) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B and Class C direct at fund accounts only), effective on or about June 13, 2009. 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 fund fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. Other expenses for Class R2 are based on estimated amounts for the current fiscal year. EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN EMERGING MARKETS FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $799 $1,272 $1,771 $3,137 Class B $813(b) $1,265(b)$1,842(b)$3,273(c) Class C $413(b) $ 969 $1,650 $3,465 Class R (to be known as R2) $259 $ 797 $1,361 $2,899 Class I (to be known as R5) $184 $ 570 $ 981 $2,132 THREADNEEDLE EMERGING MARKETS FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $754 $1,129 $1,529 $2,644 Class B $765(b) $1,115(b)$1,591(b)$2,775(c) Class C $366(b) $ 818 $1,396 $2,967 Class R2 $226 $ 697 $1,196 $2,569 Class R5 $150 $ 465 $ 804 $1,762 THREADNEEDLE EMERGING MARKETS FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $756 $1,135 $1,538 $2,664 Class B $768(b) $1,124(b)$1,606(b)$2,803(c) Class C $368(b) $ 824 $1,406 $2,987 Class R2 $225 $ 694 $1,191 $2,559 Class R5 $150 $ 465 $ 804 $1,762
(a) Includes a 5.75% 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. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN EMERGING MARKETS FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $313 $965 $1,642 $3,273(a) Class C $313 $969 $1,650 $3,465 THREADNEEDLE EMERGING MARKETS FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $265 $815 $1,391 $2,775(a) Class C $266 $818 $1,396 $2,967 THREADNEEDLE EMERGING MARKETS FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $268 $824 $1,406 $2,803(a) Class C $268 $824 $1,406 $2,987
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 14 PROPOSAL 3. REORGANIZATION OF SELIGMAN GLOBAL GROWTH FUND INTO THREADNEEDLE GLOBAL EQUITY FUND ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R CLASS I (TO BE KNOWN (TO BE KNOWN SELIGMAN GLOBAL GROWTH FUND (ACTUAL) (SELLING FUND) CLASS A CLASS B CLASS C AS R2) AS R5) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None(c) None THREADNEEDLE GLOBAL EQUITY FUND (ACTUAL) (BUYING CLASS R2 AND FUND) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None CLASS R2 AND THREADNEEDLE GLOBAL EQUITY FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
(a) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (b) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (c) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R CLASS I (TO BE KNOWN (TO BE KNOWN SELIGMAN GLOBAL GROWTH FUND (ACTUAL) AS AS (SELLING FUND) CLASS A CLASS B CLASS C CLASS R2) CLASS R5) Management fees 1.00% 1.00% 1.00% 1.00% 1.00% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(a)(b) 0.84% 0.85% 0.84% 0.84% 0.59% Total annual fund operating expenses 2.09% 2.85% 2.84% 2.34% 1.59% THREADNEEDLE GLOBAL EQUITY FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(c) 0.83% 0.83% 0.83% 0.83% 0.83% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(d) 0.38% 0.40% 0.39% 0.46% 0.21% Total annual fund operating expenses 1.46% 2.23% 2.22% 1.79% 1.04% THREADNEEDLE GLOBAL EQUITY FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(c) 0.83% 0.83% 0.83% 0.83% 0.83% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(d) 0.37% 0.39% 0.38% 0.46% 0.21% Total annual fund operating expenses 1.45% 2.22% 2.21% 1.79% 1.04%
(a) Through at least Feb. 28, 2010, RiverSource Investments has contractually agreed to waive its management fee and/or to reimburse Seligman Global Growth Fund's expenses to the extent that the Fund's "other expenses" (i.e., those expenses other than management fees, 12b-1 fees, interest on borrowings, and extraordinary expenses, including litigation expenses) exceed 0.85% per annum of the Fund's average daily net assets. (b) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5, and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). (c) Includes the impact of a performance incentive adjustment fee that increased the management fee by 0.06% for the most recent fiscal year. The adjustment is computed by measuring the percentage differences over a rolling 12-month period between the performance of the Fund and the performance of an index of comparable funds published by Lipper Inc. The index against which the Threadneedle Global Equity Fund's performance is measured for purposes of determining the performance incentive adjustment is the Lipper Global Funds Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or 15 decrease) is 0.12% of the Fund's average net assets on an annual basis. See Fund Management and Compensation in Exhibit B for more information. Additional information on the calculation methodology is set forth in the Reorganization SAI. (d) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses, and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B, and Class C direct at fund accounts only), effective on or about June 13, 2009. 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 fund 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. EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN GLOBAL GROWTH FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $775 $1,192 $1,635 $2,861 Class B $788(b) $1,183(b)$1,704(b)$2,999(c) Class C $387(b) $ 880 $1,499 $3,170 Class R (to be known as R2) $237 $ 731 $1,251 $2,680 Class I (to be known as R5) $162 $ 502 $ 867 $1,894 THREADNEEDLE GLOBAL EQUITY FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $715 $1,010 $1,328 $2,226 Class B $726(b) $ 997(b)$1,396(b)$2,374(c) Class C $325(b) $ 694 $1,191 $2,559 Class R2 $182 $ 564 $ 971 $2,110 Class R5 $106 $ 331 $ 575 $1,276 THREADNEEDLE GLOBAL EQUITY FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $714 $1,008 $1,323 $2,215 Class B $725(b) $ 994(b)$1,391(b)$2,364(c) Class C $324(b) $ 691 $1,186 $2,549 Class R2 $182 $ 564 $ 971 $2,110 Class R5 $106 $ 331 $ 575 $1,276
(a) Includes a 5.75% 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. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN GLOBAL GROWTH FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $288 $883 $1,504 $2,999(a) Class C $287 $880 $1,499 $3,170 THREADNEEDLE GLOBAL EQUITY FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $226 $697 $1,196 $2,374(a) Class C $225 $694 $1,191 $2,559 THREADNEEDLE GLOBAL EQUITY FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $225 $694 $1,191 $2,364(a) Class C $224 $691 $1,186 $2,549
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 16 PROPOSAL 4. REORGANIZATION OF SELIGMAN HIGH-YIELD FUND INTO RIVERSOURCE HIGH YIELD BOND FUND ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R CLASS I (TO BE KNOWN (TO BE KNOWN SELIGMAN HIGH-YIELD FUND (ACTUAL) (SELLING FUND) CLASS A CLASS B CLASS C AS R2) AS R5) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a)(b) None None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None(d) None RIVERSOURCE HIGH YIELD BOND FUND (ACTUAL) (BUYING CLASS R2 AND FUND) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None CLASS R2 AND RIVERSOURCE HIGH YIELD BOND FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None
(a) Effective on or about June 13, 2009, prior to the Reorganization, the maximum front-end sales charge for Class A shares will increase from 4.50% to 4.75%. This change is not due to the Reorganization. (b) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (c) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (d) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R CLASS I SELIGMAN HIGH-YIELD FUND (ACTUAL) (TO BE KNOWN AS (TO BE KNOWN AS (SELLING FUND) CLASS A CLASS B CLASS C CLASS R2) CLASS R5) Management fees 0.65% 0.65% 0.65% 0.65% 0.65% Distribution and/or service (12b-1) fees 0.24% 1.00% 0.96% 0.49% 0.00% Other expenses(a) 0.41% 0.42% 0.42% 0.46% 0.21% Total annual fund operating expenses 1.30% 2.07% 2.03% 1.60% 0.86% RIVERSOURCE HIGH YIELD BOND FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees 0.58% 0.58% 0.58% 0.58% 0.58% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(b) 0.30% 0.31% 0.30% 0.43% 0.20% Total annual fund operating expenses 1.13% 1.89% 1.88% 1.51% 0.78% Fee waiver/expense reimbursement 0.11% 0.11% 0.11% 0.06% 0.08% Total annual (net) fund operating expenses(c) 1.02% 1.78% 1.77% 1.45% 0.70% RIVERSOURCE HIGH YIELD BOND FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees 0.58% 0.58% 0.58% 0.58% 0.58% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(b) 0.27% 0.28% 0.28% 0.44% 0.19% Total annual fund operating expenses 1.10% 1.86% 1.86% 1.52% 0.77% Fee waiver/expense reimbursement 0.08% 0.08% 0.09% 0.07% 0.07% Total annual (net) fund operating expenses(c) 1.02% 1.78% 1.77% 1.45% 0.70%
(a) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5, and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). 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 fund fees and expenses for the most recent fiscal period was less 17 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. (b) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses, and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B, and Class C direct at fund accounts only), effective on or about June 13, 2009. 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 fund 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 RiverSource High Yield Bond 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 1.02% for Class A, 1.78% for Class B, 1.77% for Class C, 1.45% for Class R2 and 0.70% for Class R5. EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN HIGH-YIELD FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $601 $868 $1,155 $1,973 Class B $710(b) $949(b) $1,314(b) $2,207(c) Class C $306(b) $637 $1,094 $2,363 Class R (to be known as R2) $163 $505 $ 872 $1,905 Class I (to be known as R5) $ 88 $275 $ 478 $1,065 RIVERSOURCE HIGH YIELD BOND FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $574 $807 $1,059 $1,780 Class B $681(b) $884(b) $1,212(b) $2,009(c) Class C $280(b) $581 $1,007 $2,197 Class R2 $148 $472 $ 819 $1,802 Class R5 $ 72 $241 $ 426 $ 963 RIVERSOURCE HIGH YIELD BOND FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $574 $801 $1,046 $1,749 Class B $681(b) $877(b) $1,199(b) $1,979(c) Class C $280(b) $576 $ 998 $2,177 Class R2 $148 $474 $ 823 $1,812 Class R5 $ 72 $239 $ 422 $ 952
(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. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN HIGH-YIELD FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $210 $649 $1,114 $2,207(a) Class C $206 $637 $1,094 $2,363 RIVERSOURCE HIGH YIELD BOND FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $181 $584 $1,012 $2,009(a) Class C $180 $581 $1,007 $2,197 RIVERSOURCE HIGH YIELD BOND FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $181 $577 $ 999 $1,979(a) Class C $180 $576 $ 998 $2,177
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 18 PROPOSAL 5. REORGANIZATION OF SELIGMAN INCOME AND GROWTH FUND INTO RIVERSOURCE BALANCED FUND ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R CLASS I SELIGMAN INCOME AND GROWTH FUND (ACTUAL) (SELLING (TO BE KNOWN (TO BE KNOWN FUND) CLASS A CLASS B CLASS C AS R2) AS R5) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None(c) None CLASS R2 AND RIVERSOURCE BALANCED FUND (ACTUAL)(BUYING FUND) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None CLASS R2 AND RIVERSOURCE BALANCED FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
(a) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (b) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (c) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R CLASS I SELIGMAN INCOME AND GROWTH FUND (ACTUAL) (TO BE KNOWN AS (TO BE KNOWN AS (SELLING FUND) CLASS A CLASS B CLASS C CLASS R2) CLASS R5) Management fees 0.60% 0.60% 0.60% 0.60% 0.60% Distribution and/or service (12b-1) fees 0.24% 1.00% 1.00% 0.50% 0.00% Other expenses(a) 0.60% 0.61% 0.60% 0.72% 0.47% Total annual fund operating expenses 1.44% 2.21% 2.20% 1.82% 1.07% RIVERSOURCE BALANCED FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(b) 0.44% 0.44% 0.44% 0.44% 0.44% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(c) 0.26% 0.27% 0.27% 0.42% 0.17% Total annual fund operating expenses 0.95% 1.71% 1.71% 1.36% 0.61% RIVERSOURCE BALANCED FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(b) 0.44% 0.44% 0.44% 0.44% 0.44% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(c) 0.25% 0.26% 0.25% 0.42% 0.17% Total annual fund operating expenses 0.94% 1.70% 1.69% 1.36% 0.61%
(a) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5, and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). 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 fund 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. (b) Includes the impact of a performance incentive adjustment fee that decreased the management fee by 0.09% for the most recent fiscal year. The adjustment is computed by measuring the percentage differences over a rolling 12-month period between the performance of the Fund and the performance of an index of comparable funds published by Lipper Inc. The index against which the RiverSource Balanced Fund's performance is measured for purposes of determining the performance incentive adjustment is the Lipper Balanced Funds Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.08% of the Fund's average net assets on an annual basis. See Fund Management and Compensation in Exhibit B for more information. Additional information on the calculation methodology is set forth in the Reorganization SAI. 19 (c) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses, and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B, and Class C direct at fund accounts only), effective on or about June 13, 2009. 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 fund fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. Other expenses for Class R2 and Class R5 are based on estimated amounts for the current fiscal year. EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN INCOME AND GROWTH FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $713 $1,005 $1,318 $2,205 Class B $724(b) $ 991(b) $1,386(b) $2,354(c) Class C $323(b) $ 688 $1,181 $2,539 Class R (to be known as R2) $185 $ 573 $ 986 $2,142 Class I (to be known as R5) $109 $ 341 $ 591 $1,310 RIVERSOURCE BALANCED FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $666 $ 861 $1,071 $1,679 Class B $674(b) $ 839(b) $1,129(b) $1,822(c) Class C $274(b) $ 539 $ 929 $2,024 Class R2 $138 $ 431 $ 746 $1,640 Class R5 $ 62 $ 196 $ 341 $ 766 RIVERSOURCE BALANCED FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $665 $ 858 $1,066 $1,667 Class B $673(b) $ 836(b) $1,124(b) $1,811(c) Class C $272(b) $ 533 $ 919 $2,003 Class R2 $138 $ 431 $ 746 $1,640 Class R5 $ 62 $ 196 $ 341 $ 766
(a) Includes a 5.75% 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. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN INCOME AND GROWTH FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $224 $691 $1,186 $2,354(a) Class C $223 $688 $1,181 $2,539 RIVERSOURCE BALANCED FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $174 $539 $ 929 $1,822(a) Class C $174 $539 $ 929 $2,024 RIVERSOURCE BALANCED FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $173 $536 $ 924 $1,811(a) Class C $172 $533 $ 919 $2,003
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 20 PROPOSAL 6. REORGANIZATION OF SELIGMAN INTERNATIONAL GROWTH FUND INTO RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R CLASS I SELIGMAN INTERNATIONAL GROWTH FUND (ACTUAL) (SELLING (TO BE KNOWN (TO BE KNOWN FUND) CLASS A CLASS B CLASS C AS R2) AS R5) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None(c) None RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND CLASS R2 AND (ACTUAL)(BUYING FUND) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND CLASS R2 AND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
(a) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (b) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (c) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). 21 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R CLASS I SELIGMAN INTERNATIONAL GROWTH FUND (TO BE KNOWN AS (TO BE KNOWN AS (ACTUAL) (SELLING FUND) CLASS A CLASS B CLASS C CLASS R2) CLASS R5) Management fees 0.98% 0.98% 0.98% 0.98% 0.98% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(a)(b) 0.72% 0.73% 0.73% 0.73% 0.48% Total annual fund operating expenses 1.95% 2.71% 2.71% 2.21% 1.46%
RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(c) 0.92% 0.92% 0.92% 0.92% 0.92% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(d) 0.39% 0.40% 0.40% 0.47% 0.22% Total annual fund operating expenses 1.56% 2.32% 2.32% 1.89% 1.14% Fee waiver/expense reimbursement 0.18% 0.17% 0.18% 0.15% 0.15% Total annual (net) fund operating expenses(e) 1.38% 2.15% 2.14% 1.74% 0.99%
RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 CLASS R5 Management fees(c) 0.92% 0.92% 0.92% 0.92% 0.92% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% 0.00% Other expenses(d) 0.39% 0.41% 0.40% 0.47% 0.22% Total annual fund operating expenses 1.56% 2.33% 2.32% 1.89% 1.14% Fee waiver/expense reimbursement 0.18% 0.18% 0.18% 0.15% 0.15% Total annual (net) fund operating expenses(e) 1.38% 2.15% 2.14% 1.74% 0.99%
(a) Through at least Feb 28, 2010, RiverSource Investments has contractually agreed to waive its management fee and/or to reimburse Seligman International Growth Fund's expenses to the extent that the Fund's "other expenses" (i.e., those expenses other than management fees, 12b-1 fees, interest on borrowings, and extraordinary expenses, including litigation expenses) exceed 0.85% per annum of the Fund's average daily net assets. (b) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5, and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). (c) Includes the impact of a performance incentive adjustment fee that decreased the management fee by 0.06% for the most recent fiscal year. The adjustment is computed by measuring the percentage differences over a rolling 12-month period between the performance of the Fund and the performance of an index of comparable funds published by Lipper Inc. The index against which the RiverSource Partners International Select Growth Fund's performance is measured for purposes of determining the performance incentive adjustment is the Lipper International Multi-Cap Growth Funds Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.12% of the Fund's average net assets on an annual basis. See Fund Management and Compensation in Exhibit B for more information. Additional information on the calculation methodology is set forth in the Reorganization SAI. (d) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses, and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B, and Class C direct at fund accounts only), effective on or about June 13, 2009. 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 fund fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. Other expenses for Class R2 and Class R5 are based on estimated amounts for the current fiscal year. (e) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the RiverSource Partners International Select Growth Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.44% for Class A, 2.21% for Class B, 2.20% for Class C, 1.80% for Class R2 and 1.05% for Class R5. 22 EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN INTERNATIONAL GROWTH FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $762 $1,152 $1,568 $2,724 Class B $774(b) $1,142(b) $1,635(b) $2,862(c) Class C $374(b) $ 842 $1,435 $3,045 Class R (to be known as R2) $224 $ 691 $1,186 $2,549 Class I (to be known as R5) $149 $ 462 $ 798 $1,751 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $707 $1,023 $1,361 $2,315 Class B $718(b) $1,008(b) $1,426(b) $2,457(c) Class C $317(b) $ 707 $1,225 $2,647 Class R2 $177 $ 580 $1,008 $2,204 Class R5 $101 $ 348 $ 614 $1,378 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $707 $1,023 $1,361 $2,315 Class B $718(b) $1,011(b) $1,430(b) $2,464(c) Class C $317(b) $ 707 $1,225 $2,647 Class R2 $177 $ 580 $1,008 $2,204 Class R5 $101 $ 348 $ 614 $1,378
(a) Includes a 5.75% 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. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN INTERNATIONAL GROWTH FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $274 $842 $1,435 $2,862(a) Class C $274 $842 $1,435 $3,045 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $218 $708 $1,226 $2,457(a) Class C $217 $707 $1,225 $2,647 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $218 $711 $1,230 $2,464(a) Class C $217 $707 $1,225 $2,647
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 23 PROPOSAL 7. REORGANIZATION OF SELIGMAN U.S. GOVERNMENT SECURITIES FUND INTO RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R SELIGMAN U.S. GOVERNMENT SECURITIES FUND (ACTUAL) (SELLING (TO BE KNOWN FUND) CLASS A CLASS B CLASS C AS R2) Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a)(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None(d) RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 3.00%(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 3.00%(b) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(c) 5% 1% None
(a) Effective on or about June 13, 2009, Prior to the Reorganization, the maximum front-end sales charge for Class A shares will increase from 4.50% to 4.75%. This change is not due to the Reorganization. (b) This charge may be reduced depending on the total value of your investments in the RiverSource Family of Funds. See Exhibit B "Sales Charges." (c) A 1% contingent deferred sales charge ("CDSC") may be assessed on Class A shares purchased without an initial sales charge and sold within 18 months after purchase. See Exhibit B "Sales Charges." (d) Effective on or about June 13, 2009, the 1% CDSC will be eliminated on Class R (to be known as Class R2). ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS R SELIGMAN U.S. GOVERNMENT SECURITIES FUND (ACTUAL) (SELLING (TO BE KNOWN AS FUND) CLASS A CLASS B CLASS C CLASS R2) Management fees 0.50% 0.50% 0.50% 0.50% Distribution and/or service (12b-1) fees 0.24% 1.00% 1.00% 0.50% Other expenses(a) 0.56% 0.57% 0.57% 0.55% Total annual fund operating expenses 1.30% 2.07% 2.07% 1.55% RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS R2 Management fees 0.48% 0.48% 0.48% 0.48% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% Other expenses(b) 0.31% 0.32% 0.32% 0.42% Total annual fund operating expenses 1.04% 1.80% 1.80% 1.40% Fee waiver/expense reimbursement 0.15% 0.15% 0.15% 0.09% Total annual (net) fund operating expenses(c) 0.89% 1.65% 1.65% 1.31% RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS R2 Management fees 0.48% 0.48% 0.48% 0.48% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.50% Other expenses(b) 0.31% 0.32% 0.32% 0.42% Total annual fund operating expenses 1.04% 1.80% 1.80% 1.40% Fee waiver/expense reimbursement 0.15% 0.15% 0.15% 0.09% Total annual (net) fund operating expenses(c) 0.89% 1.65% 1.65% 1.31%
(a) Effective on or about June 13, 2009, Class R will be redesignated Class R2, Class I will be redesignated Class R5, and a new transfer agent agreement and a new plan administration services agreement (Class R2 only) will be in effect with new fee structures. Other expenses include the transfer agency fee, custody fee, other nonadvisory expenses and a plan administrative services fee (Class R2 only). (b) Other expenses include an administrative services fee, a transfer agency fee, a custody fee, other nonadvisory expenses, and a plan administration services fee (for Class R2), and have been adjusted to reflect the impact of a new per account transfer agency fee (Class A, Class B, and Class C direct at fund accounts only), effective 24 on or about June 13, 2009. 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 fund fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. Other expenses for Class R2 are based on estimated amounts for the current fiscal year. (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 RiverSource Short Duration U.S. Government 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 and 1.31% for Class R2. EXPENSE EXAMPLES: These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the applicable Fund for the time periods indicated and then redeem all of your shares at the end of those periods both under the current arrangements and, for the Buying Fund, assuming the proposed Reorganization had been in effect. 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:
SELIGMAN U.S. GOVERNMENT SECURITIES FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $601 $868 $1,155 $1,973 Class B $710(b) $949(b) $1,314(b) $2,207(c) Class C $310(b) $649 $1,114 $2,405 Class R (to be known as R2) $158 $490 $ 846 $1,851 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $388 $607 $ 844 $1,524 Class B $668(b) $852(b) $1,162(b) $1,908(c) Class C $268(b) $552 $ 962 $2,109 Class R2 $133 $435 $ 758 $1,677 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $388 $607 $ 844 $1,524 Class B $668(b) $852(b) $1,162(b) $1,908(c) Class C $268(b) $552 $ 962 $2,109 Class R2 $133 $435 $ 758 $1,677
(a) Includes a 4.75% sales charge for the Selling Fund and a 3.00% sales charge for the Buying Fund (Actual and Pro Forma Combined). (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. If you owned or will own any class of shares other than Class B or Class C, you would pay the same costs shown in the tables above if you did not redeem your shares at the end of the periods indicated. If you owned or will own Class B or Class C shares, you would pay the following costs if you did not redeem your shares at the end of the periods indicated, which may be different than the costs shown in the tables above.
SELIGMAN U.S. GOVERNMENT SECURITIES FUND (ACTUAL) (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $210 $649 $1,114 $2,207(a) Class C $210 $649 $1,114 $2,405 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $168 $552 $ 962 $1,908(a) Class C $168 $552 $ 962 $2,109 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class B $168 $552 $ 962 $1,908(a) Class C $168 $552 $ 962 $2,109
(a) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. 25 PROPOSAL 1. REORGANIZATION OF SELIGMAN CORE FIXED INCOME FUND INTO RIVERSOURCE DIVERSIFIED BOND FUND COMPARISON OF INVESTMENT OBJECTIVES Each Fund seeks a high level of current income consistent with prudent exposure to risk or conservation of investment value. Seligman Core Fixed Income Fund also seeks capital appreciation as a secondary objective. The investment objectives for the Funds are as follows: SELLING FUND: Seligman Core Fixed Income Fund seeks to produce a high level of current income consistent with prudent exposure to risk. Capital appreciation is a secondary objective. BUYING FUND: RiverSource Diversified Bond Fund seeks to provide shareholders with a high level of current income while conserving the value of the investment for the longest period of time. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Each Fund invests predominantly in U.S. dollar-denominated fixed-income securities of U.S. issuers. Under normal market conditions, the Selling Fund intends to maintain at least 70% of its net assets in investment grade fixed- income securities and may invest up to 30% of its net assets in non-investment grade, high yield securities. The Buying Fund invests at least 50% of its assets in securities like those in its benchmark index (the Barclays Capital U.S. Aggregate Bond Index), which are exclusively investment grade securities, and may therefore invest up to 50% of its assets in non-investment grade securities. The Selling Fund may invest up to 20% of its net assets in non-U.S. dollar- denominated fixed-income securities of U.S. or foreign issuers. The Buying Fund may invest up to 25% of its net assets in foreign investments. The Buying Fund targets an average portfolio duration within one year of that of its benchmark index but is not restricted with regards to duration. The Selling Fund, which may invest in securities of any duration, is currently targeting the same average portfolio duration as the Buying Fund. The Selling Fund does not have any portfolio maturation limitations on its investments and, therefore, may invest in securities with short, medium or long maturities. The Selling Fund and the Buying Fund seek to maintain an effective dollar-weighted average maturity of ten years or less on their portfolios of fixed-income securities but are not restricted to such limit. DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN CORE FIXED INCOME FUND (SELLING FUND) The Fund will invest at least 80% of its net assets in fixed-income securities. Under normal market conditions, the Fund intends to maintain at least 70% of its net assets in investment grade fixed-income securities ("Investment Grade Securities") and may invest up to 30% of its net assets in non-investment grade, high yield securities ("High Yield Securities"). The proportion of the Fund's assets invested in each type of security will vary from time to time based on the investment manager's assessment of general market and economic conditions. The Fund may invest in securities of any duration. The Fund does not have any portfolio maturation limitations on its investments and, therefore, may invest in securities with short, medium or long maturities. However, the Fund expects to maintain an effective dollar-weighted average maturity of ten years or less on its portfolio of fixed-income securities. Although the Fund expects the maturity of its portfolio of fixed-income securities to be within the above limit, the Fund is not restricted to such limit. The Fund will invest its net assets primarily in U.S. dollar-denominated fixed- income securities of U.S. issuers. However, the Fund may also invest in U.S. dollar-denominated fixed-income securities of foreign issuers, including foreign governments or their agencies or instrumentalities, foreign banks and foreign corporations. The Fund may also invest up to 20% of its net assets in non-U.S. dollar-denominated fixed-income securities of U.S. or foreign issuers. The Fund's investment limitations and credit ratings restrictions (e.g., those of Fitch Ratings ("Fitch"), Moody's Investors Service ("Moody's") and Standard & Poor's Ratings Services ("S&P")) will apply at the time securities are purchased. The Fund is not required to sell a security if it no longer complies with these limitations or restrictions as a result of a change in rating or other event. INVESTMENT GRADE SECURITIES Investment Grade Securities are those rated within the four highest rating categories by Moody's or S&P, or, if unrated, deemed by the Fund's investment manager to be of comparable quality. 26 HIGH-YIELD SECURITIES High-Yield Securities (many of which are commonly known as "junk bonds") carry noninvestment grade ratings (Ba or below by Moody's or BB or below by Fitch or S&P) or are securities deemed to be below investment grade by the Fund's investment manager. Although High-Yield Securities have the potential to offer higher yields than higher rated fixed-income securities with similar maturities, High-Yield Securities are subject to greater risk of loss of principal and interest than higher rated Investment Grade Securities. INVESTMENTS IN INVESTMENT GRADE SECURITIES AND HIGH-YIELD SECURITIES The Fund may invest in all types of Investment Grade Securities and High Yield Securities, including, but not limited to: - - Senior and subordinated corporate debt obligations of both U.S. and non-U.S. issuers (including, for example, debentures, loan participations and floating rate notes); - - Mortgage-backed and other asset-backed securities (mortgage backed securities include collateralized mortgage obligations, mortgage pass-through securities and stripped mortgage backed securities); - - Convertible securities, preferred stock, capital securities, structured securities and loan participations of U.S. and non-U.S. issuers; - - Obligations of non-U.S. governments and their agencies, and non-U.S. private institutions; - - Municipal securities; - - Repurchase agreements; - - Capital appreciation bonds, including zero coupon (interest payments accrue until maturity) and pay-in-kind securities (interest payments are made in additional securities); - - Restricted securities that may be offered and sold only to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933 ("Rule 144A Securities"); and - - Eurodollar bonds. Investment Grade Securities also include, but are not limited to: - - Obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities; - - Obligations of government sponsored enterprises (e.g., the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae)); - - Income-producing cash equivalents (e.g., certificates of deposit, commercial paper, discount notes and treasury bills); and - - Other securities deemed by the investment manager to be of investment grade quality. High Yield Securities also include, but are not limited to: - - Securities that are rated in default by a nationally recognized statistical rating organization; - - Warrants, rights and other equity securities that are acquired in connection with the Fund's investments in High Yield Securities; and - - Other securities deemed by the investment manager to be of non-investment grade quality. INVESTMENT PROCESS Investment Grade Securities. In pursuit of the Fund's objective, the investment manager chooses Investment Grade Securities by: - - Evaluating the Investment Grade Securities portion of the portfolio's exposure to sectors, industries and securities relative to the Barclays Capital U.S. Aggregate Bond Index (the "Index"). - - Analyzing factors such as credit quality, interest rate outlook and price in seeking to select the most attractive securities within each sector. - - Targeting an average portfolio duration within one year of the duration of the Index which, as of Jan. 31, 2009, was 4.18 years. In evaluating whether to sell an Investment Grade Security, the investment manager considers, among other factors: - - Identification of more attractive investments based on relative value. - - The portfolio's total exposure to sectors, industries and securities relative to the Index. - - Whether a security's rating has changed or is vulnerable to a change. 27 - - Whether a sector or industry is experiencing change. - - Changes in the interest rate or economic outlook. High Yield Securities. In pursuit of the Fund's objective, the investment manager chooses High Yield Securities by: - - Reviewing interest rate and economic forecasts. - - Reviewing credit characteristics and capital structures of companies, including an evaluation of any outstanding bank loans or corporate debt securities a company has issued, its relative position in its industry, and its management team's capabilities. - - Identifying companies that: - have medium and low quality ratings or, in the investment manager's opinion, have similar qualities to companies with medium or low quality ratings, even though they are not rated, or have been given a different rating by a rating agency, - have growth potential, or - have the potential to increase in value as their credit ratings improve. - - Buying debt instruments that are expected to outperform other debt instruments. In evaluating whether to sell High Yield Securities, the investment manager considers, among other factors, whether: - - The interest rate or economic outlook changes. - - A sector or industry is experiencing change. - - A security's rating is changed. - - The security is overvalued relative to alternative investments. - - The company no longer meets the investment manager's performance expectations. - - The investment manager wishes to lock in profits. - - The investment manager identifies a more attractive opportunity. - - The issuer or the security continues to meet the other standards described above. The Fund may invest up to 15% of its net assets in illiquid securities (i.e., securities that cannot be readily sold within seven days at approximately the Fund's value of the securities) including funding agreements issued by domestic insurance companies. Rule 144A Securities deemed to be liquid by the Fund's investment manager are not included in this limitation. The Fund may purchase securities on a when issued or forward commitment basis (delivery of securities and payment of the purchase price takes place after the commitment to purchase the securities). RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND) Under normal market conditions, the Fund invests at least 80% of its net assets in bonds and other debt securities. At least 50% of the Fund's net assets will be invested in securities like those included in the Barclays Capital U.S. Aggregate Bond Index (the "Index"), which are investment grade and denominated in U.S. dollars. The Index includes securities issued by the U.S. government, corporate bonds, and mortgage- and asset-backed securities. Although the Fund emphasizes high- and medium-quality debt securities, it will assume some credit risk in an effort to achieve higher yield and/or capital appreciation by buying lower-quality (junk) bonds. Up to 25% of the Fund's net assets may be invested in foreign investments, which may include investments in emerging markets. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. The selection of debt obligations is the primary decision in building the investment portfolio. In pursuit of the Fund's objective, the investment manager chooses investments by: - - Evaluating the portfolio's total exposure to sectors, industries and securities relative to the Index. - - Analyzing factors such as credit quality, interest rate outlook and price in seeking to select the most attractive securities within each sector. - - Investing in lower-quality (junk) bonds and foreign investments as attractive opportunities arise. - - Targeting an average portfolio duration within one year of the duration of the Index which, as of Jan. 31, 2009, was 4.18 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 five-year duration means a bond is expected to decrease in value by 5% if interest rates rise 1% and increase in value by 5% if interest rates fall 1%. 28 In evaluating whether to sell a security, the investment manager considers, among other factors: - - Identification of more attractive investments based on relative value. - - The portfolio's total exposure to sectors, industries and securities relative to the Index. - - Whether a security's rating has changed or is vulnerable to a change. - - Whether a sector or industry is experiencing change. - - Changes in the interest rate or economic outlook. 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. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- -------------------------------------------------------------------------------------------------------- SELIGMAN CORE FIXED INCOME FUND RIVERSOURCE DIVERSIFIED BOND FUND FUNDAMENTAL POLICY (SELLING FUND) (BUYING FUND) - -------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite securities The Fund may not act as an underwriter of other issuers except insofar as the (sell securities for others). However, Fund technically may be deemed an under the securities laws, the Fund may underwriter under the Securities Act of be deemed to be an underwriter when it 1933 (the "1933 Act"), as amended, in purchases securities directly from the selling portfolio securities. issuer and later resells them. - -------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except The Fund may not lend securities or that the acquisition of bonds, participate in an interfund lending debentures or other corporate fixed- program if the total of all such loans income securities and investment in would exceed 33 1/3% of the Fund's government obligations, commercial total assets except this fundamental paper, pass-through instruments, investment policy shall not prohibit certificates of deposit, bankers the Fund from purchasing money market acceptances, repurchase agreements or securities, loans, loan participation any similar instruments shall not be or other debt securities, or from deemed to be the making of a loan, and entering into repurchase agreements. except further that the Fund may lend its portfolio securities; and except that the Fund may lend cash to any other mutual fund (or series thereof) in the Seligman Group to the extent permitted by applicable law or regulation, or any order that may be obtained from the SEC relating to borrowing and lending among Seligman- branded mutual funds. - -------------------------------------------------------------------------------------------------------- BORROWING MONEY The Fund may not borrow money, except The Fund may not borrow money, except that the Fund may (i) borrow from banks for temporary purposes (not for (as defined in the 1940 Act)) in leveraging or investment) in an amount amounts up to 33 1/3% of its total not exceeding 33 1/3% of its total assets (including the amount borrowed), assets (including the amount borrowed) (ii) borrow up to an additional 5% of less liabilities (other than its total assets for temporary purposes borrowings) immediately after the (iii) obtain such short-term credit as borrowings. may be necessary for the clearance of purchases and sales of portfolio securities, (iv) purchase securities on margin to the extent permitted by applicable law and (v) borrow cash from any other mutual fund (or series thereof) in the Seligman Group to the extent permitted by any order that may be obtained from the SEC relating to borrowing and lending among mutual funds in the Seligman Group. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund's investment policies as set forth in the Prospectuses and the SAI, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies. - -------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund may not issue senior SECURITIES securities. securities, except as permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. - --------------------------------------------------------------------------------------------------------
29
- -------------------------------------------------------------------------------------------------------- SELIGMAN CORE FIXED INCOME FUND RIVERSOURCE DIVERSIFIED BOND FUND FUNDAMENTAL POLICY (SELLING FUND) (BUYING FUND) - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or sell real The Fund will not buy or sell real estate, except that the Fund may invest estate, unless acquired as a result of in securities directly or indirectly ownership of securities or other secured by real estate or interests instruments, except this shall not therein or issued by companies which prevent the Fund from investing in invest in real estate or interests securities or other instruments backed therein. 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. - -------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and the Fund's instruments, except this shall not prospectuses and SAI, as they may be prevent the Fund from buying or selling amended from time to time, and without options and futures contracts or from registering as a commodity pool investing in securities or other operator under the Commodity Exchange instruments backed by, or whose value Act. is derived from, physical commodities. - -------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any CONCENTRATION its total assets, taken at market one industry. According to the present value, in the securities of issuers in interpretation by the SEC, this means any particular industry, except that up to 25% of the Fund's total securities issued or guaranteed by the assets, based on current market value U.S. government and its agencies and at time of purchase, can be invested in instrumentalities. any one industry. - -------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% inconsistent with the Fund's of its total assets in securities of classification as a diversified company any company, government, or political under the 1940 Act. 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. 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. - -------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its net assets would be so invested. - --------------------------------------------------------------------------------------------------------
COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL SELIGMAN CORE FIXED INCOME FUND RIVERSOURCE DIVERSIFIED BOND FUND POLICY (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- FOREIGN SECURITIES The Fund may invest up to 20% of its The Fund may invest up to 25% of its net assets in non-U.S. dollar- net assets in foreign investments. denominated fixed-income securities of U.S. or foreign issuers. - --------------------------------------------------------------------------------------------------------- SECURITIES OF OPEN- The Fund may not acquire any securities Not applicable. END INVESTMENT of a registered open-end investment COMPANIES company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. - ---------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL SELIGMAN CORE FIXED INCOME FUND RIVERSOURCE DIVERSIFIED BOND FUND POLICY (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- RIGHTS AND The Fund may invest in common stock The Fund does not intend to invest WARRANTS rights and warrants that are acquired directly in common stock rights and in connection with its investments in warrants but is not restricted from High-Yield Securities, as defined in acquiring them in connection with its the Fund's Prospectuses. The Fund may investments in convertible securities. not invest in rights and warrants if, at the time of acquisition, the investment in rights and warrants would exceed 5% of the Fund's net assets, valued at the lower of cost or market. In addition, no more than 2% of net assets may be invested in warrants not listed on the New York or American Stock Exchanges. For purposes of this restriction, rights and warrants acquired by the Fund as part of a unit or attached to securities may be deemed to have been purchased without cost. - ---------------------------------------------------------------------------------------------------------
COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives, principal investment strategies and investment policies. With regards to investment policies, the Buying Fund may expose shareholders to greater credit risk and liquidity risk due to the Buying Fund's greater ability to invest in, and greater current exposure to, high yield (junk) bonds. Also, the Buying Fund may expose shareholders to greater foreign risk due to the Buying Fund's greater ability to invest in foreign securities. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. - - 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 objective. 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. Non-investment grade securities, commonly called high yield or junk bonds, may react more to perceived changes in the ability of the issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade securities have greater price fluctuations and are more likely to experience a default than investment grade bonds. - - RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate 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. 31 - - 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. - - 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. - - 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. In addition to the risks described above, the Buying Fund is subject to the additional principal investment risk set forth below. While this additional risk may also be a risk of the Selling Fund, it is not stated as a principal investment risk of the Selling Fund. For more information regarding the Selling Fund's principal investment risks, see "Principal Risks" in the Selling Fund's 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, hedging risk, correlation risk, liquidity risk and leverage 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. PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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 a 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. Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. 32 Tables. The first tables show total returns from hypothetical investments in Class A, Class B, Class C, Class R and Class I shares of Seligman Core Fixed Income Fund. The second table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R2 and Class R5 shares of the RiverSource Diversified Bond 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 of 4.50% for Class A shares of the Selling Fund* and 4.75% for Class A shares of the Buying Fund; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C** and Class R shares; - - no sales charge for Class R2, Class R5 and Class I shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge in Class A shares of the Selling Fund is 4.50%. Although for all periods presented the Selling Fund's Class A share returns reflect the 4.50% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been lower if a 4.75% maximum initial sales charge then in effect was incurred. ** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented the Selling Fund's Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 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. SELIGMAN CORE FIXED INCOME FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +8.55% +4.13% +2.34% +0.92% +3.34% +4.79% -3.43% 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +5.45% (quarter ended Sept. 30, 2002) and the lowest return for a calendar quarter was -2.74% (quarter ended Sept. 30, 2008). The performance of other classes may vary from that shown because of differences in expenses. RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) -0.22% +7.03% +7.33% +5.63% +4.61% +4.41% +2.09% +5.37% +5.08% -6.42% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +3.49% (quarter ended Sept. 30, 2006) and the lowest return for a calendar quarter was -3.30% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. 33 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS (CLASSES A, B, C) (CLASS R*) (CLASS I*) SELIGMAN CORE FIXED INCOME FUND (SELLING FUND): Class A Return before taxes -7.74% +0.63% +2.06%(a) N/A N/A Return after taxes on distributions -9.07% -0.69% +0.66%(a) N/A N/A Return after taxes on distributions and sale of Fund shares -5.01% -0.21% +0.94%(a) N/A N/A Class B Return before taxes -8.78% +0.45% +1.96%(a) N/A N/A Class C Return before taxes -5.05% +0.80% +1.96%(a) N/A N/A Class R* Return before taxes -4.45% +1.35% N/A +1.48%(b) N/A Class I* Return before taxes -3.18% +1.80% N/A N/A +2.97%(c) Barclays Capital U.S. Aggregate Bond Index** +5.24% +4.65% +5.15%(d) +4.43%(e) +5.20%(f) Barclays Capital U.S. Universal Index** +2.38% +4.30% +5.11%(d) +4.28%(e) +5.14%(f) Lipper Intermediate Investment-Grade Debt Funds Average -4.42% +1.74% +3.03%(g) +1.92%(e) +2.96%(f) SINCE SINCE INCEPTION INCEPTION (CLASSES R2 1 YEAR 5 YEARS 10 YEARS (CLASS C) AND R5) RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND): Class A Return before taxes -10.82% +1.03% +2.88% N/A N/A Return after taxes on distributions -12.20% -0.45% +1.01% N/A N/A Return after taxes on distributions and sale of Fund shares -7.00% +0.04% +1.31% N/A N/A Class B Return before taxes -11.61% +0.89% +2.63% N/A N/A Class C Return before taxes -7.82% +1.24% N/A +3.20%(h) N/A Class R2 Return before taxes -6.40% N/A N/A N/A -0.60%(j) Class R5 Return before taxes -5.94% N/A N/A N/A -0.09%(j) Barclays Capital U.S. Aggregate Bond Index +5.24% +4.65% +5.63% +6.33%(i) +5.68%(k) Lipper Intermediate Investment Grade Index -4.71% +2.28% +4.24% +4.78%(i) +0.03%(k)
(a) Inception date is Oct. 1, 2001. (b) Inception date is April 30, 2003. (c) Inception date is Nov. 30, 2001. (d) Measurement period started Oct. 1, 2001. (e) Measurement period started April 30, 2003. (f) Measurement period started Nov. 30, 2001. (g) Measurement period started Sept. 30, 2001. (h) Inception date is June 26, 2000. (i) Measurement period started June 26, 2000. (j) Inception date is Dec. 11, 2006. (k) Measurement period started Dec. 11, 2006. * Class R and Class I of the Selling Fund are to be redesignated Class R2 and Class R5, respectively, in connection with the Reorganization. ** Effective Nov. 7, 2008, to better align the primary benchmark index with the investment strategy of the Fund, the Barclays Capital U.S. Universal Index was replaced with the Barclays Capital U.S. Aggregate Bond Index, which will be used as the primary benchmark for the Fund. The Barclays Capital U.S. Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset backed and mortgage- backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. 34 The Barclays Capital U.S. Universal Index, an unmanaged index, measures the performance of U.S. dollar-denominated, taxable bonds that are rated either investment grade or below investment grade. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper Intermediate Investment-Grade Debt Funds Average measures the performance of mutual funds that invest at least 65% of their assets in investment-grade debt issues rated in the top four grades with dollar-weighted average maturities of five to ten years. The average is an unmanaged benchmark that assumes the reinvestment of all distributions and does not reflect any sales charges or taxes. The Lipper Intermediate Investment Grade Index includes the 30 largest investment grade funds tracked by Lipper Inc. The index's returns include net reinvested dividends. Investors cannot invest directly in an average or index. 35 PROPOSAL 2. REORGANIZATION OF SELIGMAN EMERGING MARKETS FUND INTO THREADNEEDLE EMERGING MARKETS FUND COMPARISON OF INVESTMENT OBJECTIVES Each Fund seeks long-term capital appreciation and invests predominantly in equity securities of emerging markets companies. The investment objectives for the Funds are as follows: SELLING FUND: Seligman Emerging Markets Fund seeks long-term capital appreciation. BUYING FUND: Threadneedle Emerging Markets Fund seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Each Fund invests primarily in equity securities of emerging markets companies. Each Fund may enter into forward foreign currency exchange contracts as part of its principal investment strategy. The Selling Fund defines an emerging market as a market in a developing country or a market represented in the Morgan Stanley Capital International Emerging Markets Index. The Selling Fund defines developing countries as those classified by the World Bank as low-income or middle-income economies, regardless of their particular stage of development. The Buying Fund defines emerging markets as countries characterized as developing or emerging by either the World Bank or the United Nations. The Buying Fund may also invest in securities of companies that earn 50% or more of their total revenues from goods or services produced in emerging market countries or from sales made in emerging markets countries. RiverSource Investments serves as the investment manager for each Fund and is responsible for the oversight of each Fund's subadviser, which provides day-to- day management of the Fund. The Selling Fund is subadvised by Wellington Management Company, LLP ("Wellington") and the Buying Fund is subadvised by Threadneedle International Limited ("Threadneedle"), an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN EMERGING MARKETS FUND (SELLING FUND) The Fund generally invests at least 80% of its net assets in equity securities of companies that conduct their principal business activities in emerging markets, are organized under the laws of or maintain their principal place of business in emerging markets, or whose securities are traded principally on exchanges in emerging markets. The Fund will focus its investments in those emerging markets in which the investment manager believes the economies are developing strongly and markets are becoming more liquid, or other emerging markets that meet the portfolio manager's criteria for investability. The Fund seeks to benefit from policies of economic development being adopted in many emerging markets. These policies include domestic price reform, reducing internal budget deficits, privatization, encouraging foreign investments, and developing capital markets. The Fund combines a bottom-up investment style with top-down analysis of regions, countries and sectors. This means the portfolio manager incorporates analysis of individual companies along with analysis of individual sectors, countries and regions. In selecting individual securities, the portfolio manager looks to identify companies that it believes display one or more of the following: - - Operate in growing markets - - Attractive valuations relative to cash earnings forecasts or other valuation criteria - - Unique sustainable competitive advantages (e.g., market share, proprietary products) - - Improving industry or country fundamentals Following stock selection, the portfolio manager then focuses on portfolio construction that considers top-down risk control based on such factors as: - - Relative economic growth potential of the various economies and securities markets - - Political, financial, and social conditions influencing investment opportunities - - Relative rates of earnings growth - - Interest rate outlook and expected levels of inflation - - Market prices relative to historic averages 36 The Fund generally sells a stock if the portfolio manager believes its target price has been reached, its earnings are disappointing, its revenue growth has slowed, its underlying fundamentals have deteriorated, or there are deteriorating industry or country fundamentals. The Fund may also sell or trim a stock if the portfolio manager believes, from a risk control perspective, the stock's position size is inappropriate for the portfolio. Also, stocks may be sold when negative country, currency, or general industry factors affect a company's outlook, or to meet cash requirements. The Fund may invest in all types of securities, many of which will be denominated in currencies other than the U.S. dollar. The securities may be listed on a U.S. or foreign stock exchange or traded in U.S. or foreign over- the-counter markets. The Fund normally concentrates its investments in common stocks; however, it may invest in other types of equity securities, including securities convertible into or exchangeable for common stock, depositary receipts, and rights and warrants to purchase common stock. The Fund also may invest up to 20% of its assets in preferred stock and investment-grade or comparable quality debt securities. The Fund may invest up to 15% of its net assets in illiquid securities (i.e., securities that cannot be readily sold), and may from time to time enter into forward foreign currency exchange contracts in an attempt to manage the risk of adverse changes in currencies. The Fund may also purchase put options in an attempt to hedge against a decline in the price of securities it holds in its portfolio. A put option gives the Fund the right to sell an underlying security at a particular price during a fixed period of time. Forward foreign currency exchange contracts and put options on securities may not be available to the Fund on reasonable terms in many situations, and the Fund may frequently choose not to enter into such contracts or purchase such options even when they are available. The Fund may invest in futures contracts. 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. The Fund may also invest up to 10% of its assets in exchange-traded funds ("ETFs"). ETFs are traded, like individual stocks, on an exchange, but they represent baskets of securities that seek to track the performance of certain indices. The indices include not only broad-market indices but more specific indices as well, including those relating to particular sectors, countries and regions. The Fund may invest in ETFs for short-term cash management purposes or as part of its overall investment strategy. THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) The Fund's assets are primarily invested in equity securities of emerging markets companies. Emerging markets are countries characterized as developing or emerging by either the World Bank or the United Nations. Under normal market conditions, at least 80% of the Fund's net assets will be invested in securities of companies that are located in emerging markets countries, or that earn 50% or more of their total revenues from goods or services produced in emerging markets countries or from sales made in emerging markets countries. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. RiverSource Investments serves as the investment manager to the Fund and is responsible for oversight of Threadneedle, the Fund's subadviser. Threadneedle chooses investments by: - - Deploying an integrated approach to equity research that incorporates regional analyses, a global sector strategy, and stock specific perspectives. - - Conducting detailed research on companies in a consistent strategic and macroeconomic framework. - - Looking for catalysts of change and identifying the factors driving markets, which will vary over economic and market cycles. - - Implementing rigorous risk control processes that seek to ensure that the risk and return characteristics of the Fund's portfolio are consistent with established portfolio management parameters. The Fund's portfolio management team constructs the portfolio by selecting what it considers to be the best stocks in each industry sector, based on return on invested capital analysis, growth and valuation. The Fund's sector exposure generally reflects the global macroeconomic environment, the outlook for each sector and the relative valuation of the stocks among the sectors. The Fund's portfolio management team constructs the portfolio by investing in most of the stocks on two core lists of holdings: the Largest Companies List and the Preferred List. In addition, the portfolio will hold other securities selected by the portfolio management team. These discretionary holdings will typically make up a much smaller portion of the Fund. 37 - - The Largest Companies List includes the largest stocks in the Fund's benchmark, the Morgan Stanley Capital International ("MSCI") Emerging Markets Index. Threadneedle's research on sectors and specific companies is used to determine recommended weightings for each stock. - - The Preferred List includes the stocks not included in the Largest Companies List that represent the best ideas generated by Threadneedle's research analysts. Stocks on the Preferred List are selected by: - Analyzing returns on invested capital for the largest companies within each sector; - Assessing valuations; and - Evaluating one or more of the following: balance sheets and cash flows, the demand for a company's products or services, its competitive position, or its management. The Fund will normally be overweight in the stocks on the Preferred List compared to the benchmark. - - Discretionary holdings are selected by the individual portfolio management team based on the same criteria used to generate the Preferred List. These stocks are assigned ratings based on their perceived ability to outperform within their sector. The team typically selects the highest rated stocks outside the core category. A number of factors may prompt the portfolio management team to sell securities. A sale may result from a change in the composition of the Fund's benchmark or a change in sector strategy. A sale may also be prompted by factors specific to a stock, such as valuation or company fundamentals. The Fund will normally have exposure to foreign currencies. The portfolio management team closely monitors the Fund's exposure to foreign currency. From time to time the team may use forward currency transactions or other derivative instruments to hedge against currency fluctuations. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- --------------------------------------------------------------------------------------------------------- SELIGMAN EMERGING MARKETS FUND (SELLING THREADNEEDLE EMERGING MARKETS FUND FUNDAMENTAL POLICY FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite the The Fund will not act as an underwriter securities of other issuers, except (sell securities for others). However, insofar as the Fund may be deemed an under the securities laws, the Fund may underwriter under the 1933 Act in be deemed to be an underwriter when it disposing of a portfolio security or in purchases securities directly from the connection with investments in other issuer and later resells them. investment companies. - --------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except as The Fund will not lend securities or permitted by the 1940 Act or any rule participate in an interfund lending thereunder, any SEC or SEC staff program if the total of all such loans interpretations thereof or any would exceed 33 1/3% of the Fund's exemptions therefrom which may be total assets except this fundamental granted by the SEC. 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. - --------------------------------------------------------------------------------------------------------- BORROWING MONEY The Fund may not borrow money, except The Fund will not borrow money, except as permitted by the 1940 Act or any for temporary purposes (not for rule thereunder, any SEC or SEC staff leveraging or investment) in an amount interpretations thereof or any not exceeding 33 1/3% of its total exemptions therefrom which may be assets (including the amount borrowed) granted by the SEC. The 1940 Act less liabilities (other than permits a fund to borrow up to 33 1/3% borrowings) immediately after the of its total assets (including the borrowings. amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. - --------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund will not issue senior SECURITIES securities, except as permitted by the securities, except as permitted under 1940 Act or any rule thereunder, any the 1940 Act, the rules and regulations SEC or SEC staff interpretations thereunder and any applicable exemptive thereof or any exemptions therefrom relief. which may be granted by the SEC. - ---------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------- SELIGMAN EMERGING MARKETS FUND (SELLING THREADNEEDLE EMERGING MARKETS FUND FUNDAMENTAL POLICY FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or hold any The Fund will not buy or sell real real estate, except the Fund may invest estate, unless acquired as a result of in securities secured by real estate or ownership of securities or other interests therein or issued by persons instruments, except this shall not (including real estate investment prevent the Fund from investing in trusts) which deal in real estate or securities or other instruments backed interests therein. 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. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and interpretations, as instruments, except this shall not they may be amended from time to time. prevent the Fund from buying or selling See also nonfundamental policy on options and futures contracts or from Commodities below. investing in securities or other instruments backed by, or whose value is derived from, physical commodities. - --------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any CONCENTRATION its total assets, at market value, in one industry. According to the present the securities of issuers in any interpretation by the SEC, this means particular industry, provided that this that up to 25% of the Fund's total limitation shall exclude securities assets, based on current market value issued or guaranteed by the U.S. at time of purchase, can be invested in government or any of its agencies or any one industry. instrumentalities. - --------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% inconsistent with the Fund's of its total assets in securities of classification as a diversified company any company, government, or political under the 1940 Act. 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. 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. - --------------------------------------------------------------------------------------------------------- MARGIN The Fund may not purchase securities on No fundamental policy. See fundamental margin, except as permitted by the 1940 policy on Lending above. Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its total assets would be invested in such agreements and in restricted and other illiquid securities. - --------------------------------------------------------------------------------------------------------- DEALINGS WITH The Fund may not purchase or retain the No fundamental policy. DIRECTORS, OFFICERS securities of any issuer (other than AND TRUSTEES the shares of the Fund), if to the Fund's knowledge, those directors and officers of Seligman Global Fund Series, Inc. (of which the Fund is a series) and the directors and officers of the investment manager or subadviser, who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. - ---------------------------------------------------------------------------------------------------------
COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL SELIGMAN EMERGING MARKETS FUND THREADNEEDLE EMERGING MARKETS FUND POLICY (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- BORROWING The Fund may not borrow more than 15% Not applicable. See the fundamental RESTRICTIONS of the value of its total assets. investment policy on Borrowing Money Borrowings may be secured by a above. mortgage or pledge of the Fund's assets. See also the fundamental investment policy on Borrowing Money above. - ---------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL SELIGMAN EMERGING MARKETS FUND THREADNEEDLE EMERGING MARKETS FUND POLICY (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- SECURITIES OF The Fund may not acquire any Not applicable. OPEN-END securities of a registered open-end INVESTMENT investment company or a registered COMPANIES unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may purchase and sell See fundamental investment policy on commodities and commodity contracts Commodities above. only to the extent that such activities do not result in the Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. Approval of the Board of Directors must be granted for a Fund to invest in any new type of commodity if it is of a type the Fund has not previously utilized. See also fundamental investment policy on Commodities above. - --------------------------------------------------------------------------------------------------------- EXCHANGE The Fund may invest up to 10% of its Investing in ETFs is an allowable TRADED FUNDS assets in ETFs. investment strategy for the Fund, however, the Fund does not have a stated policy limiting these types of investments, other than as otherwise permitted by the 1940 Act. - --------------------------------------------------------------------------------------------------------- PREFERRED STOCK The Fund may invest up to 20% of its The Fund may invest in preferred stock AND DEBT net assets in preferred stock and debt and debt securities to the extent SECURITIES securities, including investment grade permitted by its investment strategy. debt securities and high-yield bonds. For capital appreciation, the Fund may invest up to 5% of its assets in governmental and corporate debt securities that, at the time of purchase by the Fund, are rated Baa or lower by Moody's and BBB or lower by S&P or, if unrated, deemed to be of comparable quality. The Fund will not invest in debt securities rated lower than C by Moody's or C by S&P or, if unrated, deemed to be of comparable quality. - --------------------------------------------------------------------------------------------------------- DERIVATIVES The Fund will invest in derivatives The Fund may invest in derivatives to only for hedging or investment the extent permitted by its investment purposes. The Fund will not invest in strategy. derivatives for speculative purposes, which means where the derivative investment exposes the Fund to undue risk of loss, such as where the risk of loss is greater than the cost of the investment. - --------------------------------------------------------------------------------------------------------- WARRANTS No more than 2% of net assets of the Investing in warrants is an allowable Fund may be invested in warrants not investment strategy for the Fund. listed on the New York or American Stock Exchanges. - --------------------------------------------------------------------------------------------------------- ACCESS TRADES The Fund may participate in access The Fund may invest in access trades trades, but its exposure is limited to and other derivative instruments to 5% of total assets of the Fund at the the extent permitted by its investment time of purchase and to dealing with strategy. counterparties believed to be reputable. - --------------------------------------------------------------------------------------------------------- INVESTMENTS FOR The Fund may not invest for the Not applicable, other than as PURPOSES OF purpose of controlling or managing any otherwise permitted by the 1940 Act. MANAGEMENT company. OR CONTROL - ---------------------------------------------------------------------------------------------------------
COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives, principal investment strategies and investment policies. With regards to investment policies, the Buying Fund may expose shareholders to greater liquidity risk due to the Buying Fund's greater ability to invest in illiquid securities. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. - - 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 objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. - - 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 40 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, hedging risk, correlation risk, liquidity risk and leverage 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. - - RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate 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. - - ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. 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. - - 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. - - 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 across sectors, the more it spreads risk and potentially reduces the risks of loss and volatility. - - 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 41 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. In addition to the risks described above, the Buying Fund is subject to the additional principal investment risk set forth below. While this additional risk may also be a risk of the Selling Fund, it is not stated as a principal investment risk of the Selling Fund. For more information regarding the Selling Fund's principal investment risks, see "Principal Risks" in the Selling Fund's prospectus. - - 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. In addition to the risks described above, the Selling Fund is subject to the risks associated with investing in debt securities, including high-yield bonds (junk bonds), including the risks set forth below. While these additional risks may also be risks of the Buying Fund, they are not stated as principal investment risks of the Buying Fund. For more information regarding the Buying Fund's principal investment risks, see "Principal Risks" in the Buying Fund's prospectus. - - 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. Non-investment grade securities, commonly called high yield or junk bonds, may react more to perceived changes in the ability of the issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade securities have greater price fluctuations and are more likely to experience a default than investment grade bonds. - - 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. 42 PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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 a 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. Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. Tables. The first table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R and Class I shares of Seligman Emerging Markets Fund. The second table shows total returns from hypothetical investments in Class A, Class B and Class C shares of the Threadneedle Emerging Markets Fund. The inception date for Class R2 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for that class is not shown. Class R5 of the Buying Fund has not been in existence for a full calendar year and therefore performance for that class is not shown. 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 of 5.75%* for Class A shares; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C** and Class R shares; - - no sales charge for Class I shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge on investments in Class A shares of the Selling Fund is 5.75%. Although for all periods presented, the Selling Fund's Class A share returns reflect the 5.75% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been higher if a 4.75% maximum initial sales charge then in effect was incurred. ** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented in the tables the Selling Funds' Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 43 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. SELIGMAN EMERGING MARKETS FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +60.69% -44.60% -1.44% -6.46% +57.68% +22.88% +32.37% +30.94% +42.16% -51.62% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +33.99% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -26.57% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. 44 THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +79.03% -33.03% -3.85% -3.06% +40.60% +24.44% +34.10% +34.25% +37.23% -54.91% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +37.49% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -29.68% (quarter ended Sept. 30, 2008). The performance of other classes may vary from that shown because of differences in expenses. The Buying Fund formerly was a "feeder" fund in a master/feeder arrangement where the Buying Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Nov. 8, 2005, the Buying 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 Buying Fund includes the activity of the Buying Fund when it was a feeder in a master/feeder arrangement. 45 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS R**) (CLASS I**) SELIGMAN EMERGING MARKETS FUND (SELLING FUND): Class A Return before taxes -54.39% +6.67% +5.98% N/A N/A N/A Return after taxes on distributions -55.20% +4.80% +5.05% N/A N/A N/A Return after taxes on distributions and sale of Fund shares -34.43% +5.75% +5.25% N/A N/A N/A Class B Return before taxes -54.03% +6.86% +5.96%* N/A N/A N/A Class C Return before taxes -52.18% +7.26% N/A +4.63%(a) N/A N/A Class R** Return before taxes -51.82% +8.02% N/A N/A +15.54%(b) N/A Class I** Return before taxes -51.42% +8.69% N/A N/A N/A +13.37%(c) Morgan Stanley Capital International (MSCI) Emerging Markets Index -53.18% +8.01% +9.30% +7.14%(d) +15.28%(e) +12.68%(f) Lipper Emerging Markets Funds Average -55.41% +6.20% +9.38% +7.23%(g) +13.65%(e) +11.47%(f)
Prior to March 31, 2000, J. & W. Seligman & Co. Incorporated (the predecessor investment manager) employed subadvisers that were responsible for providing certain portfolio management services with respect to the investments of the Fund. From March 31, 2000 until Sept. 15, 2003, the assets of the Fund were managed exclusively by Seligman. Since Sept. 15, 2003, Wellington Management Company, LLP has been employed as subadviser to provide portfolio management services to the Fund.
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND): Class A Return before taxes -57.50% +5.49% +7.54% N/A Return after taxes on distributions -57.50% +3.10% +6.29% N/A Return after taxes on distributions and sale of Fund shares -37.38% +4.62% +6.60% N/A Class B Return before taxes -57.48% +5.66% +7.26% N/A Class C Return before taxes -55.68% +5.95% N/A +3.16%(h) MSCI Emerging Markets Index -53.18% +8.02% +9.31% +5.78%(i) Lipper Emerging Markets Funds Index -54.76% +6.30% +8.64% +5.08%(i)
(a) Inception date is May 27, 1999. (b) Inception date is April 30, 2003. (c) Inception date is Nov. 30, 2001. (d) Measurement period started May 31, 1999. (e) Measurement period started April 30, 2003. (f) Measurement period started Nov. 30, 2001. (g) Measurement period started May 27, 1999. (h) Inception date is June 26, 2000. (i) Measurement period started June 26, 2000. * The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. ** Class R and Class I of the Selling Fund are to be redesignated Class R2 and Class R5, respectively, in connection with the Reorganization. The MSCI Emerging Markets Index, an unmanaged market capitalization weighted index, is designed to measure equity market performance in the global emerging markets. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper Emerging Markets Funds Average comprises mutual funds which seek long-term capital appreciation by investing at least 65% of total assets in emerging market equity securities, where "emerging market" is defined by a country's gross national product (GNP) per capita or other economic measures. The average is an unmanaged benchmark that assumes the reinvestment of all distributions, if any, and excludes the effect of fees, sales charges and taxes. The Lipper Emerging Markets Funds Index includes the 30 largest emerging markets funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Buying Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See Fund Management and Compensation in Exhibit B for more information. Investors cannot invest directly in an average or index. The inception date for Class R2 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for that class is not shown. Class R5 of the Buying Fund has not been in existence for a full calendar year and therefore performance for that class is not shown. 46 PROPOSAL 3. REORGANIZATION OF SELIGMAN GLOBAL GROWTH FUND INTO THREADNEEDLE GLOBAL EQUITY FUND COMPARISON OF INVESTMENT OBJECTIVES Each Fund seeks long-term capital appreciation and invests predominantly in equity securities. The investment objectives for the Funds are as follows: SELLING FUND: Seligman Global Growth Fund seeks long-term capital appreciation. BUYING FUND: Threadneedle Global Equity Fund seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Selling Fund invests at least 40% of its net assets in the securities of non-U.S. companies (as described below), while the Buying Fund has no similar restrictions. The Selling Fund may invest up to 15% of its assets in emerging market equities and up to 25% of its assets in preferred stock and investment grade or comparable quality debt securities, while the Buying Fund has no comparable restrictions. Each Fund may enter into forward foreign currency exchange contracts or use derivatives as part of its principal investment strategies. RiverSource Investments serves as the investment manager for each Fund and is responsible for the oversight of each Fund's subadviser, which provides day-to- day management of the Fund. The Selling Fund is subadvised by Wellington Wellington and the Buying Fund is subadvised by Threadneedle, an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN GLOBAL GROWTH FUND (SELLING FUND) The Fund invests primarily in equity securities of non-U.S. and U.S. growth companies that have the potential to benefit from global economic or social trends. The Fund may invest in high quality, large and mid-capitalization companies that are considered leaders in their industries, emphasizing those industries that are growing on a global basis. Typically, the Fund will invest in several countries in different geographic regions. Additionally, the Fund may invest up to 15% in emerging market equities. Under normal market conditions, the Fund generally will invest at least 40% of its net assets in companies that maintain their principal place of business or conduct their principal business activities outside the U.S., have their securities traded on non-U.S. exchanges or have been formed under the laws of non-U.S. countries. The portfolio manager may reduce this 40% minimum investment amount to 30% if it believes that market conditions for these types of companies or specific foreign markets are unfavorable. The Fund considers a company to conduct its principal business activities outside the U.S. if it derives at least 50% of its revenue from business outside the U.S. or has at least 50% of its assets outside the U.S. The Fund uses an investment process that emphasizes bottom-up research with a focus on companies with improving fundamentals exemplified by identifiable catalysts and strong earnings growth. In selecting individual securities, the portfolio manager looks to identify companies that it believes display one or more of the following: - - Accelerating fundamentals or earnings growth with consideration paid to valuations - - Quality management - - Strong possibility of multiple expansion - - Unique competitive advantages (e.g., market share, proprietary products) - - Potential for improvement in overall operations The Fund generally sells a stock if the portfolio manager believes its target price has been reached, its earnings are disappointing, its revenue or earnings growth has slowed, or the stock's or industry's underlying fundamentals have deteriorated. The Fund may also sell a stock if the portfolio manager believes that negative country or regional factors or shifts in global trends may negatively affect a company's outlook, or to meet cash requirements. The Fund may invest in all types of securities, many of which will be denominated in currencies other than the U.S. dollar. The Fund normally concentrates its investments in common stocks; however, it may invest in other types of equity securities, including securities convertible into or exchangeable for common stock, depositary receipts, and rights and warrants to purchase common stock. The Fund also may invest up to 25% of its assets in preferred stock and investment grade or comparable quality debt securities. 47 The Fund may invest up to 15% of its net assets in illiquid securities (i.e., securities that cannot be readily sold), and may from time to time enter into forward foreign currency exchange contracts in an attempt to manage the risk of adverse changes in currencies. The Fund may also purchase put options in an attempt to hedge against a decline in the price of securities it holds in its portfolio. A put option gives the Fund the right to sell an underlying security at a particular price during a fixed period of time. Forward foreign currency exchange contracts and put options on securities may not be available to the Fund on reasonable terms in many situations, and the Fund may frequently choose not to enter into such contracts or purchase such options even when they are available. The Fund may invest in futures contracts. 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. The Fund may also invest up to 10% of its assets in exchange-traded funds ("ETFs"). ETFs are traded, like individual stocks, on an exchange, but they represent baskets of securities that seek to track the performance of certain indices. The indices include not only broad-market indices but more specific indices as well, including those relating to particular sectors, countries and regions. The Fund may invest in ETFs for short-term cash management purposes or as part of its overall investment strategy. THREADNEEDLE GLOBAL EQUITY FUND (BUYING FUND) Under normal market conditions, at least 80% of the Fund's net assets will be invested in equity securities, including companies located in developed and emerging countries. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. RiverSource Investments serves as the investment manager to the Fund and is responsible for oversight of Threadneedle, the Fund's subadviser. Threadneedle chooses investments by: - - Deploying an integrated approach to equity research that incorporates regional analyses, a global sector strategy, and stock specific perspectives. - - Conducting detailed research on companies in a consistent strategic and macroeconomic framework. - - Looking for catalysts of change and identifying the factors driving markets, which will vary over economic and market cycles. - - Implementing rigorous risk control processes that seek to ensure that the risk and return characteristics of the Fund's portfolio are consistent with established portfolio management parameters. Using the global sector strategy, Threadneedle constructs the portfolio by investing in most of the stocks on two core lists of holdings: the Largest Companies List and the Preferred List. In addition, the portfolio will hold other securities selected by the portfolio management team. These discretionary holdings will typically make up a much smaller portion of the Fund. - - The Largest Companies List includes the largest stocks in the Fund's benchmark, the Morgan Stanley Capital International (MSCI) All Country World Index. Threadneedle's research on regions, sectors, and specific companies is used to determine recommended weightings for each stock. - - The Preferred List includes the stocks not included in the Largest Companies List that represent the best ideas generated by Threadneedle's research area. Stocks on the Preferred List are selected by: - - Evaluating the opportunities and risks within regions and sectors; - - Assessing valuations; and - - Evaluating one or more of the following: balance sheets and cash flows, the demand for a company's products or services, its competitive position, or its management. The Fund will normally be overweight in the stocks on the Preferred List compared to the benchmark. - - Discretionary holdings are selected by the individual portfolio management team based on the same criteria used to generate the Preferred List. These stocks are assigned ratings based on their perceived ability to outperform within their sector. The team typically selects the highest rated stocks outside the core category. A number of factors may prompt Threadneedle to sell securities. A sale may result from a change in the composition of the Fund's benchmark or a change in sector strategy. A sale may also be prompted by factors specific to a stock, such as valuation or company fundamentals. 48 The Fund will normally have exposure to foreign currencies. Threadneedle closely monitors the Fund's exposure to foreign currency. From time to time the team may use forward currency transactions or other derivative instruments to hedge against currency fluctuations. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- -------------------------------------------------------------------------------------------------------- SELIGMAN GLOBAL GROWTH FUND (SELLING THREADNEEDLE GLOBAL EQUITY FUND (BUYING FUNDAMENTAL POLICY FUND) FUND) - -------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite the The Fund will not act as an underwriter securities of other issuers, except (sell securities for others). However, insofar as the Fund may be deemed an under the securities laws, the Fund may underwriter under the 1933 Act in be deemed to be an underwriter when it disposing of a portfolio security or in purchases securities directly from the connection with investments in other issuer and later resells them. investment companies. - -------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except as The Fund will not lend securities or permitted by the 1940 Act or any rule participate in an interfund lending thereunder, any SEC or SEC staff program if the total of all such loans interpretations thereof or any would exceed 33 1/3% of the Fund's total exemptions therefrom which may be assets except this fundamental granted by the SEC. 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. - -------------------------------------------------------------------------------------------------------- BORROWING MONEY The Fund may not borrow money, except as The Fund will not borrow money, except permitted by the 1940 Act or any rule for temporary purposes (not for thereunder, any SEC or SEC staff leveraging or investment) in an amount interpretations thereof or any not exceeding 33 1/3% of its total exemptions therefrom which may be assets (including the amount borrowed) granted by the SEC. The 1940 Act permits less liabilities (other than borrowings) a fund to borrow up to 33 1/3% of its immediately after the borrowings. total assets (including the amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. - -------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund will not issue senior SECURITIES securities, except as permitted by the securities, except as permitted under 1940 Act or any rule thereunder, any SEC the 1940 Act, the rules and regulations or SEC staff interpretations thereof or thereunder and any applicable exemptive any exemptions therefrom which may be relief. granted by the SEC. - -------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or hold any The Fund will not buy or sell real real estate, except the Fund may invest estate, unless acquired as a result of in securities secured by real estate or ownership of securities or other interests therein or issued by persons instruments, except this shall not (including real estate investment prevent the Fund from investing in trusts) which deal in real estate or securities or other instruments backed interests therein. 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. - -------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and interpretations, as instruments, except this shall not they may be amended from time to time. prevent the Fund from buying or selling See also nonfundamental policy on options and futures contracts or from Commodities below. investing in securities or other instruments backed by, or whose value is derived from, physical commodities. - -------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any one CONCENTRATION its total assets, at market value, in industry. According to the present the securities of issuers in any interpretation by the SEC, this means particular industry, provided that this that up to 25% of the Fund's total limitation shall exclude securities assets, based on current market value at issued or guaranteed by the U.S. time of purchase, can be invested in any government or any of its agencies or one industry. instrumentalities. - --------------------------------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------------------------------- SELIGMAN GLOBAL GROWTH FUND (SELLING THREADNEEDLE GLOBAL EQUITY FUND (BUYING FUNDAMENTAL POLICY FUND) FUND) - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% of inconsistent with the Fund's its total assets in securities of any classification as a diversified company company, government, or political under the 1940 Act. 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. 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. - -------------------------------------------------------------------------------------------------------- MARGIN The Fund may not purchase securities on No fundamental policy. See fundamental margin, except as permitted by the 1940 policy on Lending above. Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC. - -------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its total assets would be invested in such agreements and in restricted and other illiquid securities. - -------------------------------------------------------------------------------------------------------- DEALINGS WITH The Fund may not purchase or retain the No fundamental policy. DIRECTORS, OFFICERS securities of any issuer (other than the AND TRUSTEES shares of the Fund), if to the Fund's knowledge, those directors and officers of Seligman Global Fund Series, Inc. (of which the Fund is a series) and the directors and officers of the investment manager or subadviser, who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. - --------------------------------------------------------------------------------------------------------
COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- ------------------------------------------------------------------------------------------------------ NONFUNDAMENTAL SELIGMAN GLOBAL GROWTH FUND (SELLING THREADNEEDLE GLOBAL EQUITY FUND (BUYING POLICY FUND) FUND) - ------------------------------------------------------------------------------------------------------ BORROWING The Fund may not borrow more than 15% Not applicable. See the fundamental RESTRICTIONS of the value of its total assets. investment policy above on Borrowing Borrowings may be secured by a mortgage Money above. or pledge of the Fund's assets. See also the fundamental investment policy on Borrowing Money above. - ------------------------------------------------------------------------------------------------------ SECURITIES OF OPEN- The Fund may not acquire any securities Not applicable. END INVESTMENT of a registered open-end investment COMPANIES company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12 (d)(1) of the 1940 Act. - ------------------------------------------------------------------------------------------------------ COMMODITIES The Fund may purchase and sell See fundamental investment policy on commodities and commodity contracts Commodities above. only to the extent that such activities do not result in the Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. Approval of the Board of Directors must be granted for a Fund to invest in any new type of commodity if it is of a type the Fund has not previously utilized. See also fundamental investment policy on Commodities above. - ------------------------------------------------------------------------------------------------------ EXCHANGE TRADED The Fund may invest up to 10% of its Investing in ETFs is an allowable FUNDS assets in ETFs. investment strategy for the Fund, however, the Fund does not have a stated policy limiting these types of investments, other than as otherwise permitted by the 1940 Act. - ------------------------------------------------------------------------------------------------------
50
- ------------------------------------------------------------------------------------------------------ NONFUNDAMENTAL SELIGMAN GLOBAL GROWTH FUND (SELLING THREADNEEDLE GLOBAL EQUITY FUND (BUYING POLICY FUND) FUND) - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ PREFERRED STOCK The Fund may invest up to 25% of its The Fund may invest in preferred stock AND DEBT net assets in preferred stock and debt and debt securities to the extent SECURITIES securities. The Fund will invest only permitted by its investment strategy. in "investment grade" debt securities or, in the case of unrated securities, debt securities that are deemed to be of equivalent quality to "investment- grade" securities. "Investment-grade" debt securities are rated within the four highest rating categories as determined by Moody's or S&P. - ------------------------------------------------------------------------------------------------------ DERIVATIVES The Fund will invest in derivatives The Fund may invest in derivatives to only for hedging or investment the extent permitted by its investment purposes. The Fund will not invest in strategy. derivatives for speculative purposes, which means where the derivative investment exposes the Fund to undue risk of loss, such as where the risk of loss is greater than the cost of the investment. - ------------------------------------------------------------------------------------------------------ WARRANTS No more than 2% of net assets of the Investing in warrants is an allowable Fund may be invested in warrants not investment strategy for the Fund. listed on the New York or American Stock Exchanges. - ------------------------------------------------------------------------------------------------------ ACCESS TRADES The Fund may participate in access The Fund may invest in access trades trades, but its exposure is limited to and other derivative instruments to the 5% of total assets of the Fund at the extent permitted by its investment time of purchase and to dealing with strategy. counterparties believed to be reputable. - ------------------------------------------------------------------------------------------------------ INVESTMENTS FOR The Fund may not invest for the purpose Not applicable, other than as otherwise PURPOSES OF of controlling or managing any company. permitted by the 1940 Act. MANAGEMENT OR CONTROL - ------------------------------------------------------------------------------------------------------
COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives, principal investment strategies and investment policies. With regards to investment policies, the Buying Fund may expose shareholders to greater emerging markets risk due to the Buying Fund's greater ability to invest in emerging market equities. The Buying Fund may also expose shareholders to greater liquidity risk due to the Buying Fund's greater ability to invest in illiquid securities. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. - - 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 objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. - - 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. 51 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. - - RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate 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. - - ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. 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. - - 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. In addition to the risks described above, the Buying Fund is subject to the additional principal investment risk set forth below. While this additional risk may also be a risk of the Selling Fund, it is not stated as a principal investment risk of the Selling Fund. For more information regarding the Selling Fund's principal investment risks, see "Principal Risks" in the Selling Fund's prospectus. - - 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. 52 PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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 a 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. Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. Tables. The first table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R and Class I shares of Seligman Global Growth Fund. The second table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R2 and Class R5 shares of the Threadneedle Global Equity 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 of 5.75%* for Class A shares; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C** and Class R shares; - - no sales charge for Class R2, Class R5 and Class I shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge on investments in Class A shares of the Selling Fund is 5.75%. Although for all periods presented, the Selling Fund's Class A share returns reflect the 5.75% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been higher if a 4.75% maximum initial sales charge then in effect was incurred. ** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented in the tables the Selling Funds' Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 53 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. SELIGMAN GLOBAL GROWTH FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +42.80% -17.17% -21.53% -31.10% +29.96% +17.52% +1.15% +12.85% +23.77% -53.11% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +24.43% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -27.07% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. 54 THREADNEEDLE GLOBAL EQUITY FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +37.02% -23.37% -22.29% -23.38% +25.16% +16.08% +18.41% +19.15% +13.60% -42.15% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +32.17% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -19.76% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. The Buying Fund formerly was a "feeder" fund in a master/feeder arrangement where the Buying Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Nov. 8, 2005, the Buying 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 Buying Fund includes the activity of the Buying Fund when it was a feeder in a master/feeder arrangement. 55 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS R**) (CLASS I**) SELIGMAN GLOBAL GROWTH FUND (SELLING FUND): Class A Return before taxes -55.82% -6.01% -4.82% N/A N/A N/A Return after taxes on distributions -55.82% -6.01% -5.36% N/A N/A N/A Return after taxes on distributions and sale of Fund shares -36.28% -5.01% -3.78% N/A N/A N/A Class B Return before taxes -55.77% -5.96% -4.81%* N/A N/A N/A Class C Return before taxes -53.91% -5.61% N/A -5.48%(a) N/A N/A Class R** Return before taxes -53.70% -5.11% N/A N/A -0.70%(b) N/A Class I** Return before taxes -52.91% -4.35% N/A N/A N/A -4.42%(c) Morgan Stanley Capital International (MSCI) World Index -40.33% +0.00% -0.19% -0.59%(d) +4.62%(e) +1.13%(f) MSCI World Growth Index -40.90% -0.84% -2.29% -2.32%(d) +3.17%(e) -0.06%(f) Lipper Global Large-Cap Growth Funds Average -44.46% -1.73% +0.35% -0.10%(g) +3.01%(e) -0.31%(f) Lipper Global Funds Average -41.06% -0.49% +0.88% +0.51%(g) +4.38%(e) +0.97%(f)
Prior to March 31, 2000, J. & W. Seligman & Co. Incorporated (the predecessor investment manager) employed subadvisers that were responsible for providing certain portfolio management services with respect to the investments of the Fund. From March 31, 2000 until Sept. 15, 2003, the assets of the Fund were managed exclusively by Seligman. Since Sept. 15, 2003, Wellington Management Company LLP has been employed as subadviser to provide portfolio management services to the Fund.
SINCE SINCE INCEPTION INCEPTION (CLASSES R2 1 YEAR 5 YEARS 10 YEARS (CLASS C) & R5) THREADNEEDLE GLOBAL EQUITY FUND (BUYING FUND): Class A Return before taxes -45.46% +0.28% -2.21% N/A N/A Return after taxes on distributions -45.62% +0.07% -2.91% N/A N/A Return after taxes on distributions and sale of Fund shares -29.55% +0.13% -1.99% N/A N/A Class B Return before taxes -45.52% +0.30% -2.46% N/A N/A Class C Return before taxes -43.16% +0.73% N/A -5.62%(h) N/A Class R2 Return before taxes -42.08% N/A N/A N/A -18.02%(j) Class R5 Return before taxes -41.82% N/A N/A N/A -17.60%(j) MSCI All Country World Index -41.85% +0.44% +0.23% -2.10%(i) -18.26%(k) Lipper Global Funds Index -38.78% +0.42% +1.23% -1.93%(i) -17.35%(k)
(a) Inception date is May 27, 1999. (b) Inception date is April 30, 2003. (c) Inception date is Nov. 30, 2001. (d) Measurement period started May 31, 1999. (e) Measurement period started April 30, 2003. (f) Measurement period started Nov. 30, 2001. (g) Measurement period started May 27, 1999. (h) Inception date is June 26, 2000. (i) Measurement period started June 26, 2000. (j) Inception date is Dec. 11, 2006. (k) Measurement period started Dec. 11, 2006. * The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. ** Class R and Class I of the Selling Fund are to be redesignated Class R2 and Class R5, respectively, in connection with the Reorganization. 56 The MSCI World Index, an unmanaged index, is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The MSCI World Growth Index, an unmanaged index, is a free float-adjusted market capitalization-weighted equity index representing "growth" (high price to book value) securities in the world's developed stock markets. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper Global Large-Cap Growth Funds Average comprises mutual funds that, by portfolio practice, invest at least 75% of their equity assets in companies both inside and outside of the United States with market capitalizations (on a three- year weighted basis) above Lipper's global large-cap floor. Global large-cap growth funds typically have an above-average price-to-cash flow ratio, price-to- book ratio, and three-year sales-per-share growth value compared to their large- cap-specific subset of the S&P/Citigroup World Broad Market Index (BMI). Lipper currently classifies the Selling Fund as a Global Large-Cap Growth Fund. The average is an unmanaged benchmark that assumes reinvestment of all distributions, if any, and excludes the effect of fees, sales charges and taxes. The Lipper Global Funds Average comprises mutual funds which invest at least 25% of their portfolio in securities traded outside the United States, and may own U.S. securities as well. The average is an unmanaged benchmark that assumes reinvestment of all distributions, if any, and excludes the effect of fees, sales charges and taxes. The MSCI All Country World Index, an unmanaged index of equity securities, is designed to measure equity market performance in the global developed and emerging markets. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper Global Funds Index includes the 30 largest global funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Buying Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See Fund Management and Compensation in Exhibit B for more information. Investors cannot invest directly in an average or index. 57 PROPOSAL 4. REORGANIZATION OF SELIGMAN HIGH-YIELD FUND INTO RIVERSOURCE HIGH YIELD BOND FUND Shareholders of both the Buying Fund and the Selling Fund may be entitled to assert appraisal rights (also known as dissenters' rights of appraisal) under provisions of Minnesota and Massachusetts state law, respectively. Please see the discussion under the caption Appraisal Rights in Section C of this proxy statement/prospectus for more information, including a comparison of appraisal rights under Minnesota and Massachusetts state law. A copy of the appraisal rights under the Massachusetts Business Corporation Act is also included as Appendix D in this proxy statement/prospectus. COMPARISON OF INVESTMENT OBJECTIVES Each Fund seeks a high level of current income, with capital appreciation as a secondary objective. The investment objectives for the Funds are as follows: SELLING FUND: Seligman High-Yield Fund seeks a high level of current income and may also consider the potential for capital appreciation consistent with prudent investment management. BUYING FUND: RiverSource High Yield Bond Fund seeks to provide shareholders with high current income as its primary objective and, as its secondary objective, capital growth. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Each Fund invests predominantly in non-investment grade, high yield securities. The Selling Fund may invest up to 10% of its assets in equity-linked securities (each, an "ELS"), while the Buying Fund has no similar limitation. The Buying Fund may invest up to 25% of its assets in high yield debt instruments of foreign issuers. Although the Selling Fund does not include it as a principal investment strategy, the Selling Fund may invest up to 10% of its net assets in debt securities of foreign issuers. The Buying Fund counts American Depositary Receipts ("ADRs") toward its 25% limit, but ADRs are excluded from the Selling Fund's 10% limitation. DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN HIGH-YIELD FUND (SELLING FUND) The Fund invests 80% of its net assets in non-investment grade, high yield securities ("High Yield Securities"). High Yield Securities (many of which are commonly known as junk bonds) carry non-investment grade ratings (Ba or below by Moody's or BB or below by Fitch or S&P) or are securities deemed to be below investment grade by the investment manager. High Yield Securities have the potential to offer higher yields than investment grade securities with higher ratings and similar maturities. High Yield Securities are subject to greater risk of loss of principal and interest than higher rated investment grade securities. The Fund may invest in all types of High Yield Securities including: - - Senior and subordinated corporate debt obligations of both U.S. and non-U.S. issuers (including, for example debentures, loan participations and floating rate notes); - - Mortgage and other asset-backed securities; - - Capital appreciation bonds, including zero coupon and pay-in-kind securities; - - Convertible securities, preferred stock, structured securities and loan participations; - - Municipal securities; - - Obligations of foreign governments; - - Securities that are rated in default by a nationally recognized statistical rating organization; - - Repurchase agreements relating to the above instruments; - - Warrants, rights and other equity securities that are acquired in connection with the Fund's investments in High Yield Securities; and - - Restricted securities that may be offered and sold only to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933 ("Rule 144A Securities"). In addition, the Fund may invest up to 20% of its net assets in (i) securities of higher quality, including: short-term money market instruments, including certificates of deposit of FDIC member banks having total assets of $1 billion or more; bankers' acceptances and interest-bearing savings or time deposits of such banks; commercial paper; investment grade fixed-income securities; securities issued, guaranteed or insured by the U.S. government, its agencies or instrumentalities as well as any government sponsored enterprise; and other income-producing cash items and (ii) warrants, rights and other equity securities 58 that are not acquired in connection with the Fund's investments in High Yield Securities. The Fund may invest up to 15% of its net assets in illiquid securities (i.e., securities that cannot be readily sold). Rule 144A Securities deemed to be liquid by the investment manager are not included in this limitation. The Fund does not have any portfolio maturity limitation, and may invest its assets in instruments with short, medium or long maturities. In pursuit of the Fund's objectives, the investment manager chooses investments by: - - Reviewing interest rate and economic forecasts. - - Reviewing credit characteristics and capital structures of companies, including an evaluation of any outstanding bank loans or corporate debt securities a company has issued, its relative position in its industry, and its management team's capabilities. - - Identifying companies that: - have medium and low quality ratings or, in the investment manager's opinion, have similar qualities to companies with medium or low quality ratings, even though they are not rated, or have been given a different rating by a rating agency, - have growth potential, or - have the potential to increase in value as their credit ratings improve. - - Buying debt instruments that are expected to outperform other debt instruments. In evaluating whether to sell an investment, the investment manager considers, among other factors, whether: - - The interest rate or economic outlook changes. - - A sector or industry is experiencing change. - - A security's rating is changed. - - The security is overvalued relative to alternative investments. - - The company no longer meets the investment manager's performance expectations. - - The investment manager wishes to lock in profits. - - The investment manager identifies a more attractive opportunity. - - The issuer or the security continues to meet the other standards described above. The Fund may also invest up to 10% of its assets in ELSs as part of its overall investment strategy. An ELS is a debt instrument whose value is based on the value of a single equity security, basket of equity securities or an index of equity securities (each, an "Underlying Equity"). An ELS typically provides interest income, thereby offering a yield advantage over investing directly in an Underlying Equity. However, the holder of an ELS may have limited or no benefit from any appreciation in the Underlying Equity, but is exposed to downside market risk. The Fund may purchase ELSs that trade on a securities exchange or those that trade on the over-the-counter markets, including Rule 144A Securities. The Fund may also purchase an ELS in a privately negotiated transaction with the issuer of the ELS (or its broker-dealer affiliate). RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) Under normal market conditions, the Fund will invest at least 80% of its net assets in high yield debt instruments (commonly referred to as junk bonds). These high yield debt instruments include corporate debt securities as well as bank loans rated below investment grade by a nationally recognized statistical rating organization, or if unrated, determined to be of comparable quality. Up to 25% of the Fund may be invested in high yield debt instruments of foreign issuers. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. Corporate debt securities in which the Fund invests are typically unsecured, with a fixed-rate of interest, and are usually issued by companies or similar entities to provide financing for their operations, or other activities. Bank loans (which may commonly be referred to as "floating rate loans"), which are another form of financing, are typically secured, with interest rates that adjust or "float" periodically (normally on a daily, monthly, quarterly or semiannual basis by reference to a base lending rate, such as LIBOR (London Interbank Offered Rate), plus a premium). Secured debt instruments are ordinarily secured by specific collateral or assets of the issuer or borrower such that holders of these instruments will have claims senior to the claims of other parties who hold unsecured instruments. In pursuit of the Fund's objectives, the investment manager chooses investments by: - - Reviewing interest rate and economic forecasts. - - Reviewing credit characteristics and capital structures of companies, including an evaluation of any outstanding bank loans or corporate debt securities a company has issued, its relative position in its industry, and its management team's capabilities. 59 - - Identifying companies that: - have medium and low quality ratings or, in the investment manager's opinion, have similar qualities to companies with medium or low quality ratings, even though they are not rated, or have been given a different rating by a rating agency, - have growth potential, or - have the potential to increase in value as their credit ratings improve. - - Buying debt instruments that are expected to outperform other debt instruments. In evaluating whether to sell an investment, the investment manager considers, among other factors, whether: - - The interest rate or economic outlook changes. - - A sector or industry is experiencing change. - - A security's rating is changed. - - The security is overvalued relative to alternative investments. - - The company no longer meets the investment manager's performance expectations. - - The investment manager wishes to lock in profits. - - The investment manager identifies a more attractive opportunity. - - The issuer or the security continues to meet the other standards described above. For bank loans, the investment manager's process includes a review of the legal documentation supporting the loan, including an analysis of the covenants and the rights and remedies of the lender. 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. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- --------------------------------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND FUNDAMENTAL POLICY SELIGMAN HIGH-YIELD FUND (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite the The Fund may not act as an underwriter securities of other issuers, except (sell securities for others). However, insofar as the Fund may be deemed an under the securities laws, the Fund may underwriter under the 1933 Act in be deemed to be an underwriter when it disposing of a portfolio security or in purchases securities directly from the connection with investments in other issuer and later resells them. investment companies. - --------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except as The Fund may not lend securities or permitted by the 1940 Act or any rule participate in an interfund lending thereunder, any SEC or SEC staff program if the total of all such loans interpretations thereof or any would exceed 33 1/3% of the Fund's exemptions therefrom which may be total assets except this fundamental granted by the SEC. 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. Under current Board policy, the Fund has no current intention to lend to a material extent. - --------------------------------------------------------------------------------------------------------- BORROWING MONEY The Fund may not borrow money, except The Fund may not borrow money, except as permitted by the 1940 Act or any for temporary purposes (not for rule thereunder, any SEC or SEC staff leveraging or investment) in an amount interpretations thereof or any not exceeding 33 1/3% of its total exemptions therefrom which may be assets (including the amount borrowed) granted by the SEC. The 1940 Act less liabilities (other than permits a fund to borrow up to 33 1/3% borrowings) immediately after the of its total assets (including the borrowings. amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. - --------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund may not issue senior SECURITIES securities, except as permitted by the securities, except as permitted under 1940 Act or any rule thereunder, any the 1940 Act, the rules and regulations SEC or SEC staff interpretations thereunder and any applicable exemptive thereof or any exemptions therefrom relief. which may be granted by the SEC. - ---------------------------------------------------------------------------------------------------------
60
- --------------------------------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND FUNDAMENTAL POLICY SELIGMAN HIGH-YIELD FUND (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or hold any The Fund will not buy or sell real real estate including limited estate, unless acquired as a result of partnership interests in real property, ownership of securities or other except that the Fund may invest in debt instruments, except this shall not securities secured by real estate or prevent the Fund from investing in interests therein or issued by securities or other instruments backed companies which invest in real estate by real estate or securities of or interests therein, including real companies engaged in the real estate estate investment trusts ("REITs"). business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and interpretations, as instruments, except this shall not they may be amended from time to time. prevent the Fund from buying or selling See also nonfundamental policy on options and futures contracts or from Commodities below. investing in securities or other instruments backed by, or whose value is derived from, physical commodities. - --------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any CONCENTRATION its total assets, at market value, in one industry. According to the present any one industry, except that 25% interpretation by the SEC, this means limitation on industry concentration that up to 25% of the Fund's total does not apply to securities issued or assets, based on current market value guaranteed by the U.S. government or at time of purchase, can be invested in any of its agencies or any one industry. instrumentalities (which may include mortgage-related securities). - --------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% inconsistent with the Fund's of its total assets in securities of classification as a diversified company any company, government, or political under the 1940 Act. 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. 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. - --------------------------------------------------------------------------------------------------------- MARGIN The Fund may not purchase securities on No fundamental policy. See fundamental margin, except as permitted by the 1940 policy on Lending above. Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its total assets would be invested in such agreements and in restricted and other illiquid securities. - --------------------------------------------------------------------------------------------------------- DEALINGS WITH The Fund may not purchase or hold the No fundamental policy. DIRECTORS, OFFICERS securities of any issuer, if to its AND TRUSTEES knowledge, Trustees or officers of Seligman High Income Fund Series (of which the Fund is a series) individually owning beneficially more than 0.5% of the securities of that other company own in the aggregate more than 5% of such securities. The Fund may not engage in transactions with its Trustees and officers, or firms they are associated with, in connection with the purchase or sale of securities, except as broker. - ---------------------------------------------------------------------------------------------------------
COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. 61 The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL RIVERSOURCE HIGH YIELD BOND FUND POLICY SELIGMAN HIGH-YIELD FUND (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- COMMODITIES Each Fund may purchase and sell See fundamental investment policy on commodities and commodity contracts Commodities above. only to the extent that such activities do not result in a Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. The investment manager must seek Board approval to invest in any type of commodity or commodity contract if it is of the type a Fund has not previously utilized. See also fundamental investment policy on Commodities above. - --------------------------------------------------------------------------------------------------------- SECURITIES OF OPEN- The Fund may not acquire any securities Not applicable. END INVESTMENT of a registered open-end investment COMPANIES company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. - --------------------------------------------------------------------------------------------------------- EQUITY LINKED The Fund may invest up to 10% of its The Fund may invest in equity-linked SECURITIES assets in equity-linked securities as securities to the extent permitted by part of its overall investment its investment strategy. strategy. - --------------------------------------------------------------------------------------------------------- FOREIGN SECURITIES The Fund may invest up to 10% of its The Fund may invest up to 25% of its net assets in debt securities of net assets in foreign investments foreign issuers (not including ADRs). (including ADRs). - --------------------------------------------------------------------------------------------------------- PREFERRED STOCK The Fund may invest up to 10% of its The Fund may invest in preferred stock total assets in preferred stock, to the extent permitted by its including non-investment grade investment strategy. preferred stock. - --------------------------------------------------------------------------------------------------------- INVESTMENTS FOR The Fund may not invest for the purpose Not applicable, other than as otherwise PURPOSES OF of controlling or managing any company. permitted by the 1940 Act. MANAGEMENT OR CONTROL - --------------------------------------------------------------------------------------------------------- SHORT SALES The Fund may not sell securities short The Fund is not prohibited from or maintain a short position. engaging in short sales, however, the Fund will seek Board approval prior to utilizing short sales as an active part of its investment strategy. - ---------------------------------------------------------------------------------------------------------
COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives and principal investment strategies. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. - - 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 borrower of a loan or the issuer of another debt instrument will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a loan. Rating agencies assign credit ratings to certain loans and other debt securities to indicate their credit risk. The price of a loan or other debt security generally will fall if the borrower or the issuer defaults on its obligation to pay principal or interest, the rating agencies downgrade the borrower's or the issuer's credit rating or other news affects the market's perception of the borrower's or the issuer's credit risk. If the borrower of a floating rate loan declares or is declared bankrupt, there may be a delay before the Fund can act on the collateral securing the loan, which may adversely affect the Fund. Further, here is a risk that a court could take action with respect to a floating rate loan adverse to the holders of the loan, such as invalidating the loan, the lien on the collateral, the priority status of the loan, or ordering the refund of interest previously paid by the borrower. Any such actions by a court could adversely affect the Fund's performance. If the Fund purchases unrated loans or other debt securities, or if the rating of a loan or security is reduced after purchase, the Fund will depend on the investment manager's analysis of credit risk more heavily than usual. Non-investment grade loans or securities, commonly called high yield or junk, may react more to perceived changes in the ability of the borrower or issuing entity to pay interest and 62 principal when due than to changes in interest rates. Non-investment grade loans or securities have greater price fluctuations and are more likely to experience a default than investment grade loans or securities. A default or expected default of a floating rate loan could also make it difficult for the Fund to sell the loan at a price approximating the value previously placed on it. - - HIGHLY LEVERAGED TRANSACTIONS RISK. The high yield debt instruments in which the Fund invests substantially consist of transactions involving refinancings, recapitalizations, mergers and acquisitions and other financings for general corporate purposes. The Fund's 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. - - 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 hedging risk, correlation risk, liquidity risk and leverage risk. 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. - - INTEREST RATE RISK. The securities in the Fund are subject to the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with the fixed-income securities in the Fund: when interest rates rise, the prices of fixed-income securities generally fall. In general, the longer the maturity or duration of a fixed-income security, the greater its sensitivity to changes in interest rates. Securities with floating interest rates can be less sensitive to interest rate changes, but may decline in value if their interest rates do not rise as much as interest rates in general. Because rates on certain floating rate loans and other debt securities reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause fluctuations in the Fund's net asset value. Interest rate changes also may increase prepayments of debt obligations, which in turn would increase prepayment risk. - - LIQUIDITY RISK. Liquidity risk is the risk associated from a lack of marketability of securities which may make it difficult or impossible to sell the security 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. Floating rate loans generally are subject to legal or contractual restrictions on resale. Floating rate loans also may trade infrequently on the secondary market. The value of the loan to the Fund may be impaired in the event that the Fund needs to liquidate such loans. Other debt securities in which the Fund invests may be traded in the over-the counter market rather than on an organized exchange and therefore may be more difficult to purchase or sell at a fair price. The inability to purchase or sell floating rate loans and other debt securities at a fair price may have a negative impact on the Fund's performance. - - 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 loan, 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 and floating rate loans. If a loan or security is converted, prepaid or redeemed before maturity, particularly during a time of declining interest rates or declining spreads, the portfolio managers 63 may not be able to reinvest the prepayment proceeds in securities or loans providing as high a level of income, resulting in a reduced yield to the Fund. Conversely, as interest rates rise or spreads widen, the likelihood of prepayment decreases. The portfolio managers may be unable to capitalize on securities with higher interest rates or wider spreads because the Fund's investments are locked in at a lower rate for a longer period of time. - - 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 rate 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. - - 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. - - 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. PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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. 64 Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. Tables. The first table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R and Class I shares of Seligman High-Yield Fund. The second table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R2 and Class R5 shares of the RiverSource High Yield Bond 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 of 4.50% for Class A shares of the Selling Fund* and 4.75% for Class A shares of the Buying Fund; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C** and Class R shares; - - no sales charge for Class R2, Class R5 and Class I shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge in Class A shares of the Selling Fund is 4.50%. Although for all periods presented the Selling Fund's Class A share returns reflect the 4.50% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been lower if a 4.75% maximum initial sales charge then in effect was incurred. ** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented the Selling Fund's Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 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. SELIGMAN HIGH-YIELD FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +0.09% -10.02% -15.91% -5.35% +21.84% +7.03% +1.57% +9.74% +0.81% -32.24% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +6.84% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was -22.00% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. 65 RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +7.06% -10.31% +4.80% -7.04% +25.81% +11.76% +4.36% +10.76% +2.07% -24.59% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +9.41% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was -18.37% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. The Buying Fund formerly was a "feeder" fund in a master/feeder arrangement where the Buying 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 Buying 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 Buying Fund includes the activity of the Buying Fund when it was a feeder in a master/feeder arrangement. 66 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS R**) (CLASS I**) SELIGMAN HIGH-YIELD FUND (SELLING FUND): Class A Return before taxes -35.30% -4.91% -3.78% N/A N/A N/A Return after taxes on distributions -37.56% -7.51% -6.78% N/A N/A N/A Return after taxes on distributions and sale of Fund shares -22.55% -5.18% -4.41% N/A N/A N/A Class B Return before taxes -35.84% -4.99% -3.91%* N/A N/A N/A Class C Return before taxes -33.63% -4.80% N/A -4.35%(a) N/A N/A Class R** Return before taxes -33.03% -4.25% N/A N/A -1.97%(b) N/A Class I** Return before taxes -31.99% -3.62% N/A N/A N/A -0.62%(c) JP Morgan Global High Yield Index*** Barclays Capital U.S. Corporate High-Yield 2% Issuer Capped Index*** -25.88% -0.84% +2.28% +2.12%(d) +1.44%(e) +2.93%(f) Lipper High Current Yield Funds Average -26.01% -1.53% +1.19% +0.89%(g) +0.73%(e) +1.81%(f) SINCE SINCE INCEPTION INCEPTION (CLASSES R2 1 YEAR 5 YEARS 10 YEARS (CLASS C) & R5) RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND): Class A Return before taxes -28.19% -1.08% +1.06% N/A N/A Return after taxes on distributions -30.32% -3.62% -2.11% N/A N/A Return after taxes on distributions and sale of Fund shares -18.08% -2.14% -0.88% N/A N/A Class B Return before taxes -28.99% -1.26% +0.76% N/A N/A Class C Return before taxes -26.09% -1.00% N/A +0.60%(h) N/A Class R2 Return before taxes -25.11% N/A N/A N/A -12.11%(i) Class R5 Return before taxes -24.33% N/A N/A N/A -11.47%(i) JP Morgan Global High Yield Index -26.83% -0.72% +2.58% +2.79%(j) -12.73%(k) Lipper High Current Yield Bond Funds Index -28.84% -1.87% +0.49% +0.26%(j) -14.23%(k)
(a)Inception date is May 27, 1999. (b)Inception date is April 30, 2003. (c)Inception date is Nov. 30, 2001. (d)Measurement period started May 28, 1999. (e)Measurement period started April 30, 2003. (f)Measurement period started Nov. 30, 2001. (g)Measurement period started May 27, 1999. (h)Inception date is June 26, 2000. (i)Inception date is Dec. 11, 2006. (j)Measurement period started June 26, 2000. (k)Measurement period started Dec. 11, 2006. *The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. **Class R and Class I of the Selling Fund are to be redesignated Class R2 and Class R5, respectively, in connection with the Reorganization. ***Effective Nov. 7, 2008, to better align the primary benchmark index with the investment strategy of the Fund, the Barclays Capital U.S. High-Yield 2% Issuer Capped Index was replaced with the JP Morgan Global High Yield Index, which will be used as the primary benchmark for the Fund going forward. The JP Morgan Global High Yield Index is an unmanaged index used to mirror the investable universe of the U.S. dollar global high yield corporate debt market of both developed and emerging markets. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. 67 The Barclays Capital U.S. Corporate High-Yield 2% Issuer Capped Index, an unmanaged index, covers the U.S. corporate bond market of high-yield bonds denominated in U.S. dollars, and is constrained from having greater than 2% of the securities of a single issuer. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper High Current Yield Funds Average is an average of funds that aim at high (relative) current yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower-grade debt instruments. The average is an unmanaged benchmark that assumes reinvestment of all distributions, if any, and excludes the effect of fees, taxes and sales charges. The Lipper High Current Yield Bond Funds Index includes the 30 largest high yield bond funds tracked by Lipper Inc. The index's returns include net reinvested dividends. Investors cannot invest directly in an average or index. 68 PROPOSAL 5. REORGANIZATION OF SELIGMAN INCOME AND GROWTH FUND INTO RIVERSOURCE BALANCED FUND COMPARISON OF INVESTMENT OBJECTIVES Each Fund generally seeks a combination of capital appreciation and current income. The investment objectives for the Funds are as follows: SELLING FUND: Seligman Income and Growth Fund seeks total return through a combination of capital appreciation and income consistent with what is believed to be a prudent allocation between equity and fixed-income securities. BUYING FUND: RiverSource Balanced Fund seeks to provide shareholders with a balance of growth of capital and current income. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Each Fund invests predominantly in a combination of equity and fixed-income securities. The Selling Fund may invest 10% of its assets in equity-linked securities (each, an "ELS"). The Buying Fund has no similar restriction with respect to investments in ELSs. The Selling Fund may invest up to 10% of total assets in foreign securities; the Buying Fund may invest up to 25% of the Fund's net assets in foreign investments. The Buying Fund counts American Depositary Receipts ("ADRs") toward its 25% limit, but ADRs are excluded from the Selling Fund's 10% limitation. DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN INCOME AND GROWTH FUND (SELLING FUND) The Fund allocates its assets between equity securities and fixed-income securities. Securities are carefully selected in light of the Fund's investment objective and are diversified among many different types of securities and market sectors. As of Dec. 31, 2008, approximately 67% of the Fund's portfolio was invested in equity securities and approximately 33% was invested in fixed- income securities. However, the proportion of the Fund's assets invested in each type of security will vary from time to time based on the investment manager's assessment of general market and economic conditions. EQUITY SECURITIES Equity securities in which the Fund may invest include: common stocks, including real estate investment trusts ("REITs"); securities convertible into common stocks; preferred stocks; and ADRs. The Fund usually invests in the common stock of larger U.S. companies; however, it may invest in companies of any size. REITs are companies that invest primarily in income-producing real estate or real estate related loans or interests. ADRs are publicly traded instruments generally issued by domestic banks or trust companies that represent securities of foreign issuers. Equity securities are chosen using an investment philosophy rooted in the belief that a disciplined, systematic, value-oriented approach to investing primarily in large-cap companies provides investors with an excellent opportunity for long-term growth of capital. In pursuit of the Fund's objective, RiverSource Investments chooses equity investments by seeking to: - - Select companies that are undervalued based on a variety of measures, including, but not limited to price-to-earnings ratios, price-to-book ratios, price-to-free cash flow, current and projected dividends, sum-of-the parts or breakup value and historic relative price valuations. - - Identify companies with moderate growth potential based on: - effective management, as demonstrated by overall performance; - financial strength; and - underappreciated potential for improvement in industry and thematic trends. In evaluating whether to sell an equity security, the investment manager considers, among other factors, whether: - - The security is overvalued relative to alternative investments. - - The security has reached the investment manager's price objective. - - The company has met the investment manager's earnings and/or growth expectations. - - The security exhibits unacceptable correlation characteristics with other portfolio holdings. - - The company or the security continues to meet the other standards described above. 69 FIXED-INCOME SECURITIES Investment grade fixed-income securities are those rated within the four highest rating categories by Moody's Investors Service ("Moody's"), Standard & Poor's Rating Services ("S&P") or Fitch Ratings, or are securities deemed by the investment manager to be of comparable quality (collectively, "Investment Grade Securities"). They include obligations issued and guaranteed by the U.S. government or its agencies or instrumentalities, corporate bonds and other obligations, mortgage-backed and other asset-backed securities, obligations of non-U.S. government agencies and private institutions, and income-producing cash equivalents, including repurchase agreements. Mortgage-backed securities include collateralized mortgage obligations, mortgage pass-through securities and stripped mortgage-backed securities. Although the Fund emphasizes high- and medium-quality debt securities, it may assume some credit risk in an effort to achieve higher yield and/or capital appreciation by buying lower-quality (junk) bonds which carry non-investment grade ratings (Ba or below by Moody's or BB or below by Fitch Ratings or S&P) or are securities deemed to be below investment grade by the investment manager ("High-Yield Securities"). Although High Yield Securities have the potential to offer higher yields than Investment Grade Securities with higher ratings and similar maturities, High Yield Securities are subject to greater risk of loss of principal and interest than Investment Grade Securities. The Fund may invest in all types of High Yield Securities including: - - Senior and subordinated corporate debt obligations of both U.S. and non-U.S. issuers (including, for example, debentures, loan participations and floating rate loans); - - Mortgage and other asset-backed securities; - - Capital appreciation bonds, including zero coupon and pay-in-kind securities; - - Convertible securities, preferred stock, structured securities and loan participations; - - Municipal securities; - - Obligations of foreign governments; - - Securities that are rated in default by a nationally recognized statistical rating organization; - - Repurchase agreements relating to the above instruments; - - Warrants, rights and other equity securities that are acquired in connection with the Fund's investments in High Yield Securities; and - - Restricted securities that may be offered and sold only to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933 ("Rule 144A Securities"). The Fund does not have any portfolio maturation limitation, and may invest its assets in High Yield Securities of short, medium or long maturities. Investment Grade Securities. In pursuit of the Fund's objective, the investment manager chooses Investment Grade Securities by: - - Evaluating the Investment Grade Securities portion of the portfolio's total exposure to sectors, industries and securities relative to the Barclays Capital U.S. Aggregate Bond Index (the "Barclays Index"). - - Analyzing factors such as credit quality, interest rate outlook and price in seeking to select the most attractive securities within each sector. - - Targeting an average portfolio duration within one year of the duration of the Barclays Index which, as of Jan. 31, 2009, was 4.18 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 five-year duration means a bond is expected to decrease in value by 5% if interest rates rise 1% and increase in value by 5% if interest rates fall 1%. In evaluating whether to sell Investment Grade Securities, the investment manager considers, among other factors: - - Identification of more attractive investments based on relative value. - - The portfolio's total Investment Grade Securities exposure to sectors, industries and securities relative to the Barclays Index. - - Whether a security's rating has changed or is vulnerable to a change. - - Whether a sector or industry is experiencing change. - - Changes in the interest rate or economic outlook. High-Yield Securities. In pursuit of the Fund's objective, the investment manager chooses High Yield Securities by: - - Reviewing interest rate and economic forecasts. 70 - - Reviewing credit characteristics and capital structures of companies, including an evaluation of any outstanding bank loans or corporate debt securities a company has issued, its relative position in its industry, and its management team's capabilities. - - Identifying companies that: - have medium and low quality ratings or, in the investment manager's opinion, have similar qualities to companies with medium or low quality ratings, even though they are not rated, or have been given a different rating by a rating agency, - have growth potential, or - have the potential to increase in value as their credit ratings improve. - - Buying debt instruments that are expected to outperform other debt instruments. In evaluating whether to sell High Yield Securities, the investment manager considers, among other factors, whether: - - The interest rate or economic outlook changes. - - A sector or industry is experiencing change. - - A security's rating is changed. - - The security is overvalued relative to alternative investments. - - The company no longer meets the investment manager's performance expectations. - - The investment manager wishes to lock in profits. - - The investment manager identifies a more attractive opportunity. - - The issuer or the security continues to meet the other standards described above. OTHER STRATEGIES The Fund may invest up to 15% of its net assets in illiquid securities (i.e., securities that cannot be readily sold) including funding agreements issued by domestic insurance companies and may invest up to 10% of its total assets directly in foreign securities. The limit on foreign securities does not apply to ADRs or commercial paper and certificates of deposit issued by foreign banks. The Fund may also invest up to 10% of its assets in exchange-traded funds ("ETFs"). ETFs are traded, like individual stocks, on an exchange, but they represent baskets of securities that seek to track the performance of certain indices. The indices include not only broad-market indices but more specific indices as well, including those relating to particular sectors, countries and regions. The Fund may invest in ETFs for short-term cash management purposes or as part of its overall investment strategy. The Fund may also invest up to 10% of its assets in ELSs as part of its overall investment strategy. An ELS is a debt instrument whose value is based on the value of a single equity security, basket of equity securities or an index of equity securities (each, an "Underlying Equity"). An ELS typically provides interest income, thereby offering a yield advantage over investing directly in an Underlying Equity. However, the holder of an ELS may have limited or no benefit from any appreciation in the Underlying Equity, but is exposed to downside market risk. The Fund may purchase ELSs that trade on a securities exchange or those that trade on the over-the-counter markets, including Rule 144A Securities. The Fund may also purchase an ELS in a privately negotiated transaction with the issuer of the ELS (or its broker-dealer affiliate). RIVERSOURCE BALANCED FUND (BUYING FUND) The Fund invests primarily in a combination of common and preferred stocks, bonds and other debt securities. Under normal market conditions, at least 40% of the Fund's total assets are invested in common stocks and no less than 25% of the Fund's total assets are invested in debt securities. Equity securities may provide income, offer the opportunity for long-term capital appreciation, or both. The Fund can invest in any economic sector and, at times, it may emphasize one or more particular sectors. Although the Fund emphasizes high- and medium- quality securities for the debt portion of its portfolio, it may buy lower- quality bonds (junk bonds). The Fund may invest up to 25% of its net assets in foreign investments. The Fund's equity investment philosophy is rooted in the belief that a disciplined, systematic, value-oriented approach to investing primarily in large-cap companies provides investors with an excellent opportunity for long- term growth of capital. In pursuit of the Fund's objective, RiverSource Investments chooses equity investments by seeking to: - - Select companies that are undervalued based on a variety of measures, including, but not limited to price-to-earnings ratios, price-to-book ratios, price-to-free cash flow, current and projected dividends, sum-of-the parts or breakup value and historic relative price valuations. 71 - - Identify companies with moderate growth potential based on: - effective management, as demonstrated by overall performance; - financial strength; and - underappreciated potential for improvement in industry and thematic trends. In evaluating whether to sell an equity security, the investment manager considers, among other factors, whether: - - The security is overvalued relative to alternative investments. - - The security has reached the investment manager's price objective. - - The company has met the investment manager's earnings and/or growth expectations. - - The security exhibits unacceptable correlation characteristics with other portfolio holdings. - - The company or the security continues to meet the other standards described above. In pursuit of the Fund's objective, the investment manager chooses debt investments by: - - Evaluating the debt portion of the portfolio's total exposure to sectors, industries and securities relative to the Barclays Capital U.S. Aggregate Bond Index (the "Index"). - - Analyzing factors such as credit quality, interest rate outlook and price to select the most attractive securities within each sector. - - Targeting an average duration for the debt portion of the portfolio within one year of the duration of the Index which, as of Jan. 31, 2009 was 4.18 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 five-year duration means a bond is expected to decrease in value by 5% if interest rates rise 1% and increase in value by 5% if interest rates fall 1%. In evaluating whether to sell a debt security, the investment manager considers, among other factors: - - The debt portion of the portfolio's total exposure to sectors, industries and securities relative to the Index. - - Whether a security's rating is changed or is vulnerable to a change. - - Whether a sector or industry is experiencing change. - - Changes in the interest rate or economic outlook. - - Whether 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. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- --------------------------------------------------------------------------------------------------------- SELIGMAN INCOME AND GROWTH FUND FUNDAMENTAL POLICY (SELLING FUND) RIVERSOURCE BALANCED FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite the The Fund may not act as an underwriter securities of other issuers, except (sell securities for others). However, insofar as the Fund may be deemed an under the securities laws, the Fund may underwriter under the 1933 Act in be deemed to be an underwriter when it disposing of a portfolio security or in purchases securities directly from the connection with investments in other issuer and later resells them. investment companies. - --------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except as The Fund may not lend securities or permitted by the 1940 Act or any rule participate in an interfund lending thereunder, any SEC or SEC staff program if the total of all such loans interpretations thereof or any would exceed 33 1/3% of the Fund's exemptions therefrom which may be total assets except this fundamental granted by the SEC. 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. - ---------------------------------------------------------------------------------------------------------
72
- --------------------------------------------------------------------------------------------------------- SELIGMAN INCOME AND GROWTH FUND FUNDAMENTAL POLICY (SELLING FUND) RIVERSOURCE BALANCED FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- BORROWING MONEY The Fund may not borrow money, except The Fund may not borrow money, except as permitted by the 1940 Act or any for temporary purposes (not for rule thereunder, any SEC or SEC staff leveraging or investment) in an amount interpretations thereof or any not exceeding 33 1/3% of its total exemptions therefrom which may be assets (including the amount borrowed) granted by the SEC. The 1940 Act less liabilities (other than permits a fund to borrow up to 33 1/3% borrowings) immediately after the of its total assets (including the borrowings. amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. - --------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund may not issue senior SECURITIES securities, except as permitted by the securities, except as permitted under 1940 Act or any rule thereunder, any the 1940 Act, the rules and regulations SEC or SEC staff interpretations thereunder and any applicable exemptive thereof or any exemptions therefrom relief. which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or hold any The Fund will not buy or sell real real estate, except the Fund may invest estate, unless acquired as a result of in securities secured by real estate or ownership of securities or other interests therein or issued by persons instruments, except this shall not (including real estate investment prevent the Fund from investing in trusts) which deal in real estate or securities or other instruments backed interests therein. 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. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and interpretations, as instruments, except this shall not they may be amended from time to time. prevent the Fund from buying or selling See also nonfundamental policy on options and futures contracts or from Commodities below. investing in securities or other instruments backed by, or whose value is derived from, physical commodities. - --------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any CONCENTRATION its total assets, at market value, in one industry. According to the present the securities of issuers in any interpretation by the SEC, this means particular industry, provided that this that up to 25% of the Fund's total limitation shall exclude securities assets, based on current market value issued or guaranteed by the U.S. at time of purchase, can be invested in government or any of its agencies or any one industry. instrumentalities. - --------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% inconsistent with the Fund's of its total assets in securities of classification as a diversified company any company, government, or political under the 1940 Act. 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. 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. - --------------------------------------------------------------------------------------------------------- MARGIN The Fund may not purchase securities on No fundamental policy. See fundamental margin except as permitted by the 1940 policy on Lending above. Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its net assets would be so invested. - --------------------------------------------------------------------------------------------------------- DEALINGS WITH The Fund may not purchase or retain the No fundamental policy. DIRECTORS, OFFICERS securities of any issuer (other than AND TRUSTEES the shares of a Fund), if to the Fund's knowledge, those directors and officers of the Fund individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. The Fund may not deal with its directors or officers, or firms they are associated with, in the purchase or sale of securities of other issuers, except as broker. - ---------------------------------------------------------------------------------------------------------
73 COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL SELIGMAN INCOME AND GROWTH FUND POLICY (SELLING FUND) RIVERSOURCE BALANCED FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- FOREIGN The Fund may invest up to 10% of total Up to 25% of the Fund's net assets may INVESTMENTS assets in foreign securities. The limit be invested in foreign investments. on foreign securities does not apply to ADRs or commercial paper and certificates of deposit issued by foreign banks. - --------------------------------------------------------------------------------------------------------- BORROWING The Fund may not borrow more than 15% See the fundamental investment policy RESTRICTIONS of the value of its total assets. on Borrowing Money above. Borrowings may be secured by a mortgage or pledge of the Fund's assets. See also the fundamental investment policy on Borrowing Money above. - --------------------------------------------------------------------------------------------------------- SECURITIES OF OPEN- The Fund may not acquire any securities Not applicable. END INVESTMENT of a registered open-end investment COMPANIES company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may purchase and sell See fundamental investment policy on commodities and commodity contracts Commodities above. only to the extent that such activities do not result in the Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. The investment manager must seek Board approval to invest in any type of commodity or commodity contract if it is of the type the Fund has not previously utilized. See also fundamental investment policy on Commodities above. - --------------------------------------------------------------------------------------------------------- SHORT SALES The Fund may not sell "short" or The Fund is not prohibited from maintain a "short position". engaging in short sales, however, the Fund will seek Board approval prior to utilizing short sales as an active part of its investment strategy. - --------------------------------------------------------------------------------------------------------- EXCHANGE The Fund may invest up to 10% of its Investing in ETFs is an allowable TRADED FUNDS assets in ETFs. investment strategy for the Fund, however, the Fund does not have a stated policy limiting these types of investments, other than as otherwise permitted by the 1940 Act. - --------------------------------------------------------------------------------------------------------- EQUITY LINKED The Fund may invest up to 10% of its The Fund may invest in equity linked SECURITIES assets in equity-linked securities securities to the extent permitted by (ELS) as part of its overall investment its investment strategy. strategy. - --------------------------------------------------------------------------------------------------------- PREFERRED The Fund may invest in preferred The Fund may invest in preferred stock SECURITIES securities believed by the investment to the extent permitted by its manager to offer capital appreciation investment strategy. opportunities. - --------------------------------------------------------------------------------------------------------- ACCESS TRADES The Fund may participate in access The Fund may invest in access trades trades, but its exposure is limited to and other derivative instruments to the 5% of total assets of the Fund at the extent permitted by its investment time of purchase and to dealing with strategy. counterparties believed to be reputable. - --------------------------------------------------------------------------------------------------------- INVESTMENTS FOR The Fund may not invest for the purpose Not applicable, other than as otherwise PURPOSES OF of controlling or managing any company. permitted by the 1940 Act. MANAGEMENT OR CONTROL - ---------------------------------------------------------------------------------------------------------
COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives, principal investment strategies and investment policies. With regards to investment policies, although the investment policies of the Buying Fund and the Selling Fund are similar with regards to high yield (junk) bonds, the Buying Fund currently has greater exposure to high yield (junk) bonds than the Selling Fund resulting in greater current credit and liquidity risk to its shareholders. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. 74 - - 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 objective. 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. Non-investment grade securities, commonly called high yield or junk bonds, may react more to perceived changes in the ability of the issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade securities have greater price fluctuations and are more likely to experience a default than investment grade bonds. - - 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 and leverage 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. - - RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate 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. - - 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. - - ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. 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. - - 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. 75 - - 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. 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. - - SECTOR RISK. If a fund emphasizes one or more economic sectors, it may be more susceptible to the financial, market or economic events affecting the particular issuers and industries in which it invests than funds that do not emphasize particular sectors. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility. PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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 a 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. Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. Tables. The first table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R and Class I shares of Seligman Income and Growth Fund. The second table shows total returns from hypothetical investments in Class A, Class B and Class C shares of the RiverSource Balanced Fund. The inception date for Class R2 and Class R5 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for those classes is not shown. 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 of 5.75%* for Class A shares; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C** and Class R shares; - - no sales charge for Class I shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge on investments in Class A shares of the Selling Fund is 5.75%. Although for all periods presented, the Selling Fund's Class A share returns reflect the 5.75% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been higher if a 4.75% maximum initial sales charge then in effect was incurred. ** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented in the tables the Selling Funds' Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 76 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. SELIGMAN INCOME AND GROWTH FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) -1.76% -3.09% -3.90% -11.96% +16.24% +8.18% +1.07% +15.80% -2.43% -37.84% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +9.39% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was -19.41% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. RIVERSOURCE BALANCED FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +7.36% -11.03% -12.70% -15.34% +19.51% +9.32% +3.56% +14.97% +1.64% -29.64% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +12.28% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was -16.19% (quarter ended Dec. 31, 2008). The performance of other classes may vary from that shown because of differences in expenses. The Buying Fund formerly was a "feeder" fund in a master/feeder arrangement where the Buying Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Jan. 12, 2006, the Buying 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 Buying Fund includes the activity of the Buying Fund when it was a feeder in a master/feeder arrangement. 77 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS R AND I**) SELIGMAN INCOME AND GROWTH FUND (SELLING FUND): Class A Return before taxes -41.41% -6.26% -3.82% N/A N/A Return after taxes on distributions -42.19% -6.97% -4.60% N/A N/A Return after taxes on distributions and sale of Fund shares -26.76% -5.28% -3.39% N/A N/A Class B Return before taxes -41.28% -6.18% -3.81%* N/A N/A Class C Return before taxes -38.84% -5.84% N/A -4.09%(a) N/A Class R** Return before taxes -38.53% -5.33% N/A N/A -2.72%(b) Class I** Return before taxes -37.62% -5.04% N/A N/A -2.42%(b) Russell 1000 Value Index*** -36.85% -0.79% +1.36% +0.58% +3.38%(d) Standard & Poor's 500 Composite Stock Price (S&P 500 Index)*** -36.99% -2.19% -1.38% -1.92%(c) +1.67%(d) Barclays Capital U.S. Aggregate Bond Index*** +5.24% +4.65% +5.63% +5.98%(c) +4.43%(d) Barclays Capital U.S. Government/Credit Index*** +5.70% +4.64% +5.64% +6.09%(c) +4.43%(d) Blended Index*** -20.01% +1.39% +3.07% +2.74%(c) +3.80%(d) Blended Index (Selling Fund old)*** -22.17% -1.30% -0.81% -1.13%(c) +1.02%(d) Lipper Mixed-Asset Target Allocation Growth Funds Average -29.75% -0.66% +0.85% +0.55%(c) +2.35%(d)
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) RIVERSOURCE BALANCED FUND (BUYING FUND): Class A Return before taxes -33.68% -2.59% -2.89% N/A Return after taxes on distributions -34.43% -3.44% -3.86% N/A Return after taxes on distributions and sale of Fund shares -21.81% -2.59% -2.82% N/A Class B Return before taxes -33.57% -2.57% -3.14% N/A Class C Return before taxes -30.84% -2.18% N/A -3.97%(e) Russell 1000 Index -36.85% -0.79% +1.36% +0.91%(f) Barclays Capital U.S. Aggregate Bond Index +5.24% +4.65% +5.63% +6.33%(f) Blended Index -21.96% +1.57% +3.34% +3.34%(f) Lipper Balanced Funds Index -26.18% +0.12% +1.53% +0.58%(f)
(a)Inception date is May 27, 1999. (b)Inception date is April 30, 2003. (c)Measurement period started May 27, 1999. (d)Measurement period started April 30, 2003. (e)Inception date is June 26, 2000. (f)Measurement period started June 26, 2000. *The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. **Class R and Class I of the Selling Fund are to be redesignated Class R2 and Class R5, respectively, in connection with the Reorganization. ***Effective Nov. 7, 2008, to better align the primary benchmark index with the investment strategy of the Fund, the S&P 500 Index was replaced with the Russell 1000 Value Index. In addition, the Barclays Capital U.S. Government/Credit Index was replaced with the Barclays Capital U.S. Aggregate Bond Index and the Blended Index (Selling Fund old), comprised of a 60% weighting in the S&P 500 Index and a 40% weighting in the Barclays Capital U.S. Government/Credit Index, was replaced with the Blended Index, comprised of a 60% weighting in the Russell 1000 Value Index and 40% in the Barclays Capital U.S. Aggregate Bond Index. The Russell 1000 Value Index, an unmanaged index, measures the performance of those stocks in the Russell 1000 Index with lower price-to book ratios and lower forecasted growth values. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. 78 The S&P 500 Index, an unmanaged index, measures the performance of 500 of the largest U.S. companies based on market capitalization. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Barclays Capital U.S. Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Barclays Capital U.S. Government/Credit Index, an unmanaged index, is comprised of all bonds that are investment grade (rated Baa or higher by Moody's or BBB or higher by S&P, if unrated by Moody's) with at least one year to maturity. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Blended Index is comprised of a 60% weighting in the Russell 1000 Value Index and 40% in the Barclays Capital U.S. Aggregate Bond Index. The index is an unmanaged benchmark that reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Blended Index (Selling Fund old) is comprised of a 60% weighting in the S&P 500 Index and a 40% weighting in the Barclays Capital U.S. Government/Credit Index. The index is an unmanaged benchmark that reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper Mixed-Asset Target Allocation Growth Funds Average measures the performance of funds, that by portfolio practice, maintain a mix of between 60%- 80% equity securities, with the remainder invested in bonds, cash and cash equivalents. The average is an unmanaged benchmark that assumes the reinvestment of all distributions, if any, and does not reflect any fees, sales charges or taxes. The Lipper Balanced Funds Index includes the 30 largest balanced funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Buying Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See Fund Management and Compensation in Exhibit B for more information. Investors cannot invest directly in an average or index. The inception date for Class R2 and Class R5 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for those classes is not shown. 79 PROPOSAL 6. REORGANIZATION OF SELIGMAN INTERNATIONAL GROWTH FUND INTO RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND COMPARISON OF INVESTMENT OBJECTIVES Each Fund seeks long-term capital appreciation and invests predominantly in equity securities of foreign issuers that are believed to be growth companies. The investment objectives for the Funds are as follows: SELLING FUND: Seligman International Growth Fund seeks long-term capital appreciation. BUYING FUND: RiverSource Partners International Select Growth Fund seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Each Fund may invest in common stock of companies in any country. However, the Selling Fund typically will not invest in companies located in the United States. The Buying Fund's assets are primarily invested in equity securities of foreign issuers. The Selling Fund may invest up to 25% of its assets in preferred stock and investment-grade or comparable quality debt securities and generally invests less than 25% of its assets in emerging markets, while the Buying Fund has no similar restrictions. Both Funds may use forward foreign currency exchange contracts or purchase put options as part of their principal investment strategies. RiverSource Investments serves as the investment manager for each Fund and is responsible for the oversight of each Fund's subadviser(s) which provide day-to- day management of the Fund. The Selling Fund is subadvised by Wellington and the Buying Fund is subadvised by Columbia Wanger Asset Management, L.P. ("Columbia WAM") and Principal Global Investors, LLC ("Principal Global") (collectively, the "Subadvisers"). DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) The Fund invests primarily in high quality, large- and mid capitalization growth companies ($1 billion or more at the time of initial purchase by the Fund) that are considered leaders in their industries, emphasizing those industries that are growing on a global basis. The Fund may invest in any country; however, it typically will not invest in the United States. It generally invests in several countries in different geographic regions. The Fund generally invests in the common stock of medium- to large- sized companies in the principal international markets. However, it may also invest in companies with a lower market capitalization or in smaller regional or emerging markets (representation in the emerging markets will generally be less than 25% of assets). In selecting individual securities, the portfolio manager looks to identify companies that it believes display one or more of the following: - - Attractive valuations relative to earnings and revenue forecasts or other valuation criteria (e.g., return on equity) - - Quality management - - Unique competitive advantages (e.g., market share, proprietary products) - - Strong possibility of multiple expansion - - Potential for improvement in overall operations (hidden/unappreciated value) The Fund generally sells a stock if the portfolio manager believes its target price has been reached, there is a decelerating trend of earnings growth, deteriorating industry fundamentals, management change or failure, its revenue growth has slowed, or its underlying fundamentals have deteriorated. The Fund may invest in all types of securities, many of which will be denominated in currencies other than the U.S. dollar. The securities may be listed on a U.S. or foreign stock exchange or traded in U.S. or foreign over- the-counter markets. The Fund normally concentrates its investments in common stocks; however, it may invest in other types of equity securities, including securities convertible into or exchangeable for common stock, depositary receipts, and rights and warrants to purchase common stock. The Fund also may invest up to 25% of its assets in preferred stock and investment-grade or comparable quality debt securities. The Fund may invest up to 15% of its net assets in illiquid securities (i.e., securities that cannot be readily sold), and may from time to time enter into forward foreign currency exchange contracts in an attempt to manage the risk of adverse changes in currencies. The Fund may also purchase put options in an attempt to hedge against a 80 decline in the price of securities it holds in its portfolio. A put option gives the Fund the right to sell an underlying security at a particular price during a fixed period of time. Forward foreign currency exchange contracts and put options on securities may not be available to the Fund on reasonable terms in many situations, and the Fund may frequently choose not to enter into such contracts or purchase such options even when they are available. The Fund may invest in futures contracts. 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. The Fund may also invest up to 10% of its assets in exchange-traded funds ("ETFs"). ETFs are traded, like individual stocks, on an exchange, but they represent baskets of securities that seek to track the performance of certain indices. The indices include not only broad-market indices but more specific indices as well, including those relating to particular sectors, countries and regions. The Fund may invest in ETFs for short-term cash management purposes or as part of its overall investment strategy. RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND) The Fund's assets are primarily invested in equity securities of foreign issuers that are believed to offer strong growth potential. The Fund may invest in both developed and emerging markets. RiverSource Investments serves as the investment manager to the Fund and is responsible for the oversight of the Fund's Subadvisers, who provide day-to-day management for the Fund. Each of the Subadvisers acts independently of the other and uses its own methodology for selecting investments. RiverSource Investments, subject to the oversight of the Fund's Board of Directors (Board), decides the proportion of the Fund assets to be managed by each subadviser, and may change these proportions at any time. RiverSource Investments currently intends to allocate a majority of the Fund's assets to Principal Global, although this could change. Each of the Subadvisers employs an active investment strategy that focuses on companies that the Subadvisers believe will increase in value over time. COLUMBIA WAM Columbia WAM invests primarily in stocks of small- and medium sized companies based both outside and in the U.S. with capitalizations of less than $5 billion at the time of purchase. As long as the stock continues to meet the Fund's other investment criteria, Columbia WAM may choose to hold the stock even if it grows beyond that capitalization limit. Columbia WAM believes that smaller companies -- particularly outside the U.S. -- which are not as well known by financial analysts and which dominate a part of the market may offer higher return potential than the stocks of larger companies. Columbia WAM invests in the stocks of foreign companies based in developed markets and also emerging markets. In making investments for the Fund, Columbia WAM typically looks for companies with: - - A strong business franchise that offers growth potential. - - Products and services that give a company a competitive advantage. - - A stock price that Columbia WAM believes is reasonable relative to the assets and earning power of the company. Columbia WAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, Columbia WAM looks for growth potential, financial strength, and fundamental value. Columbia WAM may identify what it believes are important economic, social, or technological trends (for example, the growth of outsourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from these trends.
- ----------------------------------------------------------------------------------------------------- GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE - ----------------------------------------------------------------------------------------------------- superior technology low debt reasonable stock price relative to growth potential - ----------------------------------------------------------------------------------------------------- innovative marketing adequate working capital valuable assets - ----------------------------------------------------------------------------------------------------- managerial skill conservative accounting practices - ----------------------------------------------------------------------------------------------------- market niche adequate profit margin - ----------------------------------------------------------------------------------------------------- good earnings prospects - ------------------------------------------------------------------- strong demand for product - -------------------------------------------------------------------
Columbia WAM believes that if the growth potential is realized, it may provide a basis for the company to outperform its peers. A strong balance sheet gives management greater flexibility to pursue strategic objectives and is essential to maintaining 81 a competitive advantage. Once Columbia WAM uncovers an attractive company, it identifies a price that it believes would also make the stock a good value. Columbia WAM may use foreign currency futures contracts or foreign currency forward contracts, with terms of up to one year in an effort to hedge existing positions, interest rate fluctuations or currency fluctuations. Columbia WAM also may purchase foreign currency for immediate settlement in order to purchase foreign securities. PRINCIPAL GLOBAL Principal Global's equity investment philosophy is based on the belief that superior stock selection and disciplined risk management provide consistent outperformance. Principal Global focuses on companies with improving and sustainable business fundamentals, rising investor expectations and attractive relative valuations. To support their stock selection skills, which are believed to be the primary drivers of relative performance, Principal Global seeks to leverage technology in a research-driven approach and neutralize unintended portfolio risks. Principal Global selects securities for the Fund based on its own global investment research. The research process is comprised of the following components: - - A proprietary and customized information management and screening framework, providing high-quality, real-time breadth of research coverage and peer rankings encompassing more than 10,000 companies worldwide. - - A systematic evaluation of companies based on objective measures such as accelerating profitability, discounted cash flow valuation and market confirmation. - - The portfolio managers and research analysts team working together to build systematic quantitative fundamental models that reflect the critical drivers of performance. These models produce relative rankings for each stock within their appropriate peer group that differentiate the most attractive from the least attractive stocks. Stocks that appear to be attractive based on initial screening and analysis are subjected to more rigorous examination by the research analysts. The analysts then seek to validate or confirm the attractive characteristics identified by the research process, as well as apply more qualitative analysis to issues such as evaluating the sustainability of fundamental changes. As part of the research process, the research analysts meet with company management, conduct on-site due diligence visits, attend industry conferences, as well as interact with sell-side equity analysts on a daily basis. Principal Global's stock selection process is complemented by disciplined portfolio risk controls. The portfolio risk management ensures any excess returns come from stock selection skills and not from influences such as large sector or country exposures. This is designed to enhance the consistency of Principal Global's investment process and to minimize the risk of unexpected negative surprises. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- --------------------------------------------------------------------------------------------------------- SELIGMAN INTERNATIONAL GROWTH FUND RIVERSOURCE PARTNERS INTERNATIONAL FUNDAMENTAL POLICY (SELLING FUND) SELECT GROWTH FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite the The Fund may not act as an underwriter securities of other issuers, except (sell securities for others). However, insofar as the Fund may be deemed an under the securities laws, the Fund may underwriter under the 1933 Act in be deemed to be an underwriter when it disposing of a portfolio security or in purchases securities directly from the connection with investments in other issuer and later resells them. investment companies. - --------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except as The Fund may not lend securities or permitted by the 1940 Act or any rule participate in an interfund lending thereunder, any SEC or SEC staff program if the total of all such loans interpretations thereof or any would exceed 33 1/3% of the Fund's exemptions therefrom which may be total assets except this fundamental granted by the SEC. 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. - ---------------------------------------------------------------------------------------------------------
82
- --------------------------------------------------------------------------------------------------------- SELIGMAN INTERNATIONAL GROWTH FUND RIVERSOURCE PARTNERS INTERNATIONAL FUNDAMENTAL POLICY (SELLING FUND) SELECT GROWTH FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- BORROWING The Fund may not borrow money, except The Fund may not borrow money, except MONEY as permitted by the 1940 Act or any for temporary purposes (not for rule thereunder, any SEC or SEC staff leveraging or investment) in an amount interpretations thereof or any not exceeding 33 1/3% of its total exemptions therefrom which may be assets (including the amount borrowed) granted by the SEC. The 1940 Act less liabilities (other than permits a fund to borrow up to 33 1/3% borrowings) immediately after the of its total assets (including the borrowings. amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. - --------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund may not issue senior SECURITIES securities, except as permitted by the securities, except as permitted under 1940 Act or any rule thereunder, any the 1940 Act, the rules and regulations SEC or SEC staff interpretations thereunder and any applicable exemptive thereof or any exemptions therefrom relief. which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or hold any The Fund will not buy or sell real real estate, except the Fund may invest estate, unless acquired as a result of in securities secured by real estate or ownership of securities or other interests therein or issued by persons instruments, except this shall not (including real estate investment prevent the Fund from investing in trusts) which deal in real estate or securities or other instruments backed interests therein. 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. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and interpretations, as instruments, except this shall not they may be amended from time to time. prevent the Fund from buying or selling See also nonfundamental policy on options, futures contracts and foreign Commodities below. currency or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. - --------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any CONCENTRATION its total assets, at market value, in one industry. According to the present the securities of issuers in any interpretation by the SEC, this means particular industry, provided that this that up to 25% of the Fund's total limitation shall exclude securities assets, based on current market value issued or guaranteed by the U.S. at time of purchase, can be invested in government or any of its agencies or any one industry. instrumentalities. - --------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% inconsistent with the Fund's of its total assets in securities of classification as a diversified company any company, government, or political under the 1940 Act. 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. 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. - --------------------------------------------------------------------------------------------------------- MARGIN The Fund may not purchase securities on No fundamental policy. See fundamental margin except as permitted by the 1940 policy on Lending above. Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its total assets would be invested in such agreements and in restricted and other illiquid securities. - --------------------------------------------------------------------------------------------------------- DEALINGS WITH The Fund may not purchase or retain the No fundamental policy. DIRECTORS, OFFICERS securities of any issuer (other than AND TRUSTEES the shares of the Fund), if to the Fund's knowledge, those directors and officers of Seligman Global Fund Series, Inc. (of which the Fund is a series) and the directors and officers of the investment manager or subadviser, who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. - ---------------------------------------------------------------------------------------------------------
83 COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- --------------------------------------------------------------------------------------------------------- RIVERSOURCE PARTNERS INTERNATIONAL NONFUNDAMENTAL SELIGMAN INTERNATIONAL GROWTH FUND SELECT GROWTH FUND POLICY (SELLING FUND) (BUYING FUND) - --------------------------------------------------------------------------------------------------------- BORROWING The Fund may not borrow more than 15% See the fundamental investment policy RESTRICTIONS of the value of its total assets. on Borrowing Money above. Borrowings may be secured by a mortgage or pledge of the Fund's assets. See also the fundamental investment policy on Borrowing Money above. - --------------------------------------------------------------------------------------------------------- SECURITIES OF OPEN- The Fund may not acquire any securities Not applicable. END INVESTMENT of a registered open-end investment COMPANIES company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may purchase and sell See fundamental investment policy on commodities and commodity contracts Commodities above. only to the extent that such activities do not result in the Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. Approval of the Board of Directors must be granted for the Fund to invest in any new type of commodity if it is of a type the Fund has not previously utilized. See also fundamental investment policy on Commodities above. - --------------------------------------------------------------------------------------------------------- EMERGING MARKET The Fund will generally invest less The Fund may invest in both developed SECURITIES than 25% of its assets in securities of and emerging markets. emerging markets. - --------------------------------------------------------------------------------------------------------- EXCHANGE The Fund may invest up to 10% of its Investing in ETFs is an allowable TRADED FUNDS assets in ETFs. investment strategy for the Fund, however, the Fund does not have a stated policy limiting these types of investments, other than as otherwise permitted by the 1940 Act. - --------------------------------------------------------------------------------------------------------- PREFERRED The Fund may invest up to 25% of its The Fund may invest in preferred stock STOCK AND DEBT net assets in preferred stock and debt and debt securities to the extent SECURITIES securities. The Fund will invest only permitted by its investment strategy. in "investment grade" debt securities or, in the case of unrated securities, debt securities that are deemed to be of equivalent quality to "investment- grade" securities. "Investment-grade" debt securities are rated within the four highest rating categories as determined by Moody's or S&P. - --------------------------------------------------------------------------------------------------------- DERIVATIVES The Fund will invest in derivatives The Fund may invest in derivatives to only for hedging or investment the extent permitted by its investment purposes. The Fund will not invest in strategy. derivatives for speculative purposes, which means where the derivative investment exposes the Fund to undue risk of loss, such as where the risk of loss is greater than the cost of the investment. - --------------------------------------------------------------------------------------------------------- WARRANTS No more than 2% of net assets of the Investing in warrants is an allowable Fund may be invested in warrants not investment strategy for the Fund. listed on the New York or American Stock Exchanges. - --------------------------------------------------------------------------------------------------------- ACCESS TRADES The Fund may participate in access The Fund may invest in access trades trades, but its exposure is limited to and other derivative instruments to the 5% of total assets of the Fund at the extent permitted by its investment time of purchase and to dealing with strategy. counterparties believed to be reputable. - --------------------------------------------------------------------------------------------------------- INVESTMENTS FOR The Fund may not invest for the purpose Not applicable, other than as otherwise PURPOSES OF of controlling or managing any company. permitted by the 1940 Act. MANAGEMENT OR CONTROL - ---------------------------------------------------------------------------------------------------------
84 COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives, principal investment strategies and investment policies. Because the Buying Fund invests primarily in small- and medium-sized companies whereas the Selling Fund invests primarily in medium- to large-sized companies, the Buying Fund is subject to greater small-sized company risk. With regards to investment policies, the Buying Fund may expose shareholders to greater emerging markets risk due to the Buying Fund's greater ability to invest in emerging market securities. The Buying Fund may also expose shareholders to greater issuer risk and market risk due to the Buying Fund's greater ability to invest in preferred stock and debt securities. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. - - 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 objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. - - RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times, it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate 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. - - ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. 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. - - 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. - - SECTOR RISK. Companies that operate in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund's principal investment strategies do not involve focusing on any particular sector, at times the investment manager's asset management strategy may cause the Fund to invest a large portion of its assets in a particular sector. - - 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 85 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. In addition to the risks described above, the Buying Fund is subject to the additional principal investment risks set forth below. While these additional risks may also be risks of the Selling Fund, they are not stated as principal investment risks of the Selling Fund. For more information regarding the Selling Fund's principal investment risks, see "Principal Risks" in the Selling Fund's prospectus. - - 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. - - QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may perform differently from the market as a whole for many reasons, including the factors used in building the quantitative analytical framework, the weights placed on each factor, and changing sources of market returns, among others. There can be no assurance that these methodologies will enable the Fund to achieve its objective. Quantitative model risk relates to the portion of the Buying Fund's portfolio that is managed by Principal Global. 86 PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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 a 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. Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. Tables. The first table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R and Class I shares of Seligman International Growth Fund. The second table shows total returns from hypothetical investments in Class A, Class B and Class C shares of the RiverSource Partners International Select Growth Fund. The inception date for Class R2 and Class R5 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for those classes is not shown. 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 of 5.75%* for Class A shares; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C** and Class R shares; - - no sales charge for Class I shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge on investments in Class A shares of the Selling Fund is 5.75%. Although for all periods presented, the Selling Fund's Class A share returns reflect the 5.75% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been higher if a 4.75% maximum initial sales charge then in effect was incurred. ** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented in the tables the Selling Funds' Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 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. 87 SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +25.29% -36.49% -28.09% -20.41% +29.57% +23.39% +5.53% +22.47% +22.04% -57.92% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +16.96% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -27.75% (quarter ended Sept. 30, 2008). The performance of other classes may vary from that shown because of differences in expenses. RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) -16.62% +35.92% +21.93% +16.56% +26.22% +13.77% -45.64% 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +18.31% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was -24.78% (quarter ended Sept. 30, 2008). The performance of other classes may vary from that shown because of differences in expenses. 88 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS R**) (CLASS I**) SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND): Class A Return before taxes -60.34% -5.04% -7.56% N/A N/A N/A Return after taxes on distributions -60.34% -5.70% -8.03% N/A N/A N/A Return after taxes on distributions and sale of Fund shares -39.22% -4.01% -5.86% N/A N/A N/A Class B Return before taxes -60.37% -4.96% -7.52%* N/A N/A N/A Class C Return before taxes -58.63% -4.60% N/A -7.92%(a) N/A N/A Class R** Return before taxes -58.48% -4.13% N/A N/A +0.75%(b) N/A Class I** Return before taxes -57.62% -3.19% N/A N/A N/A -1.34%(c) Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far East) Index -43.06% +2.10% +1.18% +1.21%(d) +7.77%(e) +3.89%(f) MSCI EAFE Growth Index -42.46% +1.77% -1.01% -0.56%(d) +6.68%(e) +2.91%(f) Lipper International Multi-Cap Growth Funds Average -46.85% +1.14% +1.46% +0.99%(g) +6.69%(e) +2.55%(f) Lipper International Funds Average -44.23% +1.27% +1.74% +1.40%(g) +6.62%(e) +3.08%(f)
Prior to March 31, 2000, Seligman employed subadvisers that were responsible for providing certain portfolio management services with respect to the investments of the Fund. From March 31, 2000 until Sept. 15, 2003, the assets of the Fund were managed exclusively by Seligman. Since Sept. 15, 2003, Wellington Management Company LLP has been employed as subadviser to provide portfolio management services to the Fund.
SINCE INCEPTION 1 YEAR 5 YEARS (CLASS C) RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND): Class A Return before taxes -48.77% +0.90% +3.39%(h) Return after taxes on distributions -48.80% -0.70% +2.25%(h) Return after taxes on distributions and sale of Fund shares -31.70% +0.76% +2.91%(h) Class B Return before taxes -48.81% +1.02% +3.42%(h) Class C Return before taxes -46.65% +1.31% +3.42%(h) MSCI EAFE Growth Index -42.46% +1.77% +4.11%(i) Lipper International Multi-Cap Growth Funds Index -46.54% +2.13% +4.05%(i)
(a) Inception date is May 27, 1999. (b) Inception date is April 30, 2003. (c) Inception date is Nov. 30, 2001. (d) Measurement period started May 31, 1999. (e) Measurement period started April 30, 2003 (f) Measurement period started Nov. 30, 2001 (g) Measurement period started May 27, 1999. (h) Inception date is Sept. 28, 2001. (i) Measurement period started Sept. 28, 2001. * The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. ** Class R and Class I of the Selling Fund are to be redesignated Class R2 and Class R5, respectively, in connection with the Reorganization. The MSCI EAFE Index, an unmanaged index, is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States and Canada. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The MSCI EAFE Growth Index, an unmanaged index, is compiled from a composite of securities markets in Europe, Australia and the Far East. The index represents the growth half of the market capitalizations of each country index, determined by price/book value, from the standard MSCI country indices. The index covers the full range of developed, emerging and MSCI All Country indices, including Free indices where applicable. The Country Growth indices are aggregated into regional Growth indices to create the composite. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. 89 The Lipper International Multi-Cap Growth Funds Average measures the performance of mutual funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap funds typically have 25% to 75% of their assets invested in companies strictly outside of the U.S. with market capitalizations (on a three-year weighted basis) greater than the 250th-largest company in the S&P/Citigroup World ex-U.S. Broad Market Index ("BMI"). Multi-cap growth funds typically have an above-average price-to- cash flow ratio, price-to-book ratio, and three-year sales-per-share growth value compared to the S&P/Citigroup World ex-U.S. BMI. The average is an unmanaged benchmark that assumes reinvestment of all distributions, if any, and excludes the effect of fees, sales charges and taxes. The Lipper International Funds Average measures the performance of mutual funds which invest in equity securities whose primary trading markets are outside the U.S. Lipper currently classifies the Fund as an International Multi-Cap Growth Fund. The average is an unmanaged benchmark that assumes reinvestment of all distributions, if any, and excludes the effect of fees, sales charges and taxes. The Lipper International Multi-Cap Growth Funds Index includes the 10 largest international multi-cap growth funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Buying Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See Fund Management and Compensation in Exhibit B for more information. Investors cannot invest directly in an average or index. The inception date for Class R2 and Class R5 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for those classes is not shown. 90 PROPOSAL 7. REORGANIZATION OF SELIGMAN U.S. GOVERNMENT SECURITIES FUND INTO RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND Shareholders of both the Buying Fund and the Selling Fund may be entitled to assert appraisal rights (also known as dissenters' rights of appraisal) under provisions of Minnesota and Massachusetts state law, respectively. Please see the discussion under the caption Appraisal Rights in Section C of this proxy statement/prospectus for more information, including a comparison of appraisal rights under Minnesota and Massachusetts state law. A copy of the appraisal rights under the Massachusetts Business Corporation Act is also included as Appendix D in this proxy statement/prospectus. COMPARISON OF INVESTMENT OBJECTIVES Each Fund seeks to provide a high level of current income consistent with prudent risk or safety of principal and, in the case of the RiverSource Short Duration U.S. Government Fund, consistent with investment in U.S. government and agency securities. The investment objectives for the Funds are as follows: SELLING FUND: Seligman U.S. Government Securities Fund seeks to provide a high level of current income consistent with prudent investment risk. BUYING FUND: 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. Because any investment involves risk, there is no assurance the Fund's objective can be achieved. Only shareholders can change the Fund's objective. COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES Each Fund invests predominantly in debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or government-sponsored enterprises. In favorable market conditions, the Buying 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. Under normal market conditions the Buying Fund will maintain an average portfolio duration of one to three years while the Selling Fund's strategy does not specify an average duration target range. At Jan. 31, 2009, the average portfolio duration was 4.19 years for the Selling Fund and 1.76 years for the Buying Fund. DETAILED STRATEGIES FOR THE SELLING FUND AND THE BUYING FUND ARE SET FORTH BELOW: SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) The Fund will invest at least 80% of its net assets in U.S. government securities which are debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or government sponsored enterprises. Although certain of the securities in which the Fund may invest are backed by the full faith and credit of the U.S. government (and thus involve minimal credit risk), other securities in which the Fund may invest are backed only by the credit of a U.S. federal agency, instrumentality or government sponsored enterprise that issued the security (and thus may have increased credit risk). Securities backed by the full faith and credit of the U.S. government include direct obligations of the U.S. Treasury (including bills, notes, and bonds) and mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA). Examples of securities not backed by the full faith and credit of the U.S. government include securities issued by the Student Loan Marketing Association (Sallie Mae), the Federal Home Loan Banks (FHLBs), Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae). In pursuit of the Fund's objectives, the investment manager 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. 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. 91 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. RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) 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 Fannie Mae and 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 chooses investments by: - - Reviewing credit characteristics and the interest rate outlook. - - Identifying and buying securities that are high quality or have similar qualities, in the investment manager's opinion, even though they are not rated or have been given a lower rating by a rating agency. Under normal market conditions, the Fund will seek to maintain an average portfolio duration of one to three years. Duration measures the sensitivity of bond prices to changes in interest rates. The longer the duration of a bond, the longer it will take to repay the principal and interest obligations and the more sensitive it will be to changes in interest rates. For example, a three year duration means a bond is expected to decrease in value by 3% if interest rates rise 1% and increase in value by 3% if interest rates fall 1%. In evaluating whether to sell a security, the investment manager considers, among other factors, whether: - - The security is overvalued relative to alternative investments. - - The investment manager wishes to lock-in profits. - - 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. COMPARISON OF FUNDAMENTAL POLICIES If the Reorganization occurs, the combined Fund will be subject to the fundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the fundamental investment policies of the Funds result in any material difference in the way the Funds have been managed or in the way the combined Fund will be managed. For purposes of this discussion, a "fundamental" investment policy is one that may not be changed without a shareholder vote. The Funds' fundamental investment policies are set forth below:
- --------------------------------------------------------------------------------------------------------- SELIGMAN U.S. GOVERNMENT SECURITIES RIVERSOURCE SHORT DURATION U.S. FUNDAMENTAL POLICY FUND (SELLING FUND) GOVERNMENT FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- UNDERWRITING The Fund may not underwrite the The Fund may not act as an underwriter securities of other issuers, except (sell securities for others). However, insofar as the Fund may be deemed an under the securities laws, the Fund may underwriter under the 1933 Act in be deemed to be an underwriter when it disposing of a portfolio security or in purchases securities directly from the connection with investments in other issuer and later resells them. investment companies. - --------------------------------------------------------------------------------------------------------- LENDING The Fund may not make loans, except as The Fund may not lend securities or permitted by the 1940 Act or any rule participate in an interfund lending thereunder, any SEC or SEC staff program if the total of all such loans interpretations thereof or any would exceed 33 1/3% of the Fund's exemptions therefrom which may be total assets except this fundamental granted by the SEC. 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. - ---------------------------------------------------------------------------------------------------------
92
- --------------------------------------------------------------------------------------------------------- SELIGMAN U.S. GOVERNMENT SECURITIES RIVERSOURCE SHORT DURATION U.S. FUNDAMENTAL POLICY FUND (SELLING FUND) GOVERNMENT FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- BORROWING MONEY The Fund may not borrow money, except The Fund may not borrow money, except as permitted by the 1940 Act or any for temporary purposes (not for rule thereunder, any SEC or SEC staff leveraging or investment) in an amount interpretations thereof or any not exceeding 33 1/3% of its total exemptions therefrom which may be assets (including the amount borrowed) granted by the SEC. The 1940 Act less liabilities (other than permits a fund to borrow up to 33 1/3% borrowings) immediately after the of its total assets (including the borrowings. amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. - --------------------------------------------------------------------------------------------------------- ISSUING SENIOR The Fund may not issue senior The Fund may not issue senior SECURITIES securities, except as permitted by the securities, except as permitted under 1940 Act or any rule thereunder, any the 1940 Act, the rules and regulations SEC or SEC staff interpretations thereunder and any applicable exemptive thereof or any exemptions therefrom relief. which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REAL ESTATE The Fund may not purchase or hold any The Fund will not buy or sell real real estate including limited estate, unless acquired as a result of partnership interests in real property, ownership of securities or other except the Fund may invest in debt instruments, except this shall not securities secured by real estate or prevent the Fund from investing in interests therein or issued by securities or other instruments backed companies which invest in real estate by real estate or securities of or interests therein, including real companies engaged in the real estate estate investment trusts ("REITs"). business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may not purchase or sell The Fund will not buy or sell physical commodities or commodity contracts, commodities unless acquired as a result except to the extent permissible under of ownership of securities or other applicable law and interpretations, as instruments, except this shall not they may be amended from time to time. prevent the Fund from buying or selling See also nonfundamental policy on options and futures contracts or from Commodities below. investing in securities or other instruments backed by, or whose value is derived from, physical commodities. - --------------------------------------------------------------------------------------------------------- INDUSTRY The Fund may not invest 25% or more of The Fund will not concentrate in any CONCENTRATION its total assets, at market value, in one industry. According to the present any one industry, except that this 25% interpretation by the SEC, this means limitation on industry concentration that up to 25% of the Fund's total does not apply to securities issued or assets, based on current market value guaranteed by the U.S. government or at time of purchase, can be invested in any of its agencies or any one industry. instrumentalities (which may include mortgage-related securities). - --------------------------------------------------------------------------------------------------------- DIVERSIFICATION The Fund may not make any investment The Fund will not invest more than 5% inconsistent with the Fund's of its total assets in securities of classification as a diversified company any company, government, or political under the 1940 Act. 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. 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. - --------------------------------------------------------------------------------------------------------- MARGIN The Fund may not purchase securities on No fundamental policy. See fundamental margin, except as permitted by the 1940 policy on Lending above. Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC. - --------------------------------------------------------------------------------------------------------- REPURCHASE The Fund will not enter into repurchase No fundamental policy. AGREEMENTS agreements of more than one week's duration if more than 10% of its total assets would be invested in such agreements and in restricted and other illiquid securities. - ---------------------------------------------------------------------------------------------------------
93
- --------------------------------------------------------------------------------------------------------- SELIGMAN U.S. GOVERNMENT SECURITIES RIVERSOURCE SHORT DURATION U.S. FUNDAMENTAL POLICY FUND (SELLING FUND) GOVERNMENT FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- DEALINGS WITH The Fund may not purchase or hold the No fundamental policy. DIRECTORS, OFFICERS securities of any issuer, if to its AND TRUSTEES knowledge, Trustees or officers of Seligman High Income Fund Series (of which the Fund is a series) individually owning beneficially more than 0.5% of the securities of that other company own in the aggregate more than 5% of such securities. The Fund may not engage in transactions with its Trustees and officers, or firms they are associated with, in connection with the purchase or sale of securities, except as broker. - ---------------------------------------------------------------------------------------------------------
COMPARISON OF NONFUNDAMENTAL POLICIES AND RELATED INVESTMENT STRATEGIES If the Reorganization occurs, the combined Fund will be subject to the nonfundamental investment policies of the Buying Fund. RiverSource Investments does not believe that the differences between the nonfundamental policies of the Funds result in any material differences in the way the Funds have been managed or in the way the combined Fund will be managed. The following highlights the differences in the Funds' nonfundamental investment policies (policies that may be changed without a shareholder vote):
- --------------------------------------------------------------------------------------------------------- NONFUNDAMENTAL SELIGMAN U.S. GOVERNMENT SECURITIES RIVERSOURCE SHORT DURATION U.S. POLICY FUND (SELLING FUND) GOVERNMENT FUND (BUYING FUND) - --------------------------------------------------------------------------------------------------------- SECURITIES OF OPEN- The Fund may not acquire any securities Not applicable. END INVESTMENT of a registered open-end investment COMPANIES company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. - --------------------------------------------------------------------------------------------------------- COMMODITIES The Fund may purchase and sell See fundamental investment policy on commodities and commodity contracts Commodities above. only to the extent that such activities do not result in the Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. The investment manager must seek Board approval to invest in any type of commodity or commodity contract if it is of a type the Fund has not previously utilized. See also fundamental investment policy on Commodities above. - --------------------------------------------------------------------------------------------------------- INVESTMENTS FOR The Fund may not invest for the purpose Not applicable, other than as otherwise PURPOSES OF of controlling or managing any company. permitted by the 1940 Act. MANAGEMENT OR CONTROL - --------------------------------------------------------------------------------------------------------- SHORT SALES The Fund may not sell securities short The Fund is not prohibited from or maintain a short position. engaging in short sales, however, the Fund will seek Board approval prior to utilizing short sales as an active part of its investment strategy. - ---------------------------------------------------------------------------------------------------------
COMPARISON OF PRINCIPAL RISK FACTORS Although the Funds describe them differently, the principal investment risks associated with the Buying Fund and the Selling Fund are similar because the Funds have similar investment objectives, principal investment strategies and investment policies. Because the Buying Fund will generally maintain a shorter average portfolio duration than the Selling Fund, the Buying Fund will generally be subject to less interest rate risk than the Buying Fund. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time. Both Funds are subject to the principal investment risks described below. - - 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 94 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. - - 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. In addition to the risks described above, the Buying Fund is subject to the additional principal investment risk set forth below. While this additional risk may also be a risk of the Selling Fund, it is not stated as a principal investment risk of the Selling Fund. For more information regarding the Selling Fund's principal investment risks, see "Principal Risks" in the Selling Fund's 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, hedging risk, correlation risk, liquidity risk and leverage 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. 95 PERFORMANCE The following bar charts and tables provide some illustration of the risks of investing in the Funds by showing, respectively: - - how each Fund's performance has varied for each full calendar year shown in the bar chart; and - - how each Fund's average annual total returns compare to indexes shown in 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 a 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. Bar Charts. Class A share information is shown in the bar charts; the sales charge for Class A shares is not reflected in the bar charts. If sales charges were included, the returns would be lower. Tables. The first table shows total returns from hypothetical investments in Class A, Class B, Class C and Class R shares of Seligman U.S. Government Securities Fund. The second table shows total returns from hypothetical investments in Class A, Class B and Class C shares of the RiverSource Short Duration U.S. Government Fund. The inception date for Class R2 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for that class is not shown. 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 of 4.50% for Class A shares of the Selling Fund* and the maximum sales charge for Class A shares of the Buying Fund** at the beginning of each period; - - sales at the end of the period and deduction of the applicable contingent deferred sales charge ("CDSC") for Class B, Class C*** and Class R shares; and - - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. * Effective Jan. 7, 2008, the maximum initial sales charge in Class A shares of the Selling Fund is 4.50%. Although for all periods presented the Selling Fund's Class A share returns reflect the 4.50% maximum initial sales charge, the actual returns for periods prior to Jan. 7, 2008 would have been lower if a 4.75% maximum initial sales charge then in effect was incurred. ** On March 3, 2008, the maximum sales charge for Class A shares of the Buying Fund changed from 4.75% to 3.00%. Class A share performance for the Buying Fund for each period of five years, ten years and since inception reflects the maximum sales charge of 4.75%, which was in effect at the beginning of each of those periods. Class A share performance for the Buying Fund for the one year period reflects the maximum sales charge of 3.00%, which was in effect at the beginning of that period. *** Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares of the Selling Fund. Although for all periods presented the Selling Fund's Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. 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. 96 SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) -3.63% +12.26% +5.95% +10.45% +0.55% +1.09% +0.00% +2.33% +6.10% +8.76% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +6.54% (quarter ended Sept. 30, 2002) and the lowest return for a calendar quarter was -2.87% (quarter ended June 30, 2004). The performance of other classes may vary from that shown because of differences in expenses. RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +1.13% +5.90% +6.77% +5.94% +1.03% +0.82% +1.33% +3.95% +5.28% -1.53% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
During the periods shown in the bar chart, the highest return for a calendar quarter was +3.53% (quarter ended Sept. 30, 2001) and the lowest return for a calendar quarter was -1.49% (quarter ended March 31, 2000). The performance of other classes may vary from that shown because of differences in expenses. The Buying Fund formerly was a "feeder" fund in a master/feeder arrangement where the Buying 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 Buying 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 Buying Fund includes the activity of the Buying Fund when it was a feeder in a master/feeder arrangement. 97 AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2008)
SINCE SINCE INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS R**) SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND): Class A Return before taxes +3.82% +2.66% +3.80% N/A N/A Return after taxes on distributions +2.77% +1.50% +2.33% N/A N/A Return after taxes on distributions and sale of Fund shares +2.45% +1.57% +2.33% N/A N/A Class B Return before taxes +3.08% +2.47% +3.66%* N/A N/A Class C Return before taxes +6.94% +2.83% N/A +3.98%(a) N/A Class R** Return before taxes +7.50% +3.33% N/A N/A +2.92%(b) Barclays Capital U.S. Government Bond Index +12.39% +6.06% +6.16% +6.67%(c) +5.48%(d) Blended Index +10.46% +5.83% +6.12% +6.46%(c) +5.36%(d) Lipper General U.S. Government Funds Average +7.27% +4.18% +4.68% +5.12%(c) +3.63%(d)
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND): Class A Return before taxes -6.24% +0.97% +2.50% N/A Return after taxes on distributions -7.34% -0.20% +0.99% N/A Return after taxes on distributions and sale of Fund shares -4.05% +0.15% +1.20% N/A Class B Return before taxes -7.04% +0.82% +2.25% N/A Class C Return before taxes -3.22% +1.18% N/A +2.64%(e) Barclays Capital 1-3 Year Government Index +6.66% +4.11% +4.81% +4.97%(f) Lipper Short U.S. Government Funds Index +3.46% +3.13% +3.98% +4.05%(f)
(a) Inception date is May 27, 1999. (b) Inception date is April 30, 2003. (c) Measurement period started May 27, 1999. (d) Measurement period started April 30, 2003. (e) Inception date is June 26, 2000. (f) Measurement period started June 26, 2000. * The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. ** Class R of the Selling Fund is to be redesignated Class R2 in connection with the Reorganization. The Barclays Capital U.S. Government Bond Index, an unmanaged index, is a benchmark index made up of the Barclays Capital U.S. Treasury Bond Index and the Barclays Capital U.S. Agency Bond Index as well as the Barclays Capital U.S. 1-3 Year Government Index and Barclays Capital U.S. 20+ Year Treasury Index. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Blended Index is an unmanaged index consists of a fifty percent equal weighting in the Barclays Capital U.S. Government Bond Index and the Barclays Capital Fixed-Rate Mortgage Backed Securities Index (the "MBS Index"), which covers the fixed-rate agency mortgage-backed pass-through securities of the GNMA, Fannie Mae and Freddie Mac. The Selling Fund is actively managed and its holdings are subject to change. The index reflects reinvestment of all distributions and changes in market prices and reflects no deduction for fees, expenses or taxes. The Lipper General U.S. Government Funds Average includes funds that invest at least 65% of their assets in U.S. government and government agency issues. The average is an unmanaged benchmark that assumes reinvestment of dividends, if any, and excludes the effect of fees, taxes and sales charges. The Barclays Capital U.S. 1-3 Year Government Index, an unmanaged index, is made up of all publicly issued, nonconvertible 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 and reflects no deduction for fees, expenses or taxes. 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. Investors cannot invest directly in an average or index. The inception date for Class R2 of the Buying Fund is expected to be in the third quarter of 2009 and therefore performance information for that class is not shown. 98 ADDITIONAL INFORMATION ABOUT EACH REORGANIZATION TERMS OF THE REORGANIZATIONS The Board has approved the Agreement, the form of which is attached as Exhibit A. The Agreement provides for Reorganizations on the following terms: - - Each Reorganization is expected to occur before the end of the third quarter of 2009, pending shareholder approval, receipt of any necessary regulatory approvals and satisfaction of any other conditions to closing. However, following shareholder approval, each Reorganization may happen at any time agreed to by the applicable Selling Fund and the corresponding Buying Fund. - - Each Selling Fund will transfer all of its assets to the corresponding Buying Fund and, in exchange, the corresponding Buying Fund will assume all the Selling Fund's liabilities and will issue to the Selling Fund, as applicable, Class A, Class B, Class C, Class R2, and Class R5 shares with an aggregate net asset value on the business day immediately preceding the closing of the Reorganization equal to the value of the assets that it receives from the Selling Fund, less the liabilities assumed by the corresponding Buying Fund in the transaction. The Reorganization Shares will immediately be distributed to the Selling Fund shareholders in proportion to their holdings of shares of the Selling Fund. As a result, shareholders of the Selling Fund will become, as applicable, Class A, Class B, Class C, Class R2, and/or Class R5 shareholders of the corresponding Buying Fund. - - No Selling Fund and no shareholders of any Selling Fund will pay any sales charge in connection with its Reorganization. - - The net asset value of each Selling Fund and the corresponding Buying Fund will be computed as of 3:00 p.m., Central time, or close of business, on the business day immediately preceding the closing date of the applicable Reorganization. - - After its Reorganization, each Selling Fund will be dissolved. CONDITIONS TO CLOSING EACH REORGANIZATION The completion of each Reorganization is subject to certain conditions described in the Agreement, including: - - The Selling Fund will have declared and paid a dividend that will distribute all of the Selling Fund's net investment income and net capital gains, if any, to the shareholders of the Selling Fund for the taxable years ending on or prior to the closing date of the Reorganization. - - The Funds will have received any approvals, consents or exemptions from the SEC or any other regulatory body necessary to carry out the Reorganization. - - A registration statement on Form N-14 relating to the Reorganization will have been filed with the SEC and declared effective. - - The shareholders of the Selling Fund will have approved the Agreement. - - The Selling Fund will have received an opinion of tax counsel to the effect that, although not entirely free from doubt, the shareholders of the Selling Fund will not recognize gain or loss for federal income tax purposes upon the exchange of their Selling Fund shares for the corresponding Buying Fund shares in connection with the Reorganization. TERMINATION OF THE AGREEMENT The Agreement and the transactions contemplated by it may be terminated and abandoned with respect to any Reorganization by resolution of the Board at any time prior to the closing date thereof. In the event of a termination, RiverSource will bear all costs associated with the Reorganization. TAX STATUS OF THE REORGANIZATIONS Each Reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization under section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). As a condition to the closing of each Reorganization, each Selling Fund and Buying Fund will receive an opinion from Ropes & Gray LLP to the effect that, although not free from doubt, on the basis of existing provisions of the Code, U.S. Treasury regulations issued thereunder, current administrative rules, pronouncements and court decisions, for federal income tax purposes: - - The transfer of the Selling Fund's assets to the Buying Fund in exchange for Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, of the Buying Fund and the assumption by the Buying Fund of the Selling Fund's liabilities, followed by the distribution of those Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, to the Selling Fund's shareholders and the termination of the Selling Fund, will be a "reorganization" within the meaning of Section 368(a)(1) of the Code, and the Selling Fund and the Buying Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. 99 - - Under Section 361 of the Code, no gain or loss will be recognized by the Selling Fund upon the transfer of all of its assets to the Buying Fund or on the distribution by the Selling Fund of Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, of the Buying Fund to Selling Fund shareholders in liquidation. - - Under Section 354 of the Code, the shareholders of the Selling Fund will not recognize gain or loss upon the exchange of their Class A, Class B, Class C, Class R and/or Class I shares, as applicable, of the Selling Fund solely for Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, of the Buying Fund as part of the Reorganization. - - Under Section 358 of the Code, the aggregate tax basis of the Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, of the Buying Fund that a Selling Fund shareholder receives in the Reorganization will be the same as the aggregate tax basis of the Class A, Class B, Class C, Class R and/or Class I shares, as applicable, of the Selling Fund exchanged therefor. - - Under Section 1223(1) of the Code, the holding period for the Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, of the Buying Fund that a Selling Fund shareholder receives in the Reorganization will include the period for which he or she held the Class A, Class B, Class C, Class R and/or Class I shares, as applicable, of the Selling Fund exchanged therefor, provided that on the date of the exchange he or she held such Selling Fund shares as capital assets. - - Under Section 1032 of the Code, no gain or loss will be recognized by the Buying Fund upon the receipt of the Selling Fund's assets solely in exchange for the issuance of the Buying Fund's Class A, Class B, Class C, Class R2 and/or Class R5 shares, as applicable, to the Selling Fund and the assumption of all of the Selling Fund's liabilities by the Buying Fund. - - Under Section 362(b) of the Code, the Buying Fund's tax basis in the assets that the Buying Fund received from the Selling Fund will be the same as the Selling Fund's tax basis in those assets immediately prior to the transfer. - - Under Section 1223(2) of the Code, the Buying Fund's holding periods in the assets received from the Selling Fund will include the Selling Fund's holding periods in such assets. - - The Buying Fund will succeed to and take into account the items of the Selling Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. Ropes & Gray LLP will express no view with respect to the effect of a Reorganization on any transferred asset as to which any unrealized gain or loss is required to be recognized under federal income tax principles (i) at the end of a taxable year or upon the termination thereof, or (ii) upon the transfer of such asset regardless of whether such a transfer would otherwise be a non- taxable transaction. The opinion will be based on certain factual certifications made by the officers of the Selling Fund and the Buying Fund and will also be based on customary assumptions. The opinion will note and distinguish certain published precedent, and it is possible that the Internal Revenue Service (the "IRS") could disagree with Ropes & Gray LLP's opinion. Opinions of counsel are not binding upon the IRS or the courts. If a Reorganization is consummated but does not qualify as a tax-free reorganization under the Code, a shareholder of the Selling Fund would recognize a taxable gain or loss equal to the difference between his or her tax basis in his or her Selling Fund shares and the fair market value of the shares of the Buying Fund he or she received. Shareholders of a Selling Fund should consult their tax advisors regarding the effect, if any, of the Reorganization in light of their individual circumstances. In the case of some of the Selling Funds, portfolio manager substitutions independent of the Reorganizations have occurred and resulted in substantial portfolio turnover. In addition, a portion or all of the portfolio assets of any Selling Fund may be sold in connection with its Reorganization. The actual tax impact of such sales depends on the difference between the price at which such portfolio assets are sold and the Selling Fund's tax basis in such assets. Any net capital gains recognized in these sales will be distributed to Selling Fund shareholders as capital gain dividends (to the extent of net realized long-term capital gains over net realized short-term capital losses) and/or ordinary dividends (to the extent of net realized short-term capital gains over net realized long-term capital losses) during or with respect to the year of sale, and such distributions will be taxable to shareholders. Because each Reorganization will end the tax year of the applicable Selling Fund, it will accelerate distributions to shareholders from the Selling Fund for its short tax year ending on the date of the Reorganization. Those tax year-end distributions will be taxable and will include any capital gains resulting from portfolio turnover prior to the Reorganization. Prior to the closing of each Reorganization, the Selling Fund will, and the Buying Fund may, declare a distribution to shareholders, which, together with all previous distributions, will have the effect of distributing to shareholders all of its investment company taxable income (computed without regard to the deduction for dividends paid), net tax-exempt income, if any, and net realized capital gains, if any, through the closing of the Reorganization. These distributions will be taxable to shareholders. 100 A Fund's ability to carry forward capital losses and to use them to offset future gains may be limited. First, a Fund's "pre-acquisition losses" (including capital loss carryforwards, net current-year capital losses, and unrealized losses that exceed certain thresholds) may become unavailable to offset gains of the combined Fund. Second, one Fund's pre-acquisition losses cannot be used to offset unrealized gains in another Fund that are "built in" at the time of the Reorganization and that exceed certain thresholds ("non-de minimis built-in gains") for five tax years. Third, a Selling Fund's loss carryforwards, as limited under the previous two rules, are permitted to offset only that portion of the income of the Buying Fund for the taxable year of the Reorganization that is equal to the portion of the Buying Fund's taxable year that follows the date of the Reorganization (prorated according to number of days). Therefore, in certain circumstances, shareholders of a Fund may pay taxes sooner, or pay more taxes, than they would have had a Reorganization not occurred. In addition, the combined Fund resulting from each Reorganization will have tax attributes that reflect a blending of the tax attributes of the two Funds at the time of the Reorganization (including as affected by the rules set forth above). Therefore, the shareholders of the Selling Fund will in each case receive a proportionate share of any "built-in" (unrealized) gains in the Buying Fund's assets, as well as any taxable gains realized by the Buying Fund but not distributed to its shareholders prior to the Reorganization, when such gains are eventually distributed by the Buying Fund. As a result, shareholders of a Selling Fund may receive a greater amount of taxable distributions than they would have had the Reorganization not occurred. And any pre-acquisition losses of the Selling Fund (whether realized or unrealized) remaining after the operation of the limitation rules described above will become available to offset capital gains realized after the Reorganization and thus may reduce subsequent capital gain distributions to a broader group of shareholders than would have been the case absent such Reorganization, such that the benefit of those losses to Selling Fund shareholders may be further reduced relative to what the benefit would have been had the Reorganization not occurred. The impact of the rules described above will depend on the relative sizes of, and the losses and gains (both realized and unrealized) in, each Fund at the time of its Reorganization and thus cannot be calculated precisely prior to the Reorganization. The realized and unrealized gains and losses of each Fund at the time of its Reorganization will determine the extent to which the combining Funds' respective losses, both realized and unrealized, will be available to reduce gains realized by the combined Fund following the Reorganization, and consequently the extent to which the combined Fund may be required to distribute gains to its shareholders earlier than would have been the case absent the Reorganization. The following paragraphs provide a brief summary of the tax impact of each Reorganization had it occurred on October 31, 2008. As noted above, the tax impact of a Reorganization depends on each Fund's relative tax situation at the time of the Reorganization, which situation will be different than the tax situation on October 31, 2008, and cannot be calculated precisely prior to the Reorganization. Due to the significant portfolio turnover of certain of the Funds resulting from RiverSource Investments' purchase of Seligman and portfolio manager substitutions made independent of the Reorganizations, and the substantial volatility in the marketplace, the actual tax impacts of the Reorganizations could differ substantially from those described below. Proposal 1; Reorganization of Seligman Core Fixed Income Fund into RiverSource Diversified Bond Fund. As of October 31, 2008, Seligman Core Fixed Income Fund (Selling Fund) and RiverSource Diversified Bond Fund (Buying Fund) had net realized losses (including capital loss carryforwards) equal to approximately 5.7% and 3.9% of net assets, respectively. If the Reorganization had occurred on October 31, 2008, the loss limitation rules would not have affected the combined Fund's ability to use Selling Fund losses to offset gains recognized by the combined Fund. Selling Fund's losses would thus have been available to reduce subsequent capital gain distributions to shareholders of the combined Fund, spreading the tax benefit of such losses over a larger group of shareholders than if the Reorganization had not occurred. Subsequent to October 31, 2008, Selling Fund experienced significant portfolio turnover. The recognition of gain and loss resulting from such portfolio turnover could increase the potential tax cost of the Reorganization to Selling Fund shareholders relative to the costs described above. Proposal 2; Reorganization of Seligman Emerging Markets Fund into Threadneedle Emerging Markets Fund. As of October 31, 2008, Seligman Emerging Markets Fund (Selling Fund) had a very small amount of net realized gain (0.06% of its net assets) and no capital loss carryforwards but had net unrealized losses equal to approximately 48.3% of its net assets. Threadneedle Emerging Markets Fund (Buying Fund) had no capital loss carryforwards and net realized losses equal to approximately 3.7% of its net assets and unrealized losses equal to approximately 57.1% of its net assets. If the Reorganization had occurred on that date, Selling Fund shareholders might have benefited from the use of Buying Fund's losses to offset gains of the combined Fund. However, to the extent Selling Fund realizes its unrealized losses, such losses will be subject to the loss limitation rules and might cause Selling Fund shareholders to experience a greater tax cost than if the Reorganization had not occurred. Proposal 3; Reorganization of Seligman Global Growth Fund into Threadneedle Global Equity Fund. As of October 31, 2008, Seligman Global Growth Fund (Selling Fund) and Threadneedle Global Equity Fund (Buying Fund) had net realized losses (including capital loss carryforwards) equal to approximately 237.4% and 94.2% of net assets, respectively, and had net unrealized losses equal to approximately 36.6% and 37.3% of net assets, respectively. If the Reorganization had occurred on 101 October 31, 2008, the limitation on the use of Selling Fund's realized losses to offset gains of the combined Fund would not have had a significant negative impact on Selling Fund shareholders because most of Selling Fund's realized losses likely would have expired unused had the Reorganization not occurred. However, to the extent Selling Fund realizes its unrealized losses, such losses will be subject to the loss limitation rules and might cause Selling Fund shareholders to experience a greater tax cost than if the Reorganization had not occurred. Proposal 4; Reorganization of Seligman High-Yield Fund into RiverSource High Yield Bond Fund. As of October 31, 2008, Seligman High-Yield Fund (Selling Fund) and RiverSource High Yield Bond Fund (Buying Fund) had net realized losses (including capital loss carryforwards) equal to approximately 760.8% and 126.2% of net assets, respectively, and had net unrealized losses equal to approximately 52.2% and 35.9% of net assets, respectively. If the Reorganization had occurred on October 31, 2008, the limitation on the use of Selling Fund's realized losses to offset gains of the combined Fund would not have had a significant negative impact on Selling Fund shareholders because nearly all of Selling Fund's realized losses likely would have expired unused had the Reorganization not occurred. Subsequent to October 31, 2008, Selling Fund experienced significant portfolio turnover, causing the recognition of additional losses subject to the loss limitation rules, which could result in an increase of the potential tax cost due to the Reorganization relative to the costs described above. Additionally, to the extent Selling Fund further realizes its unrealized losses, the application of the loss limitation rules to such losses might cause a further increase in the potential tax cost to Selling Fund shareholders. Proposal 5; Reorganization of Seligman Income and Growth Fund into RiverSource Balanced Fund. As of October 31, 2008, Seligman Income and Growth Fund (Selling Fund) and RiverSource Balanced Fund (Buying Fund) had net realized losses (including capital loss carryforwards) equal to approximately 31.0% and 119.6% of net assets, respectively, and had net unrealized losses equal to approximately 59.2% and 21.7% of net assets, respectively. If the Reorganization had occurred on October 31, 2008, the loss limitation rules would have significantly limited the ability to use Selling Fund losses to offset gain of the combined Fund. However, Selling Fund shareholders might have benefited from the use of Buying Fund's losses to offset gains of the combined Fund., Subsequent to October 31, 2008, Selling Fund experienced significant portfolio turnover, causing the recognition of additional losses subject to the loss limitation rules, which could result in an increase of the potential tax cost due to the Reorganization relative to the costs described above. Additionally, to the extent Selling Fund further realizes its unrealized losses, the application of the loss limitation rules to such losses might cause a further increase in the potential tax cost to Selling Fund shareholders. Proposal 6; Reorganization of Seligman International Growth Fund into RiverSource Partners International Select Growth Fund. As of October 31, 2008, Seligman International Growth Fund (Selling Fund) and RiverSource Partners International Select Growth Fund (Buying Fund) had net realized losses (including capital loss carryforwards) equal to 33.3% and 15.3% of net assets, respectively, and had net unrealized losses equal to approximately 14.5% and 40.5% of net assets, respectively. If the Reorganization had occurred on October 31, 2008, the loss limitation rules would not likely have prevented the use of Selling Fund's losses to offset gains of the combined Fund. However, to the extent Selling Fund realizes its unrealized losses, based on the amount of unrealized losses as of October 31, 2008, prior to the Reorganization, such losses will be subject to the loss limitation rules and might cause Selling Fund shareholders to experience a greater tax cost than if the Reorganization had not occurred. Proposal 7; Reorganization of Seligman U.S. Government Securities Fund into RiverSource Short Duration U.S. Government Fund. As of October 31, 2008, Seligman U.S. Government Securities Fund (Selling Fund) and RiverSource Short Duration U.S. Government Fund (Buying Fund) had net realized losses (including capital loss carryforwards) equal to approximately 8.8% and 8.1% of net assets, respectively. If the Reorganization had occurred on October 31, 2008, the loss limitation rules would not have affected the combined Fund's ability to use Selling Fund losses to offset gains recognized by the combined Fund. Selling Fund's losses would thus have been available to reduce subsequent capital gain distributions to shareholders of the combined Fund, spreading the tax benefit of such losses over a larger group of shareholders than if the Reorganization had not occurred. Subsequent to October 31, 2008, Selling Fund experienced significant portfolio turnover. The recognition of gain and loss resulting from such portfolio turnover could increase the potential tax cost of the Reorganization to Selling Fund shareholders relative to the costs described above. The tax principles described above are not expected to change. However, their application and, at a minimum, the specific percentages noted above will change prior to each Reorganization because of market developments and the substantial volatility in the marketplace, any pre-Reorganization realignments or other sales of portfolio securities that might occur or that already have occurred, and shareholder activity in the Funds, among other changes. 102 Shareholders of a Selling Fund should consult their tax advisors regarding the effect, if any, of the Reorganization in light of their individual circumstances. Because the foregoing discussion relates only to the federal income tax consequences of the Reorganizations, shareholders of a Selling Fund should also consult their tax advisors as to the state, local and foreign tax consequences, if any, of the Reorganizations. REASONS FOR THE PROPOSED REORGANIZATIONS AND BOARD DELIBERATIONS The Board believes that each proposed Reorganization will be advantageous to Selling Fund and Buying Fund shareholders based on its consideration of the following matters: - - TERMS AND CONDITIONS OF THE REORGANIZATION. The Board considered the terms and conditions of each Reorganization as described in the previous paragraphs. - - TAX CONSEQUENCES. The Board considered the tax-free nature of each Reorganization. The Board also considered the relative tax situations of each Fund and the resulting tax impact of the Reorganization to Selling Fund shareholders, and believes that the benefits of each Reorganization should outweigh any resulting tax cost to shareholders. - - CONTINUITY OF INVESTMENT. The Board took into account the fact that each Selling Fund and the corresponding Buying Fund have similar or identical investment objectives and, except as noted below and as discussed in more detail under each proposal, similar investment strategies. In particular, for each Reorganization: Proposal 1. Seligman Core Fixed Income Fund into RiverSource Diversified Bond Fund: The Board considered that the Funds have similar investment objectives of providing a high level of current income consistent with prudent risk or conservation of investment value. The Board considered that Seligman Core Fixed Income Fund seeks capital appreciation as a secondary objective. The Board noted the similarity of the Funds' investment strategies: Seligman Core Fixed Income Fund invests 80% of its net assets in fixed-income securities, while RiverSource Diversified Bond Fund invests 80% of its net assets in bonds and other debt securities. The Board observed that the Funds share a common benchmark, the Barclays Capital U.S. Aggregate Bond Index. Proposal 2. Seligman Emerging Markets Fund into Threadneedle Emerging Markets Fund: The Board considered that the Funds have a virtually identical objective of seeking long-term growth of capital. The Board considered that each of the Funds invests at least 80% of its net assets in securities of companies that are located in emerging markets countries. The Board also considered that RiverSource Investments serves as the investment manager for each Fund and is responsible for the oversight of each Fund's subadviser which provides day-to- day management of the Fund, and that Seligman Emerging Markets Fund is subadvised by Wellington and Threadneedle Emerging Markets Fund is subadvised by Threadneedle. The Board further observed that the Funds share a common benchmark, the Morgan Stanley Capital International ("MSCI") Emerging Markets Index. Proposal 3. Seligman Global Growth Fund into Threadneedle Global Equity Fund: The Board considered that the Funds have a virtually identical objective of seeking long-term growth of capital. The Board considered that Seligman Global Growth Fund may invest up to 15% of its assets in emerging market equities, while Threadneedle Global Equity Fund has no similar restrictions. The Board also considered that under normal market conditions, Seligman Global Growth Fund invests at least 40% of its net assets in the securities of non-U.S. companies, while Threadneedle Global Equity Fund has no similar restrictions. The Board also noted that RiverSource Investments serves as the investment manager for each Fund and is responsible for the oversight of each Fund's subadviser which provides day-to-day management of the Fund, and that Seligman Global Growth Fund is subadvised by Wellington and Threadneedle Global Equity Fund is subadvised by Threadneedle. The Board observed that the Funds use similar benchmarks with the Selling Fund using the MSCI World Index, which is designed to measure global developed market equity performance and the Buying Fund using the MSCI All Country World Index, which is intended to measure equity market performance in the global developed and emerging markets. Proposal 4. Seligman High-Yield Fund into RiverSource High Yield Bond Fund: The Board considered that the Funds have similar investment objectives of seeking a high level of current income, with capital appreciation as a secondary objective. The Board considered the similarity in the Funds' investment strategies of investing at least 80% of their net assets in high-yield debt instruments. The Board further observed that the Funds share a common benchmark, the JP Morgan Global High Yield Index. Proposal 5. Seligman Income and Growth Fund into RiverSource Balanced Fund: The Board considered that the Funds have a virtually identical objective of seeking a combination of capital appreciation and current income. The Board considered that each Fund invests predominantly in a combination of equity and fixed- income securities. Also, Seligman Income and Growth Fund may invest up to 10% of total assets in foreign securities (excluding ADRs); RiverSource Balanced Fund may invest up to 25% of the Fund's net assets in foreign investments (including ADRs). The Board further observed that the Funds share two benchmarks, the Barclays Capital U.S. Aggregate Bond Index and the Blended Index. 103 Proposal 6. Seligman International Growth Fund into RiverSource Partners International Select Growth Fund: The Board considered that the Funds have a virtually identical objective of seeking long-term capital growth and invest predominantly in equity securities of foreign issuers that are believed to be growth companies. The Board considered that Seligman International Growth Fund primarily invests in common stocks of medium- to large-sized companies outside of the United States, whereas RiverSource Partners International Select Growth Fund invests primarily in stocks of small- and medium-sized companies, based both outside and in the United States. The Board considered that Seligman International Growth Fund generally invests less than 25% of its assets in emerging markets, while RiverSource Partners International Select Growth Fund has no similar restrictions. The Board also noted that RiverSource Investments serves as the investment manager for each Fund and is responsible for the oversight of each Fund's subadviser which provides day-to-day management of the Fund, and that Seligman International Growth Fund is subadvised by Wellington and RiverSource Partners International Select Growth Fund is subadvised by Columbia WAM and Principal Global. The Board observed that the Funds share a common benchmark, the MSCI Europe, Australasia, Far East Growth Index. Proposal 7. Seligman U.S. Government Securities Fund into RiverSource Short Duration U.S. Government Fund: The Board considered that the Funds share similar investment objectives with Seligman U.S. Government Securities Fund seeking to provide a high level of current income consistent with prudent investment risk and RiverSource Short Duration U.S. Government Fund seeking to provide a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities. The Board considered the similarity in the Funds' investment strategies of investing at least 80% of their net assets in U.S. government securities, which include debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Board also noted that the RiverSource Short Duration U.S. Government Fund normally seeks to maintain an average portfolio duration of one to three years while the Seligman U.S. Government Securities Fund has no similar stated intention. Although the Funds use different benchmarks, the Board observed that the Barclays Capital U.S. Government Bond Index, which Seligman U.S. Government Securities Fund uses, is a blended index that incorporates the Barclays Capital U.S. 1-3 Year Government Index, which RiverSource Short Duration U.S. Government Fund uses. - - EXPENSE RATIOS. The Board considered the relative expenses of the Funds. Specifically, the Board considered that, as of the end of each Fund's most recent fiscal year, the gross expense ratio and net expense ratio (reflecting any fee waiver or expense reimbursement because of voluntary or contractual expense caps) for each Selling Fund's Class A, Class B, Class C, Class R (to be known as Class R2), and Class I (to be known as Class R5) shares (before giving effect to any applicable performance incentive adjustment and excluding certain other fees and expenses) was higher than the gross expense ratio and net expense ratio for the corresponding Buying Fund's Class A, Class B, Class C, Class R2 and Class R5 shares (before giving effect to any applicable performance incentive adjustment and excluding certain other fees and expenses adjustment). The Board also evaluated the anticipated expense ratio impacts to other share classes of the Buying Funds not involved in the Reorganization. The Board determined that there would be a decrease in expense ratio for each share class of each Selling Fund as a result of its respective Reorganization, but noted that the level of this reduction would vary by share class. In particular, for each Reorganization (unless otherwise specified), expense impacts, with respect to a Fund's Class A shares are discussed below: Proposal 1. Seligman Core Fixed Income Fund into RiverSource Diversified Bond Fund: The Board considered that the expenses of Seligman Core Fixed Income Fund are expected to decline by approximately 1.08% on a gross expense basis and by 0.42% on a net expense basis (based on current commitments of the investment manager and its affiliates to waive fees and cap expenses), as a result of the Reorganization. Proposal 2. Seligman Emerging Markets Fund into Threadneedle Emerging Markets Fund: The Board considered that Seligman Emerging Markets Fund is currently subject to a commitment by the investment manager and its affiliates to waive fees or cap expenses, and that the expenses of the Fund are expected to decline by approximately 0.57% on a gross expense basis and by 0.54% on a net expense basis (before giving effect to any applicable performance incentive adjustment and excluding certain other fees and expenses), as a result of the Reorganization. Proposal 3. Seligman Global Growth Fund into Threadneedle Global Equity Fund: The Board considered that the expenses of Seligman Global Growth Fund are expected to decline by approximately 0.70% (before giving effect to any applicable performance incentive adjustment and excluding certain other fees and expenses), as a result of the Reorganization. Proposal 4. Seligman High-Yield Fund into RiverSource High Yield Bond Fund: The Board considered that the expenses of Seligman High-Yield Fund are expected to decline by approximately 0.20% on a gross expense basis and by 0.28% on a net expense basis (based on current commitments of the investment manager and its affiliates to waive fees and cap expenses), as a result of the Reorganization. Proposal 5. Seligman Income and Growth Fund into RiverSource Balanced Fund: The Board considered that the expenses of Seligman Income and Growth Fund are expected to decline by approximately 0.41% (before giving effect to any applicable performance incentive adjustment and excluding certain other fees and expenses), as a result of the Reorganization. 104 Proposal 6. Seligman International Growth Fund into RiverSource Partners International Select Growth Fund: The Board considered that the expenses of Seligman International Growth Fund are expected to decline by approximately 0.33% on a gross expense basis and by 0.51% on a net expense basis (based on current commitments of the investment manager and its affiliates to waive fees and cap expenses, and before giving effect to any applicable performance incentive adjustment and excluding certain other fees and expenses), as a result of the Reorganization. Proposal 7. Seligman U.S. Government Securities Fund into RiverSource Short Duration U.S. Government Fund: The Board considered that the expenses of Seligman U.S. Government Securities Fund are expected to decline by approximately 0.26% on a gross expense basis and by 0.41% on a net expense basis (based on current commitments of the investment manager and its affiliates to waive fees and cap expenses), as a result of the Reorganization. - - ECONOMIES OF SCALE. The Board observed that by combining the Funds, in addition to potential immediate economies of scale of a larger fund, the combined Fund would be able take advantage of other economies of scale associated with a larger fund. For example, a larger fund may realize breakpoints more quickly, it may have an enhanced ability to effect portfolio transactions on more favorable terms and may have greater investment flexibility. Furthermore, the Board also considered that higher aggregate net assets resulting from each Reorganization and the opportunity for net cash inflows (or reduced outflows) may reduce the risk that, if net assets of the Selling Fund fail to grow, or diminish, its total expense ratio could rise from current levels as fixed expenses, such as audit expenses and accounting expenses that are charged on a per Fund basis, become a larger percentage of net assets. - - COSTS. The Board considered the fact that a portion of the expenses of effecting each Reorganization (including professional fees and expenses related to printing and mailing proxy/prospectus materials and solicitation of shareholders) may be allocated to and borne by the Selling Fund, to the extent that such expenses are specifically allocable to the Selling Fund. Expenses of the Reorganization that are not allocated to and borne by the Selling Fund will be paid by RiverSource Investments. The investment manager has agreed to limit the expenses borne by a Selling Fund to its anticipated reductions in expenses over the first year following the Reorganization, less the expenses borne by the Selling Fund related to other integration-related activity. Any expenses not borne by a Selling Fund as a result of these limitations will be borne by the investment manager. - - DILUTION. The Board considered the fact that the Reorganizations will not dilute the interests of the current shareholders because it would be effected on the basis of the relative net asset value per share of the Selling Fund and Buying Fund, respectively. Thus, for example, a Class A shareholder of a Selling Fund will receive Class A shares of the corresponding Buying Fund equal in value to his or her Class A shares in the Selling Fund at the time of the Reorganizations. - - PERFORMANCE AND OTHER FACTORS. The Board considered the relative performance records of each of the Funds, noting, however, that past performance is no guarantee of future results. The Board also considered the fact that the Reorganizations should allow for a more concentrated selling effort by the Funds' underwriter, thereby potentially benefiting each of the Funds, and that reduced outflows or increased inflows could help the Buying Fund shareholders achieve further economies of scale (see "Economies of Scale" above). The Board further took into account the investment manager's belief that each Selling Fund, as a stand-alone fund, was less likely to experience any growth in assets from investor inflows in the near term. In particular, for each Reorganization: Proposal 1. Seligman Core Fixed Income Fund into RiverSource Diversified Bond Fund: The Board noted that the performance of RiverSource Diversified Bond Fund was generally stronger than the performance of Seligman Core Fixed Income Fund. The Board noted the weak asset level of Seligman Core Fixed Income Fund and its relatively weak prospects for asset growth, particularly compared to RiverSource Diversified Bond Fund. The Board accorded particular weight to the fact that RiverSource Diversified Bond Fund has substantially greater assets than Seligman Core Fixed Income Fund, noting that RiverSource Diversified Bond Fund was more than 150 times the size of Seligman Core Fixed Income Fund. Proposal 2. Seligman Emerging Markets Fund into Threadneedle Emerging Markets Fund: The Board observed that the performance of Threadneedle Emerging Markets Fund was competitive (top half of the Lipper peer group), though not as good as the performance of Seligman Emerging Markets Fund. The Board noted the Threadneedle Emerging Markets Fund's stronger 10 year track record. The Board also noted Seligman Emerging Markets Fund's relatively weak prospects for asset growth, particularly compared to Threadneedle Emerging Markets Fund. The Board observed that the Threadneedle Emerging Markets Fund was more than four times the size of the Seligman Emerging Markets Fund. Proposal 3. Seligman Global Growth Fund into Threadneedle Global Equity Fund: The Board noted that the performance of Threadneedle Global Equity Fund was generally stronger than the performance of Seligman Global Growth Fund (both on a relative basis and when compared to their respective peer groups). The Board noted the weak asset level of Seligman Global Growth Fund and its relatively weak prospects for asset growth, particularly compared to Threadneedle Global Equity Fund. The Board accorded particular weight to the fact that Threadneedle Global Equity Fund has substantially greater assets than 105 Seligman Global Growth Fund, noting that Threadneedle Global Equity Fund was more than 20 times the size of Seligman Global Growth Fund. Proposal 4. Seligman High-Yield Fund into RiverSource High Yield Bond Fund: The Board noted that the performance of RiverSource High Yield Bond Fund was generally stronger than the performance of Seligman High-Yield Fund (both on a relative basis and when compared to their respective peer groups). The Board noted the weak asset level of Seligman High-Yield Fund and its relatively weak prospects for asset growth, particularly compared to RiverSource High Yield Bond Fund. The Board accorded particular weight to the fact that RiverSource High Yield Bond Fund has substantially greater assets than Seligman High-Yield Fund, noting that RiverSource High Yield Bond Fund was more than five times the size of Seligman High-Yield Fund. Proposal 5. Seligman Income and Growth Fund into RiverSource Balanced Fund: The Board noted that the performance of RiverSource Balanced Fund was generally stronger than the performance of Seligman Income and Growth Fund (both on a relative basis and when compared to their respective peer groups). The Board noted the weak asset level of Seligman Income and Growth Fund and its relatively weak prospects for asset growth, particularly compared to RiverSource Balanced Fund. The Board accorded particular weight to the fact that RiverSource Balanced Fund has substantially greater assets than Seligman Income and Growth Fund, noting that RiverSource Balanced Fund was more than 13 times the size of Seligman Income and Growth Fund. Proposal 6. Seligman International Growth Fund into RiverSource Partners International Select Growth Fund: The Board noted that the performance of RiverSource Partners International Select Growth Fund was generally stronger than the performance of Seligman International Growth Fund (both on a relative basis and when compared to their respective peer groups). The Board noted the weak asset level of Seligman International Growth Fund and its relatively weak prospects for asset growth, particularly compared to RiverSource Partners International Select Growth Fund. The Board accorded particular weight to the fact that RiverSource Partners International Select Growth Fund has substantially greater assets than Seligman International Growth Fund, noting that RiverSource Partners International Select Growth Fund was more than eight times the size of Seligman International Growth Fund. Proposal 7. Seligman U.S. Government Securities Fund into RiverSource Short Duration U.S. Government Fund: The Board observed the generally stronger track record of Seligman U.S. Government Securities Fund, but noted that both Seligman U.S. Government Securities Fund and RiverSource Short Duration U.S. Government Fund are currently run by the same management team and, thus, their respective performance, going forward, absent the Reorganization, would be substantially similar. The Board also noted the weak asset level of Seligman U.S. Government Securities Fund and its relatively weak prospects for asset growth, particularly compared to RiverSource Short Duration U.S. Government Fund. The Board accorded particular weight to the fact that RiverSource Short Duration U.S. Government Fund has substantially greater assets than Seligman U.S. Government Securities Fund, noting that RiverSource Short Duration U.S. Government Fund was more than nine times the size of Seligman U.S. Government Securities Fund. - - POTENTIAL BENEFITS TO THE INVESTMENT MANAGER AND ITS AFFILIATES. The Board considered the potential benefits from the Reorganizations that could be realized by the investment manager and its affiliates, including the elimination of expenses incurred in duplicative efforts to administer separate Funds. The Board also noted, however, that shareholders of each Selling Fund are expected to benefit over time from the decrease in overall operating expense ratios resulting from the proposed Reorganizations as well as the other benefits discussed above. BOARD DETERMINATIONS After considering the factors described above and other relevant information, at a meeting held on Jan. 8, 2009, the Board of each Selling Fund, including a majority of the independent Board members, determined that participation in the relevant Reorganization is in the best interests of each Fund and that the interests of existing shareholders of the Fund will not be diluted as a result of the Reorganization. The Board of Directors of each Buying Fund approved the Agreement at a meeting held on Jan. 8, 2009. Among other factors, the Board members considered the terms of the Agreement, the provisions intended to avoid the dilution of shareholder interests and the anticipated tax consequences of the Reorganization. The Board found that participation in each Reorganization is in the best interest of the Buying Fund and that the interest of the existing shareholders of the Buying Fund will not be diluted as a result of the Reorganization. BOARD RECOMMENDATION AND REQUIRED VOTE The Board recommends that shareholders of each Selling Fund approve the proposed Agreement. The Agreement must be approved by the affirmative vote of a majority of the outstanding voting securities of each Selling Fund. A vote of a majority of the outstanding voting securities of a Selling Fund is defined in the 1940 Act, as the affirmative vote of the lesser of (a) 67% or more of the shares of the Selling Fund that are present or represented by proxy at the Meeting, if the holders of 106 more than 50% of the outstanding shares of the Selling Fund are present in person or by proxy at the Meeting; or (b) more than 50% of the outstanding shares of the Selling Fund. If the Agreement is not approved for any Selling Fund, the Board will consider what further action should be taken with respect to such Selling Fund. The approval of the Reorganization of one Selling Fund is not conditioned upon the approval of the Reorganization of any other Selling Fund. If shareholders approve the Reorganization of their Selling Fund, it is anticipated to occur before the end of the third quarter of 2009. 107 SECTION B -- MANAGER OF MANAGERS PROPOSALS PROPOSAL 8. MANAGER OF MANAGERS PROPOSAL FOR SELIGMAN EMERGING MARKETS FUND The Board has approved, and recommends that shareholders approve, a policy authorizing RiverSource Investments, the investment adviser to Seligman Emerging Markets Fund (a "Seligman Subadvised Fund"), with the approval of the Board to enter into and materially amend a subadvisory agreement, without obtaining shareholder approval (the "Manager of Managers Proposal"). PROPOSAL 9. MANAGER OF MANAGERS PROPOSAL FOR SELIGMAN GLOBAL GROWTH FUND The Board has approved, and recommends that shareholders approve, a policy authorizing RiverSource Investments, the investment adviser to Seligman Global Growth Fund (a "Seligman Subadvised Fund"), with the approval of the Board to enter into and materially amend a subadvisory agreement, without obtaining shareholder approval (the "Manager of Managers Proposal"). PROPOSAL 10. MANAGER OF MANAGERS PROPOSAL FOR SELIGMAN INTERNATIONAL GROWTH FUND The Board has approved, and recommends that shareholders approve, a policy authorizing RiverSource Investments, the investment adviser to Seligman International Growth Fund (a "Seligman Subadvised Fund"), with the approval of the Board to enter into and materially amend a subadvisory agreement, without obtaining shareholder approval (the "Manager of Managers Proposal"). ADDITIONAL INFORMATION ABOUT EACH MANAGER OF MANAGERS PROPOSAL RiverSource Investments serves as the investment adviser to the Seligman Subadvised Funds. However, RiverSource Investments does not make the day-to-day investment decisions for the Seligman Subadvised Funds. Instead, RiverSource Investments establishes an investment program for the Seligman Subadvised Funds, and selects, compensates and evaluates the Seligman Subadvised Funds' subadvisers. The subadvisers, in turn, make the day-to-day investment decisions for the Seligman Subadvised Funds. For each of the Seligman Subadvised Funds, RiverSource Investments, with the approval of the Board, may wish to hire, add or change a subadviser to handle the day-to-day investment decisions. Shareholder Approval of Subadvisory Agreements. Federal securities laws generally require that shareholders approve agreements with a fund's subadviser, as well as with the investment adviser. Shareholder action also is required if the terms of existing agreements are changed materially or if there is a change in control of the subadviser. In order to obtain shareholder approval, the Seligman Subadvised Funds must call and conduct shareholder meetings, prepare and distribute proxy materials and solicit votes from shareholders. The process is costly and time-consuming. The Board believes that it is in shareholders' best interests if the Board represents their interests in approving or rejecting recommendations made by RiverSource Investments regarding subadvisers. This approach will avoid the cost and delay associated with holding shareholder meetings to obtain approval for the changes. SEC Exemptive Order. On July 16, 2002, the SEC granted RiverSource Investments an order exempting it from the federal securities law requirements to obtain shareholder approval regarding unaffiliated subadvisers (the "SEC Order"). The SEC Order permits RiverSource Investments to hire new subadvisers, to rehire existing subadvisers that have experienced a change in control and to modify subadvisory agreements, without the approval of shareholders, provided shareholders adopt a policy authorizing RiverSource Investments, with the approval of the Board, to take such action. Under the SEC Order, the Seligman Subadvised Funds and RiverSource Investments are subject to several conditions imposed by the SEC to ensure that the interests of the Seligman Subadvised Funds' shareholders are adequately protected. In addition, within 90 days of hiring a new subadviser, RiverSource Investments will provide you with an information statement that contains substantially the same information about the subadviser, the subadvisory agreement and the subadvisory fee that the Seligman Subadvised Fund would be required to send to you in a proxy statement. Shareholder approval of this proposal will not result in an increase or decrease in the total amount of investment advisory fees paid by the Seligman Subadvised Funds to RiverSource Investments. RiverSource Investments, directly or through subadvisers, will continue to provide the same level of advisory and administrative services to the Seligman Subadvised Funds as it currently provides. The SEC Order applies to at least the following situations: - - RiverSource Investments recommends that a Seligman Subadvised Fund's day-to- day management be diversified by adding another subadviser; 108 - - RiverSource Investments recommends that a subadviser be removed for substandard performance and replaced with a different subadviser; or - - There is a change of control of a subadviser. COMPARISON OF PRESENT AND PROPOSED SELECTION PROCESS FOR SUBADVISERS Under both the current process for approval of subadvisory agreements and under the proposed process, any change in a subadvisory agreement requires approval by the Board. In considering whether to appoint a subadviser for any Seligman Subadvised Fund, the Board will analyze the factors it considers relevant, including: - - The nature, extent and quality of services provided by a subadviser to investment companies comparable to the Seligman Subadvised Fund, including: - a subadviser's organization, - a subadviser's history, reputation, qualification and background, as well as the qualifications of its personnel, - a subadviser's expertise in providing portfolio management services to other similar portfolios and the performance history of those portfolios, - a subadviser's proposed investment strategy for the Seligman Subadvised Fund, and - a subadviser's compliance program; - - A subadviser's long- and short-term performance relative to comparable mutual funds, other managed accounts and unmanaged indexes; - - A subadviser's costs of services provided with respect to mutual funds or other managed accounts that are comparable to the Seligman Subadvised Fund; and - - Other factors that the Board considers relevant to the subadviser's performance as an investment adviser. The Board believes that it is in the best interest of the Seligman Subadvised Funds and their shareholders to allow RiverSource Investments the flexibility to provide investment advisory services to each Fund through one or more subadvisers that have particular expertise in the type of investments on which a Fund focuses. Without the ability to utilize the SEC Order, in order for RiverSource Investments to appoint a new subadviser or modify a subadvisory agreement materially, the Board must call and hold a shareholder meeting of that Seligman Subadvised Fund, create and distribute proxy materials and solicit votes from the Seligman Subadvised Fund's shareholders. This process is time consuming and costly. Without the delay inherent in holding shareholder meetings, RiverSource Investments would be able to act more quickly to appoint a new subadviser if and when the Board and RiverSource Investments feel that the appointment would benefit the Seligman Subadvised Fund. The Board believes that granting RiverSource Investments, subject to the review and approval of the Board, maximum flexibility to select, to supervise and to evaluate subadvisers, without incurring the otherwise necessary delay or expense of obtaining further shareholder approval, is in the best interest of the shareholders because it will allow each Fund to operate more efficiently. In addition, the Board believes that it is appropriate to vest the selection, supervision and evaluation of the subadvisers in RiverSource Investments (subject to review by the Board) in light of RiverSource Investments' investment advisory expertise and its ability to select the most appropriate subadviser(s). RiverSource Investments believes that if in the future it becomes appropriate to change a subadviser to your Seligman Subadvised Fund, it can use this experience and expertise in evaluating and choosing subadvisers that can add the most value to your investment in the Seligman Subadvised Fund. Finally, the Board provides oversight of each Seligman Subadvised Fund's subadvisory arrangements to seek to ensure that shareholders' interests are protected whenever RiverSource Investments seeks to select a subadviser or modify a subadvisory agreement. The Board will continue to evaluate and to approve all new subadvisory agreements (as well as any modification to existing subadvisory agreements.) Members of the Board will analyze such factors that they consider to be relevant to the determination, including the nature, quality and scope of services provided by the subadvisers. The Board will also evaluate the subadviser's investment performance with other accounts with similar investment objectives and will consider the subadviser's code of ethics as well as its compliance program. As with each Fund's Investment Management Services Agreement, the terms of each subadvisory agreement will include those required by applicable provisions of the 1940 Act, except for the specific provisions of the 1940 Act from which the SEC Order provides relief. 109 BOARD RECOMMENDATION AND REQUIRED VOTE The Board recommends that shareholders of each Seligman Subadvised Fund approve their respective Manager of Managers Proposal. The Manager of Managers Proposal must be approved by the affirmative vote of a majority of the outstanding voting securities of each Seligman Subadvised Fund. A vote of a majority of the outstanding voting securities of a Selling Fund is defined in the 1940 Act as the affirmative vote of the lesser of (a) 67% or more of the shares of the Seligman Subadvised Fund that are present or represented by proxy at the Meeting, if the holders of more than 50% of the outstanding shares of the Seligman Subadvised Fund are present in person or by proxy at the Meeting; or (b) more than 50% of the outstanding shares of the Seligman Subadvised Fund. The approval of the Manager of Managers Proposal of one Seligman Subadvised Fund is not conditioned upon the approval of the Manager of Managers Proposal of any other Seligman Subadvised Fund or the Reorganization of that Fund. If shareholders approve the Manager of Managers Proposal, it will take effect shortly after the Meeting. If the Manager of Managers Proposal is not approved for any Seligman Subadvised Fund changes in subadvisory relationships (other than the termination of an existing subadviser) of that Seligman Subadvised Fund will continue to require shareholder approval. 110 SECTION C -- PROXY VOTING AND SHAREHOLDER MEETING INFORMATION Reference to the "Fund" in this section is a reference to each Selling Fund, including the Seligman Subadvised Funds. VOTING. Shareholders of record on April 3, 2009 are entitled to vote based on the number of shares they own in the Fund irrespective of which class they own. Unless otherwise restricted by the 1940 Act or by applicable state law, all share classes of a Fund will vote together as a class on its proposal(s). A quorum is required to take action at the Meeting. Except with respect to Seligman U.S. Government Securities Fund and Seligman High-Yield Fund, the presence at the Meeting, in person or by proxy, of shareholders entitled to cast one-third of all shares outstanding and entitled to be cast at the Meeting shall constitute a quorum. With respect to each of Seligman U.S. Government Securities Fund and Seligman High-Yield Fund, the presence at the Meeting, in person or by proxy, of shareholders of record holding a majority of the shares outstanding and entitled to vote shall constitute a quorum. All votes count toward a quorum, regardless of how they are voted (For, Against or Abstain). Broker non-votes will be counted toward a quorum, but not toward the approval of any proposal. (Broker non-votes are shares for which the underlying owner has not voted and the broker holding the shares does not have the authority to vote.) PROXY SOLICITATION. If you properly authorize your proxy by internet, telephone or facsimile, or by executing and returning the enclosed proxy card by mail, and your proxy is not subsequently revoked, your votes will be cast at the Meeting, and at any postponement or adjournment thereof. If you give instructions, your votes will be cast in accordance with your instructions. If you return your signed proxy card without instructions, your votes will be cast in favor of the proposal(s) of your Fund. PROXY STATEMENT DELIVERY. "Householding" is the term used to describe the practice of delivering one copy of a document to a household of shareholders instead of delivering one copy of a document to each shareholder in the household. Certain shareholders of the Fund who share a common address and who have not opted out of the householding process may receive a single copy of the proxy statement along with the proxy card(s). If you received more than one copy of the proxy statement, you may elect to household in the future if permitted by your financial intermediary/financial institution. Contact the financial intermediary/financial institution through which you purchased the Fund to determine whether householding is an option for your account. If you received a single copy of the proxy statement, you may opt out of householding in the future by contacting your financial intermediary/financial institution. An additional copy of this proxy statement may be obtained by writing to the following address: Computershare Fund Services, c/o Operation Department, 280 Oser Ave., Hauppauge, NY 11788 or calling Computershare Fund Services, toll free at (866) 438-8932. REVOKING YOUR PROXY. If you execute, date and submit a proxy card with respect to your Selling Fund, you may revoke your proxy by providing written notice to your Fund (Attention: Secretary) at 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474, or change your instructions by submitting a subsequently executed and dated proxy card, by authorizing your proxy by internet, telephone or facsimile on a later date or by attending the Meeting and casting your vote in person. If you authorize your proxy by internet, telephone or facsimile, you may change your instructions by authorizing a subsequent proxy by internet, telephone or facsimile or by completing, signing and returning a proxy card dated as of a date that is later than your last internet, telephone or facsimile proxy authorization or by attending the Meeting and casting your vote in person. Merely attending the Meeting without voting will not revoke your prior proxy. SIMULTANEOUS MEETINGS. The meeting for each Fund will be held simultaneously with the meeting for each other Fund, with each proposal being voted on separately by the shareholders of the relevant Fund. If any shareholder objects to the holding of simultaneous meetings, the shareholder may move for an adjournment of his or her Fund's meeting to a time after the Meeting so that a meeting of that Fund may be held separately. If a shareholder makes this motion, the persons named as proxies will take into consideration the reasons for the objection in deciding whether to vote in favor of the adjournment, and may vote for or against the adjournment in their discretion. SOLICITATION OF PROXIES. The Board is asking for your vote and for you to vote as promptly as possible. The expenses of the solicitation will be paid by RiverSource Investments and by certain Selling Funds (see discussion of Costs under "Reasons for the Proposed Reorganizations and Board Deliberations"). Supplementary solicitations may be made by Internet, telephone or facsimile, or by personal contact. Computershare Fund Services has been engaged to assist in the solicitation of proxies, at an aggregate estimated cost of $38,375. SHAREHOLDER PROPOSALS. No proposals were received from shareholders. The Funds do not hold annual meetings of shareholders. Shareholders who wish to make a proposal at a Fund's next special meeting, which may not be included in the Fund's proxy materials, must notify the relevant Fund a reasonable amount of time before the Fund begins to print and mail its proxy materials. The fact that a Fund receives a shareholder proposal in a timely manner does not ensure inclusion of the proposal in the proxy materials, as there are other requirements in the proxy rules relating to such inclusion. 111 APPRAISAL RIGHTS. Shareholders of Seligman U.S. Government Securities Fund and Seligman High-Yield Fund may be entitled to assert appraisal rights under the Massachusetts Business Corporation Act (the "MBCA"), applicable to such Selling Funds due to a provision in the Declaration of Trust for such funds, in connection with each such Selling Fund's Reorganization and obtain payment of the "fair value" of their shares, provided that they comply with the requirements of Massachusetts law. A copy of the relevant provisions of the MBCA is attached as Exhibit D. Under Minnesota law, dissenting shareholders are entitled to appraisal rights and payment for the fair value of their shares if an amendment to a Minnesota fund's articles of incorporation materially and adversely affects a preferential right of the shares; whereas, Massachusetts law is more limited, in that dissenting shareholders are not so entitled unless an amendment to a Massachusetts fund's declaration of trust affects the rights or preferences of the shares in connection with distributions or dissolution. Under Minnesota law, a shareholder may dissent from, and obtain fair value payment for his shares in the event of, the fund's board of directors adoption of a plan of conversion (e.g., changing its status to non-profit); whereas, under Massachusetts law, a plan of conversion must be consummated for such rights to take effect. Unlike Minnesota law, Massachusetts law provides for dissenter's rights in the event of an amendment to a Massachusetts fund's declaration of trust or bylaws or the entering into by the Massachusetts fund of any agreement that adds restrictions on the transfer or registration or any outstanding shares held by the shareholder or amends any pre-existing restrictions on the transfer or registration of his shares in a manner which is materially adverse to the ability of the shareholder to transfer his assets. Unlike Massachusetts law, other than in connection with certain mergers, Minnesota law provides that the right to obtain payment is not available to holders of shares of any class or series of shares that is listed on the New York Stock Exchange or the American Stock Exchange or designated as a national market security on Nasdaq Stock Market, unless shareholders are required to accept for their shares anything other than shares (or cash in lieu of fractional shares) of any class or series of a domestic or foreign corporation or any other ownership interest of any other organization. Under Minnesota law, in order to receive fair value of shares, a dissenting shareholder must demand payment and deposit certificated shares (if any), or comply with any restrictions on transfer of uncertificated shares, within 30 days of the Minnesota fund's appraisal notice (which includes the procedure to obtain payment); whereas, under Massachusetts law, the deposit of certificates (and any required forms) must be received by the Massachusetts fund not fewer than 40 nor more than 60 days after the fund's appraisal notice is sent (MA Send Date). Massachusetts law specifically provides that a shareholder may decline to exercise his appraisal rights and withdraw from the appraisal process provided that the Massachusetts fund receives the shareholder's notice of withdrawal within 20 days after the MA Send Date. Under Minnesota law, a dissenter who is dissatisfied with the fair value payment received from the Minnesota fund must provide written notice to the fund within 30 days after the fund mails the payment; whereas, under Massachusetts law, a shareholder must provide written notice of dissatisfaction within 30 days of shareholder's receipt of payment from the Massachusetts fund. Notwithstanding the provisions of Massachusetts law, the SEC has taken the position that the use of state appraisal procedures by a mutual fund would be a violation of Rule 22c-1, the forward pricing rule, under the 1940 Act. This rule states that no mutual fund may redeem its shares other than at net asset value next computed after receipt of a request for redemption. It is the SEC's position that Rule 22c-1 supersedes appraisal provisions in state statutes. In the interest of ensuring equal valuation for all shareholders, appraisal rights will be determined in accordance with the SEC's interpretation. As a result, if any shareholder of either Seligman U.S. Government Securities Fund or Seligman High-Yield Fund elects to exercise appraisal rights under Massachusetts law, the relevant Selling Fund intends to submit this question to a court of competent jurisdiction. In that event, a dissenting shareholder would not receive any payment until the end of the court proceeding. In addition, Section 13.02(a)(3) of the MBCA provides for an exception to appraisal rights for which we believe, in light of the rationale expressed in the Comments of The Task Force on the Revision of the Massachusetts Business Corporation Law accompanying the MBCA, a reasonable argument exists for applying such exception to a transaction involving an open-end mutual fund. If any shareholder of either Seligman U.S. Government Securities Fund or Seligman High- Yield Fund elects to exercise appraisal rights under Massachusetts law, the relevant Selling Fund, in connection with submitting the question of the supremacy of Rule 22c-1 to a court of competent jurisdiction, may also argue that appraisal rights under Massachusetts law do not apply. OTHER BUSINESS. The Board does not know of any matters to be presented at the Meeting other than the Reorganization proposals and the Manager of Managers proposals. If other business should properly come before the Meeting, the persons named as proxies will vote thereon in their discretion. ADJOURNMENT. With respect to each Selling Fund, including the Seligman Subadvised Funds, other than Seligman U.S. Government Securities Fund and Seligman High-Yield Fund, in the event that not enough votes are received by the time scheduled for the Meeting, or, even if a quorum is present, if sufficient votes in favor of any proposal(s) are not received and tabulated prior to the time scheduled for the Meeting, the chairman of the Meeting may adjourn the Meeting, with no notice 112 other than an announcement at the Meeting, to a date not later than the 120th day after the original record date for the Meeting to allow further solicitation of shareholders on the proposal(s). For each of Seligman U.S. Government Securities Fund and Seligman High-Yield Fund, if a quorum is not present or represented at the Meeting, the holders of a majority of the shares of a Selling Fund present at the Meeting, in person or by proxy, shall have power to adjourn the Meeting, without notice other than announcement at the Meeting, until the requisite number of shares entitled to vote at the Meeting is present. The persons named as proxies will vote in favor of adjournment those shares they have been instructed to vote in favor of a proposal, or for which they have received a proxy but no voting instructions. They will vote against any adjournment those shares they have been instructed to vote against a proposal. A shareholder vote may be taken on one or more proposals discussed in this combined proxy statement/prospectus prior to adjournment of the Meeting if sufficient votes have been received with respect to that particular proposal(s), and may adjourn with respect to those proposals for which sufficient votes have not yet been received. 113 SECTION D -- CAPITALIZATION, OWNERSHIP OF FUND SHARES AND FINANCIAL HIGHLIGHTS This section contains the following information about the Funds:
TABLE CONTENT (all information is shown for the last fiscal year unless noted otherwise) D-1 Actual and pro forma capitalization of each Selling Fund and each Buying Fund D-2 Actual and pro forma ownership of Fund shares D-3 Financial Highlights of each Buying Fund
THE FUNDS' INVESTMENT MANAGER AND DISTRIBUTORS. RiverSource Investments, LLC, 200 Ameriprise Financial Center, Minneapolis, MN 55474, a wholly-owned subsidiary of Ameriprise Financial, Inc., is the investment manager for each Fund. RiverSource Distributors, Inc., a wholly-owned subsidiary of Ameriprise Financial, Inc., and RiverSource Fund Distributors, Inc., an indirect wholly- owned subsidiary of RiverSource Investments, LLC, each at 50611 Ameriprise Financial Center, Minneapolis, MN 55474, are the distributors for each RiverSource Fund. RiverSource Fund Distributors, Inc. is also the distributor for each Seligman Fund. CAPITALIZATION OF SELLING FUNDS AND BUYING FUNDS The following table shows the capitalization of the Funds as of April 3, 2009 and on a pro forma basis, assuming the proposed Reorganization had taken place. The pro forma combined table includes the impact of non-recurring estimated Reorganization costs expected to be borne by certain Selling Funds, based on the following factors. If the Reorganization is expected to result in reduction in the expense ratio for the Selling Fund, an amount of the proxy-related eligible expenses will be borne by the Selling Fund. This amount will not exceed the expected one-year benefit to the Selling Fund resulting from the reduced expense ratio, less the cost borne by the Selling Fund related to other integration- related activity. If the Reorganization is not expected to result in a reduction in the expense ratio for the Selling Fund, proxy-related eligible expenses will not be borne by the Selling Fund. Proxy-related eligible expenses not borne by the Selling Fund will be paid for by RiverSource Investments. Proxy-related eligible expenses include auditor fees and external legal fees ("Professional Fees"), and printing, postage, and solicitor expenses ("Proxy Vendor Expenses"). Professional Fees have been allocated among the Selling Funds on an equal weighted basis regardless of asset size or number of accounts. Proxy Vendor Expenses have been allocated among the Selling Funds based on number of accounts. The amount of proxy-related eligible expenses actually borne by the Selling Fund is limited, as described above. The pro forma combined shares outstanding are determined by dividing the net assets, less any Reorganization costs, of the Selling Fund by the net asset value per share of the Buying Fund and adding the actual shares outstanding of the Buying Fund. For the Reorganization of Seligman High-Yield Fund into RiverSource High Yield Bond Fund, the Reorganization costs reduced pro forma combined net assets by $113,228 for Class A, $12,793 for Class B, $6,553 for Class C, $484 for Class R2 and $651 for Class R5. For the Reorganization of Seligman Income and Growth Fund into RiverSource Balanced Fund, the Reorganization costs reduced pro forma combined net assets by $56,655 for Class A, $2,238 for Class B, $964 for Class C, $11 for Class R2 and $31 for Class R5. For the Reorganization of Seligman U.S. Government Securities Fund into RiverSource Short Duration U.S. Government Fund, the Reorganization costs reduced pro forma combined net assets by $63,336 for Class A, $13,461 for Class B, $3,589 for Class C and $531 for Class R2. 114 TABLE D-1. ACTUAL AND PRO FORMA CAPITALIZATION OF EACH SELLING FUND AND EACH BUYING FUND
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - --------------------------------------------------------------------------------------------------------- SELIGMAN CORE FIXED INCOME FUND (ACTUAL) (SELLING FUND) Class A $ 6,161,569 $6.51 947,085 Class B 1,244,667 6.51 191,239 Class C 3,015,875 6.51 463,472 Class R (to be known as Class R2) 133,419 6.51 20,493 Class I (to be known as Class R5) 7,410,648 6.51 1,138,795 RIVERSOURCE DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) Class A $1,936,385,473 $4.43 437,479,870 Class B 235,903,168 4.43 53,307,586 Class C 38,658,168 4.43 8,732,471 Class R2 12,995 4.43 2,933 Class R5 9,131 4.42 2,066 RIVERSOURCE DIVERSIFIED BOND FUND (PRO FORMA COMBINED) Class A $1,942,547,042 $4.43 438,870,743 Class B 237,147,835 4.43 53,588,549 Class C 41,674,043 4.43 9,413,255 Class R2 146,414 4.43 33,050 Class R5 7,419,779 4.42 1,678,683
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - -------------------------------------------------------------------------------------------------------- SELIGMAN EMERGING MARKETS FUND (ACTUAL) (SELLING FUND) Class A $ 32,729,455 $7.05 4,642,090 Class B 1,852,763 6.05 306,103 Class C 18,561,070 6.11 3,039,967 Class R (to be known as Class R2) 8,951,262 7.04 1,270,778 Class I (to be known as Class R5) 4,816,437 7.68 626,869 THREADNEEDLE EMERGING MARKETS FUND (ACTUAL) (BUYING FUND) Class A $234,895,625 $5.22 45,022,502 Class B 26,418,557 4.65 5,678,591 Class C 3,518,641 4.66 754,735 Class R5 2,898 5.42 535 THREADNEEDLE EMERGING MARKETS FUND (PRO FORMA COMBINED) Class A $267,625,080 $5.22 51,292,513 Class B 28,271,320 4.65 6,077,035 Class C 22,079,711 4.66 4,737,797 Class R2* 8,951,262 5.22 1,714,801 Class R5 4,819,335 5.42 889,177
*The inception date for Class R2 is expected to be in the third quarter of 2009. 115
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - -------------------------------------------------------------------------------------------------------- SELIGMAN GLOBAL GROWTH FUND (ACTUAL) (SELLING FUND) Class A $ 10,288,568 $5.21 1,975,453 Class B 902,441 4.65 193,877 Class C 4,593,015 4.66 986,239 Class R (to be known as Class R2) 105,011 5.14 20,426 Class I (to be known as Class R5) 527,350 5.44 96,983 THREADNEEDLE GLOBAL EQUITY FUND (ACTUAL) (BUYING FUND) Class A $326,315,961 $4.89 66,733,817 Class B 35,570,541 4.60 7,737,572 Class C 4,203,502 4.55 923,230 Class R2 7,229 4.90 1,474 Class R5 3,114 4.91 634 THREADNEEDLE GLOBAL EQUITY FUND (PRO FORMA COMBINED) Class A $336,604,529 $4.89 68,837,819 Class B 36,472,982 4.60 7,933,755 Class C 8,796,517 4.55 1,932,684 Class R2 112,240 4.90 22,905 Class R5 530,464 4.91 108,037
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - ------------------------------------------------------------------------------------------------------- SELIGMAN HIGH-YIELD FUND (ACTUAL) (SELLING FUND) Class A $ 92,809,044 $2.04 45,506,784 Class B 6,759,302 2.04 3,312,154 Class C 34,915,906 2.05 17,046,471 Class R (to be known as Class R2) 3,766,605 2.04 1,844,641 Class I (to be known as Class R5) 5,074,195 2.04 2,482,188 RIVERSOURCE HIGH YIELD BOND FUND (ACTUAL) (BUYING FUND) Class A $790,568,437 $1.98 399,571,362 Class B 93,051,901 1.98 47,055,314 Class C 16,207,019 1.97 8,244,740 Class R2 11,722 1.98 5,907 Class R5 3,356 1.98 1,695 RIVERSOURCE HIGH YIELD BOND FUND (PRO FORMA COMBINED)* Class A $883,264,253 $1.98 446,387,431 Class B 99,798,410 1.98 50,462,642 Class C 51,116,372 1.97 25,965,224 Class R2 3,777,843 1.98 1,907,988 Class R5 5,076,900 1.98 2,564,091
*RiverSource High Yield Bond Fund (Pro Forma Combined) includes Reorganization costs which reduced net assets. 116
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - -------------------------------------------------------------------------------------------------------- SELIGMAN INCOME AND GROWTH FUND (ACTUAL) (SELLING FUND) Class A $ 29,378,154 $7.74 3,797,301 Class B 1,054,355 7.69 137,112 Class C 5,811,573 7.69 755,609 Class R (to be known as Class R2) 93,198 7.76 12,012 Class I (to be known as Class R5) 269,735 7.80 34,576 RIVERSOURCE BALANCED FUND (ACTUAL) (BUYING FUND) Class A $464,001,424 $7.27 63,808,680 Class B 18,435,175 7.23 2,550,329 Class C 2,583,759 7.22 357,939 RIVERSOURCE BALANCED FUND (PRO FORMA COMBINED) * Class A $493,322,923 $7.27 67,841,899 Class B 19,487,292 7.23 2,695,850 Class C 8,394,368 7.22 1,162,732 Class R2** 93,187 7.27 12,818 Class R5** 269,704 7.27 37,098
*RiverSource Balanced Fund (Pro Forma Combined) includes Reorganization costs which reduced net assets. **The inception date for Class R2 and Class R5 is expected to be in the third quarter of 2009.
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - -------------------------------------------------------------------------------------------------------- SELIGMAN INTERNATIONAL GROWTH FUND (ACTUAL) (SELLING FUND) Class A $ 14,835,323 $6.93 2,139,248 Class B 1,501,539 5.98 251,239 Class C 9,584,276 5.99 1,600,648 Class R (to be known as Class R2) 592,592 6.85 86,545 Class I (to be known as Class R5) 8,846,696 7.45 1,187,550 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (ACTUAL) (BUYING FUND) Class A $148,164,573 $4.32 34,271,352 Class B 23,233,402 4.14 5,605,447 Class C 2,590,318 4.13 626,607 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (PRO FORMA COMBINED) Class A $162,999,896 $4.32 37,705,455 Class B 24,734,941 4.14 5,968,138 Class C 12,174,594 4.13 2,947,255 Class R2* 592,592 4.32 137,174 Class R5* 8,846,696 4.37 2,024,416
*The inception date for Class R2 and Class R5 is expected to be in the third quarter of 2009. 117
NET ASSET VALUE SHARES FUND NET ASSETS PER SHARE OUTSTANDING - ------------------------------------------------------------------------------------------------------- SELIGMAN U.S. GOVERNMENT SECURITIES FUND (ACTUAL) (SELLING FUND) Class A $ 44,329,528 $7.30 6,072,489 Class B 7,979,404 7.32 1,090,806 Class C 21,389,955 7.31 2,925,798 Class R (to be known as Class R2) 5,011,154 7.30 686,178 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (ACTUAL) (BUYING FUND) Class A $552,926,442 $4.60 120,211,009 Class B 118,959,576 4.60 25,862,729 Class C 12,458,949 4.60 2,708,647 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (PRO FORMA COMBINED)* Class A $597,192,634 $4.60 129,834,094 Class B 126,925,519 4.60 27,594,456 Class C 33,845,315 4.60 7,357,857 Class R2** 5,010,623 4.60 1,089,266
*RiverSource Short Duration U.S. Government Fund (Pro Forma Combined) includes Reorganization costs which reduced net assets. **The inception date for Class R2 is expected to be in the third quarter of 2009. 118 OWNERSHIP OF SHARES OF SELLING FUNDS, INCLUDING SELIGMAN SUBADVISED FUNDS, AND BUYING FUNDS The following table provides information on shareholders who owned more than 5% of any class of each Fund's outstanding shares as of Jan. 31, 2009. As of Jan. 31, 2009, officers and directors/trustees of each Fund, as a group, owned less than 1% of the outstanding shares of any class of any Fund. TABLE D-2. ACTUAL AND PRO FORMA OWNERSHIP OF FUND SHARES
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - ---------------------------------------------------------------------------------------------------------------------- SELIGMAN CORE FIXED INCOME FUND (SELLING FUND) Class A Merrill Lynch, Pierce Fenner & Smith Inc. (MLPF&S), Jacksonville, FL 17.69% N/A State Street Bank & Trust Co. -- Seligman Asset Allocation Balanced Fund, Kansas City, MO 15.24% N/A Class B CitiGroup Global House Account, New York, NY 27.01% N/A MLPF&S 13.59% N/A Pershing LLC, Jersey City, NJ 8.18% N/A Class C MLPF&S 16.84% N/A UBS Financial Services Inc. FBO UBS-FINSVC CDN FBO Mr. George V. Butcher, Weehawken, NY 11.69% N/A Class R (to be known as Class R2) None N/A N/A Class I (to be known as Class R5) State Street Bank & Trust Co. FBO North Carolina College Savings Program -- NCBG, Westwood, MA 34.98% N/A State Street Bank & Trust Co. FBO North Carolina College Savings Program -- NCBF, Westwood, MA 24.02% N/A State Street Bank & Trust Co. FBO North Carolina College Savings Program -- NCBE, Westwood, MA 17.86% N/A State Street Bank & Trust Co. FBO North Carolina College Savings Program -- NCBH, Westwood, MA 8.31% N/A RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND) Class A Charles Schwab & Co., Inc. (Charles Schwab) a brokerage firm in San Francisco, CA 8.08% 8.04% MLPF&S N/A 0.06% State Street Bank & Trust -- Seligman Asset Allocation Balanced Fund Kansas City, KA N/A 0.05% Class B CitiGroup Global House Account, New York, NY N/A 0.15% MLPF&S N/A 0.07% Pershing LLC, Jersey City, NJ N/A 0.04% Class C Citigroup Global Markets, Owings Mills, MD 25.29% 23.20% MLPF&S N/A 1.32% UBS Financial Services Inc. FBO UBS-FINSVC CDN FBO Mr. George V. Butcher, Weehawken, NJ N/A 0.91% Class R2 RiverSource Investments LLC (RiverSource Investments), Minneapolis, MN 83.88% 8.33% Applied Reliability Engineering, Denver, CO 16.12% 1.60% Class R5 RiverSource Investments 100.00% 0.11% State Street Bank & Trust Co FBO North Carolina College Savings Program -- NCBG, Westwood, MA N/A 34.96% State Street Bank & Trust Co FBO North Carolina College Savings Program -- NCB, Westwood, MA N/A 24.01% State Street Bank & Trust Co FBO North Carolina College Savings Program -- NCBE, Westwood, MA N/A 17.85% State Street Bank & Trust Co FBO North Carolina College Savings Program -- NCBH, Westwood, MA N/A 8.30%
119
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - --------------------------------------------------------------------------------------------------------------------- SELIGMAN EMERGING MARKETS FUND (SELLING FUND) Class A Morgan Stanley & Co (Morgan Stanley), Jersey City, NJ 24.94% N/A MLPF&S 7.68% N/A State Street Bank & Trust Co -- Seligman Asset Allocation Growth Fund, Kansas City, MO 5.71% N/A Class B Morgan Stanley 6.08% N/A MLPF&S 5.12% N/A Class C MLPF&S 51.23% N/A CitiGroup Global House Account, New York, NY 5.09% N/A Class R (to be known as Class R2) None N/A N/A Class I (to be known as Class R5) State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBE, Westwood, MA 36.76% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBD, Westwood, MA 22.13% N/A Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC 14.90% N/A Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC 13.09% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBF, Westwood, MA 9.45% N/A THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) Class A Charles Schwab 13.68% 11.98% Morgan Stanley N/A 3.10% MLPF&S N/A 0.96% State Street Bank & Trust Co -- Seligman Asset Allocation Growth Fund, Kansas City, MO N/A 0.71% Class B Morgan Stanley N/A 0.42% MLPF&S N/A 0.35% Class C MLPF&S N/A 43.19% CitiGroup Global House Account, New York, NY N/A 4.29% Class R2 None N/A N/A Class R5 RiverSource Investments 100.00% 0.05% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBE, Westwood, MA N/A 36.76% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBD, Westwood, MA N/A 22.12% Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC N/A 14.89% Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC N/A 13.08% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBF, Westwood, MA N/A 9.45%
Note: Class R2 is being added to Threadneedle Emerging Markets Fund in connection with the Reorganization. 120
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - ---------------------------------------------------------------------------------------------------------------------- SELIGMAN GLOBAL GROWTH FUND (SELLING FUND) Class A MLPF&S 16.15% N/A Class B MLPF&S 15.28% N/A Morgan Stanley 8.62% N/A Class C MLPF&S 16.82% N/A CitiGroup Global House Account, New York, NY 6.26% N/A Class R (to be known as Class R2) None N/A N/A Class I (to be known as Class R5) Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC 89.33% N/A Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC 10.56% N/A THREADNEEDLE GLOBAL EQUITY FUND (BUYING FUND) Class A Charles Schwab 12.43% 12.06% MLPF&S N/A 0.48% Class B MLPF&S N/A 0.37% Morgan Stanley N/A 0.21% Class C MLPF&S N/A 8.70% CitiGroup Global House Account, New York, NY N/A 3.24% Class R2 RiverSource Investments 64.55% 3.06% Applied Reliability Engineering, Fargo, ND 35.45% 1.68% Class R5 RiverSource Investments 100.00% 0.47% Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC N/A 88.90% Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC N/A 10.51%
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - ----------------------------------------------------------------------------------------------------------------------- SELIGMAN HIGH-YIELD FUND (SELLING FUND) Class A MLPF&S 10.24% N/A CitiGroup Global House Account, New York, NY 5.20% N/A Class B MLPF&S 13.21% N/A Morgan Stanley 10.64% N/A CitiGroup Global House Account, New York, NY 8.31% N/A Class C MLPF&S 22.54% N/A CitiGroup Global House Account, New York, NY 6.76% N/A Class R (to be known as Class R2) None N/A N/A Class I (to be known as Class R5) State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBE, Westwood, MA 26.18% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBF, Westwood, MA 21.53% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBG, Westwood, MA 20.01% N/A Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC 10.90% N/A Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC 8.89% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBH, Westwood, MA 5.84% N/A
121
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) Class A Charles Schwab 10.00% 8.99% MLPF&S N/A 1.04% CitiGroup Global House Account, New York, NY N/A 0.53% Class B MLPF&S N/A 0.93% Morgan Stanley N/A 0.75% CitiGroup Global House Account, New York, NY N/A 0.59% Class C MLPF&S N/A 16.15% CitiGroup Global House Account, New York, NY N/A 4.84% Class R2 RiverSource Investments 57.38% 0.09% Applied Reliability Engineering, Fargo, ND 42.58% 0.06% Class R5 RiverSource Investments 100.00% 0.06% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBE, Westwood, MA N/A 26.16% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBF, Westwood, MA N/A 21.52% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBG, Westwood, MA N/A 19.99% Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC N/A 10.89% Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC N/A 8.88% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBH, Westwood, MA N/A 5.84%
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - --------------------------------------------------------------------------------------------------------------------- SELIGMAN INCOME AND GROWTH FUND (SELLING FUND) Class A None N/A N/A Class B MLPF&S 8.88% N/A Class C MLPF&S 9.52% N/A CitiGroup Global House Account, New York, NY 8.24% N/A Class R (to be known as Class R2) None N/A N/A Class I (to be known as Class R5) Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC 77.21% N/A Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC 22.54% N/A RIVERSOURCE BALANCED FUND (BUYING FUND) Class A None N/A N/A Class B MLPF&S N/A 0.48% Class C MLPF&S 11.80% 10.25% CitiGroup Global House Account, New York, NY N/A 5.58% Class R2 None N/A N/A Class R5 Patterson & Co. FBO J. & W. Seligman Matched Accumulation Plan, Charlotte, NC N/A 77.23% Patterson & Co. FBO Seligman Data Corp 401(K) Thrift Plan, Charlotte, NC N/A 22.54%
Note: Class R2 and Class R5 are being added to RiverSource Balanced Fund in connection with the Reorganization. 122
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - ---------------------------------------------------------------------------------------------------------------------- SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) Class A State Street Bank & Trust Co -- Seligman Asset Allocation Moderate Growth Fund, Kansas City, MO 11.41% N/A State Street Bank & Trust Co -- Seligman Asset Allocation Balanced Fund, Kansas City, MO 5.85% N/A State Street Bank & Trust Co -- Seligman Asset Allocation Growth Fund, Kansas City, MO 5.39% N/A Class B Morgan Stanley 23.28% N/A CitiGroup Global House Account, New York, NY 10.03% N/A MLPF&S 5.81% N/A Class C MLPF&S 10.10% N/A CitiGroup Global House Account, New York, NY 5.06% N/A Class R (to be known as Class R2) None N/A N/A Class I (to be known as Class R5) State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBE, Westwood, MA 34.20% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBF, Westwood, MA 17.58% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBG, Westwood, MA 17.44% N/A State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBD, Westwood, MA 11.71% N/A RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND)* Class A Charles Schwab 14.39% 13.09% State Street Bank & Trust Co -- Seligman Asset Allocation Moderate Growth Fund, Kansas City, MO N/A 1.03% State Street Bank & Trust Co -- Seligman Asset Allocation Balanced Fund, Kansas City, MO N/A 0.53% State Street Bank & Trust Co -- Seligman Asset Allocation Growth Fund, Kansas City, MO N/A 0.48% Class B Morgan Stanley N/A 1.44% CitiGroup Global House Account, New York, NY N/A 0.62% MLPF&S N/A 0.36% Class C MLPF&S N/A 7.92% CitiGroup Global House Account, New York, NY N/A 3.97% Class R2 None N/A N/A Class R5 State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBE, Westwood, MA N/A 34.21% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBF, Westwood, MA N/A 17.59% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBG, Westwood, MA N/A 17.45% State Street Bank & Trust Company FBO North Carolina College Savings Program -- NCBD, Westwood, MA N/A 11.71%
*The combination of RiverSource Investments' initial capital investment (seed accounts) and RiverSource Portfolio Builder Funds (affiliated "funds- of-funds"), investment in Class I shares of RiverSource Partners International Select Growth Fund, represents aggregate ownership of 41.54% of the Fund. RiverSource Investments (investment manager of RiverSource Partners International Select Growth Fund and the funds-of-funds) do not invest in the Fund for the purposes of exercising control. However, since these ownership interests may be significant, in excess of 25% of the Fund, such that these entities may be deemed to control the Fund, 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 funds-of- funds' Boards of Directors (which votes proxies for the funds-of-funds) vote on each proposal in the same proportion that other shareholders vote on the proposal. If the Reorganization is approved, RiverSource Investments and the funds-of-funds will own 38.73% of RiverSource Partners International Select Growth Fund. Note: Class R2 and Class R5 are being added to RiverSource Partners International Select Growth Fund in connection with the Reorganization. 123
PERCENT PERCENT OF SHARES OF SHARES HELD FOLLOWING THE FUND 5% OWNERS HELD REORGANIZATION - ---------------------------------------------------------------------------------------------------------------------- SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) Class A MLPF&S 8.57% N/A Class B MLPF&S 9.88% N/A Morgan Stanley 5.38% N/A Class C MLPF&S 26.54% N/A Class R (to be known as Class R2) None N/A N/A RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) Class A Charles Schwab 13.74% 12.66% MLPF&S N/A 0.67% Class B MLPF&S N/A 0.67% Morgan Stanley N/A 0.37% Class C MLPF&S N/A 16.82% Class R2 None N/A N/A
Note: Class R2 is being added to RiverSource Short Duration U.S. Government Fund in connection with the Reorganization. 124 FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE BUYING FUNDS' FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE BUYING FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN A BUYING FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE RIVERSOURCE BUYING FUNDS' FISCAL PERIODS ENDING IN 2007 OR 2008, AS APPLICABLE, HAS BEEN AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH SUCH BUYING FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN SUCH BUYING FUND'S MOST RECENT ANNUAL REPORT. THE INFORMATION FOR CERTAIN PRIOR PERIODS HAS BEEN AUDITED BY OTHER AUDITORS, AS INDICATED IN THE TABLES BELOW. UNAUDITED INFORMATION FOR THE MOST RECENT FISCAL HALF-YEAR FOR RIVERSOURCE HIGH YIELD BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND IS ALSO PROVIDED. THE AUDITORS' REPORTS, FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR EACH BUYING FUND ARE AVAILABLE UPON REQUEST. TABLE C-3. FINANCIAL HIGHLIGHTS OF EACH BUYING FUND RiverSource Diversified Bond Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Aug. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.81 $4.77 $4.89 $4.87 $4.78 - ---------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(b) .21(b) .19 .18 .18 Net gains (losses) (both realized and unrealized) (.17) .05 (.11) .03 .08 - ---------------------------------------------------------------------------------------------------- Total from investment operations .05 .26 .08 .21 .26 - ---------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.21) (.20) (.19) (.17) Tax return of capital -- (.01) -- -- -- - ---------------------------------------------------------------------------------------------------- Total distributions (.21) (.22) (.20) (.19) (.17) - ---------------------------------------------------------------------------------------------------- Net asset value, end of period $4.65 $4.81 $4.77 $4.89 $4.87 - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,920 $1,937 $2,013 $1,774 $1,933 - ---------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .95% .97% .99% 1.02% 1.00% - ---------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .89% .89% .89% .94% .98% - ---------------------------------------------------------------------------------------------------- Net investment income (loss) 4.68% 4.43% 4.09% 3.67% 3.55% - ---------------------------------------------------------------------------------------------------- Portfolio turnover rate(g) 226% 295% 281% 300% 279% - ---------------------------------------------------------------------------------------------------- Total return(h) .93% 5.54% 1.64% 4.38% 5.54% - ----------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Aug. 31, 2008 were less than 0.01% of average net assets. (g) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnover would have been 122% for the year ended Aug. 31, 2008. (h) Total return does not reflect payment of a sales charge. 125 RiverSource Diversified Bond Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Aug. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.81 $4.77 $4.89 $4.88 $4.78 - ------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .18(b) .16 .15 .14 Net gains (losses) (both realized and unrealized) (.18) .04 (.12) .01 .09 - ------------------------------------------------------------------------------------------------------------ Total from investment operations .01 .22 .04 .16 .23 - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.18) (.16) (.15) (.13) Tax return of capital -- (.00)(c) -- -- -- - ------------------------------------------------------------------------------------------------------------ Total distributions (.17) (.18) (.16) (.15) (.13) - ------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.65 $4.81 $4.77 $4.89 $4.88 - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $254 $304 $402 $484 $628 - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.71% 1.73% 1.76% 1.78% 1.75% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(f),(g) 1.65% 1.65% 1.65% 1.70% 1.73% - ------------------------------------------------------------------------------------------------------------ Net investment income (loss) 3.91% 3.66% 3.31% 2.92% 2.78% - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate(h) 226% 295% 281% 300% 279% - ------------------------------------------------------------------------------------------------------------ Total return(i) .16% 4.74% .88% 3.39% 4.95% - ------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Aug. 31, 2008 were less than 0.01% of average net assets. (h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnover would have been 122% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. 126 RiverSource Diversified Bond Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Aug. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $4.81 $4.77 $4.90 $4.88 $4.78 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .18(b) .16 .15 .14 Net gains (losses) (both realized and unrealized) (.18) .04 (.13) .02 .09 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .01 .22 .03 .17 .23 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.18) (.16) (.15) (.13) Tax return of capital -- (.00)(c) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.18) (.16) (.15) (.13) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.65 $4.81 $4.77 $4.90 $4.88 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $32 $17 $17 $18 $21 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.70% 1.73% 1.76% 1.79% 1.75% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 1.65% 1.65% 1.66% 1.70% 1.73% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.93% 3.67% 3.31% 2.93% 2.79% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 226% 295% 281% 300% 279% - -------------------------------------------------------------------------------------------------------------- Total return(i) .16% 4.73% .66% 3.60% 4.95% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Aug. 31, 2008 were less than 0.01% of average net assets. (h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnover would have been 122% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. 127 RiverSource Diversified Bond Fund - Class R2
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Aug. 31, 2008 2007(b) Net asset value, beginning of period $4.80 $4.81 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .21 .14 Net gains (losses) (both realized and unrealized) (.16) (.02) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .05 .12 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.13) Total return of capital -- (.00)(d) - -------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.13) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.65 $4.80 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.34% 1.32%(g) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) 1.08% 1.32%(g) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.53% 4.06%(g) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(j) 226% 295% - -------------------------------------------------------------------------------------------------------------- Total return .84% 2.70%(k) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) 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. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Aug. 31, 2008 were less than 0.01% of average net assets. (j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnover would have been 122% for the year ended Aug. 31, 2008. (k) Not annualized. 128 RiverSource Diversified Bond Fund - Class R5
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Aug. 31, 2008 2007(b) Net asset value, beginning of period $4.80 $4.81 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .24 .17 Net gains (losses) (both realized and unrealized) (.18) (.02) - -------------------------------------------------------------------------------------------------------------- Total from investment operations .06 .15 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.16) Total return of capital -- (.00)(d) - -------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.16) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.64 $4.80 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) .59% .59%(g) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .58% .57%(g) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 5.02% 4.81%(g) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(j) 226% 295% - -------------------------------------------------------------------------------------------------------------- Total return 1.22% 3.25%(k) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) 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. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Aug. 31, 2008 were less than 0.01% of average net assets. (j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnover would have been 122% for the year ended Aug. 31, 2008. (k) Not annualized. 129 Threadneedle Emerging Markets Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $14.99 $11.32 $8.23 $6.27 $5.46 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .04(b) .01 .04 .03 Net gains (losses) (both realized and unrealized) (7.24) 6.27 3.10 1.95 .84 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.16) 6.31 3.11 1.99 .87 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) -- (.02) (.03) (.06) Distributions from realized gains (2.69) (2.64) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (2.87) (2.64) (.02) (.03) (.06) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.96 $14.99 $11.32 $8.23 $6.27 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $250 $661 $425 $295 $191 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.87% 1.83% 1.81% 1.79% 1.83% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.87% 1.83% 1.81% 1.79% 1.83% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .78% .31% .19% .54% .41% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% - -------------------------------------------------------------------------------------------------------------- Total return(g) (57.79%) 68.21% 37.85% 31.83% 16.09% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. 130 Threadneedle Emerging Markets Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $13.73 $10.63 $7.77 $5.95 $5.19 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(b),(c) (.05)(b) (.05) (.01) (.02) Net gains (losses) (both realized and unrealized) (6.53) 5.79 2.91 1.83 .81 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.53) 5.74 2.86 1.82 .79 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) -- -- -- (.03) Distributions from realized gains (2.69) (2.64) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (2.77) (2.64) -- -- (.03) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.43 $13.73 $10.63 $7.77 $5.95 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $28 $94 $77 $74 $73 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.62% 2.58% 2.57% 2.55% 2.59% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 2.62% 2.58% 2.57% 2.55% 2.59% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .02% (.48%) (.55%) (.24%) (.32%) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% - -------------------------------------------------------------------------------------------------------------- Total return(h) (58.08%) 66.95% 36.81% 30.59% 15.18% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. 131 Threadneedle Emerging Markets Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $13.78 $10.66 $7.79 $5.97 $5.20 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(b),(c) (.05)(b) (.06) -- (.01) Net gains (losses) (both realized and unrealized) (6.54) 5.81 2.93 1.82 .81 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.54) 5.76 2.87 1.82 .80 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) -- -- -- (.03) Distributions from realized gains (2.69) (2.64) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (2.80) (2.64) -- -- (.03) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.44 $13.78 $10.66 $7.79 $5.97 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $8 $5 $3 $1 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.63% 2.59% 2.58% 2.56% 2.60% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 2.63% 2.59% 2.58% 2.56% 2.60% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .03% (.48%) (.57%) (.19%) (.34%) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% - -------------------------------------------------------------------------------------------------------------- Total return(h) (58.15%) 67.03% 36.84% 30.54% 15.37% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. 132 Threadneedle Emerging Markets Fund - Class R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.32 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (4.22) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.19) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.13 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- - -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e),(f) 1.47%(g) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.57%(g) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% - -------------------------------------------------------------------------------------------------------------- Total return (44.96%)(h) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Adjusted to an annual basis. (h) Not annualized. 133 Threadneedle Global Equity Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.61 $7.52 $6.23 $5.16 $4.62 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(b) .02(b) .01 .02 -- Net gains (losses) (both realized and unrealized) (4.41) 2.13 1.30 1.08 .54 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.36) 2.15 1.31 1.10 .54 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.06) (.02) (.03) -- - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $9.61 $7.52 $6.23 $5.16 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $380 $737 $608 $446 $364 - -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.46% 1.39% 1.51% 1.57% 1.41% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .65% .28% .23% .33% .07% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% - -------------------------------------------------------------------------------------------------------------- Total return(e) (45.55%) 28.82% 21.01% 21.48% 11.72% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. 134 Threadneedle Global Equity Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.02 $7.06 $5.88 $4.87 $4.40 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.04)(b) (.01) (.02) (.03) Net gains (losses) (both realized and unrealized) (4.14) 2.00 1.19 1.03 .50 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.15) 1.96 1.18 1.01 .47 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- .00(c) -- -- -- - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.87 $9.02 $7.06 $5.88 $4.87 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $104 $110 $102 $104 - -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 2.23% 2.15% 2.28% 2.34% 2.18% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.11%) (.45%) (.54%) (.41%) (.66%) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% - -------------------------------------------------------------------------------------------------------------- Total return(f) (46.01%) 27.81% 20.07% 20.74% 10.68% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Total return does not reflect payment of a sales charge. 135 Threadneedle Global Equity Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $8.93 $7.02 $5.85 $4.85 $4.38 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.04)(b) (.01) (.02) (.02) Net gains (losses) (both realized and unrealized) (4.09) 1.98 1.18 1.03 .49 - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (4.10) 1.94 1.17 1.01 .47 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.03) -- (.01) -- - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.83 $8.93 $7.02 $5.85 $4.85 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $8 $6 $2 $1 - ----------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.22% 2.15% 2.27% 2.33% 2.19% - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.09%) (.48%) (.50%) (.53%) (.69%) - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% - ----------------------------------------------------------------------------------------------------------------- Total return(e) (45.91%) 27.76% 20.03% 20.89% 10.73% - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. 136 Threadneedle Global Equity Fund - Class R2
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Oct. 31, 2008 2007(B) Net asset value, beginning of period $9.62 $7.89 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .05 (.01) Net gains (losses) (both realized and unrealized) (4.42) 1.84 - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.83 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) (.10) - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.23 $9.62 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.79% 1.74%(f) - ----------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.54% 1.74%(f) - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) .57% (.13%)(f) - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% - ----------------------------------------------------------------------------------------------------------------- Total return (45.48%) 23.41%(i) - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. 137 Threadneedle Global Equity Fund - Class R5
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended Oct. 31, 2008 2007(B) Net asset value, beginning of period $9.69 $7.89 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 .05 Net gains (losses) (both realized and unrealized) (4.45) 1.85 - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.90 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.10) - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 $9.69 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 1.04% .99%(f) - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.07% .62%(f) - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% - ----------------------------------------------------------------------------------------------------------------- Total return (45.40%) 24.33%(g) - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. 138 RiverSource High Yield Bond Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended May 31, 2008(L) 2008 2007 2006 2005 Net asset value, beginning of period $2.74 $3.02 $2.89 $2.86 $2.74 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .22(b) .20 .20 .19 Net gains (losses) (both realized and unrealized) (.82) (.29) .15 .03 .12 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.07) .35 .23 .31 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.21) (.22) (.20) (.19) Tax return of capital -- (.00)(c) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.21) (.22) (.20) (.19) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.02 $2.89 $2.86 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $713 $1,134 $1,463 $1,535 $1,735 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.14%(f) 1.13% 1.08% 1.08% 1.04% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.02%(f) 1.10% 1.08% 1.08% 1.04% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.75%(f) 7.71% 6.94% 6.78% 6.67% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% - -------------------------------------------------------------------------------------------------------------- Total return(i) (26.68%)(j) (2.40%) 12.77%(k) 8.27% 11.56% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. (l) Six months ended Nov. 30, 2008 (Unaudited). 139 RiverSource High Yield Bond Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended May 31, 2008(L) 2008 2007 2006 2005 Net asset value, beginning of period $2.74 $3.02 $2.89 $2.86 $2.74 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .19(b) .18 .18 .17 Net gains (losses) (both realized and unrealized) (.82) (.29) .15 .03 .12 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.72) (.10) .33 .21 .29 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.18) (.20) (.18) (.17) Tax return of capital -- (.00)(c) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.18) (.20) (.18) (.17) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.02 $2.89 $2.86 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $90 $174 $321 $433 $629 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.89%(f) 1.89% 1.84% 1.83% 1.79% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.78%(f) 1.86% 1.84% 1.83% 1.79% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.90%(f) 6.92% 6.18% 6.00% 5.92% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% - -------------------------------------------------------------------------------------------------------------- Total return(i) (27.06%)(j) (3.17%) 11.91%(k) 7.45% 10.72% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) 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 six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.85% for the year ended May 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. (l) Six months ended Nov. 30, 2008 (Unaudited). 140 RiverSource High Yield Bond Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(A) Fiscal period ended May 31, 2008(L) 2008 2007 2006 2005 Net asset value, beginning of period $2.72 $3.00 $2.87 $2.84 $2.73 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .19(b) .18 .18 .17 Net gains (losses) (both realized and unrealized) (.81) (.29) .15 .03 .11 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.10) .33 .21 .28 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.18) (.20) (.18) (.17) Tax return of capital -- (.00)(c) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.18) (.20) (.18) (.17) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.91 $2.72 $3.00 $2.87 $2.84 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $19 $26 $28 $36 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.89%(f) 1.88% 1.83% 1.83% 1.79% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.77%(f) 1.86% 1.83% 1.83% 1.79% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.99%(f) 6.95% 6.18% 6.02% 5.92% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% - -------------------------------------------------------------------------------------------------------------- Total return(i) (26.81%)(j) (3.21%) 11.95%(k) 7.47% 10.35% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) 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 six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.85% for the year ended May 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. (l) Six months ended Nov. 30, 2008 (Unaudited). 141 RiverSource High Yield Bond Fund - Class R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007(b) Net asset value, beginning of period $2.74 $3.02 $2.95 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(c) .21(c) .11 Net gains (losses) (both realized and unrealized) (.82) (.29) .05 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.72) (.08) .16 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.20) (.09) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.02 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.55%(f) 1.51% 1.45%(f) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.37%(f) 1.25% 1.45%(f) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.68%(f) 7.63% 6.58%(f) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% - -------------------------------------------------------------------------------------------------------------- Total return (26.85%)(i) (2.75%) 5.72%(i) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to May 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). 142 RiverSource High Yield Bond Fund - Class R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007(b) Net asset value, beginning of period $2.74 $3.02 $2.95 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(c) .22(c) .12 Net gains (losses) (both realized and unrealized) (.82) (.28) .05 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.06) .17 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.22) (.10) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.02 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .78%(f) .78% .71%(f) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .70%(f) .75% .71%(f) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 9.12%(f) 8.06% 7.33%(f) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% - -------------------------------------------------------------------------------------------------------------- Total return (26.56%)(i) (2.06%) 6.09%(i) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to May 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). 143 RiverSource Balanced Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Sept. 30, 2008 2007 2006 2005 2004 Net asset value, beginning of period $11.46 $10.52 $9.84 $9.25 $8.47 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .30(b) .26(b) .24 .21 .19 Net gains (losses) (both realized and unrealized) (2.42) .95 .68 .61 .77 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.12) 1.21 .92 .82 .96 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.28) (.27) (.24) (.23) (.18) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.06 $11.46 $10.52 $9.84 $9.25 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $634 $929 $959 $990 $1,077 - -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) .95% 1.07% 1.01% 1.03% 1.01% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.86% 2.31% 2.42% 2.13% 2.01% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(e) 105% 124% 126% 130% 131% - -------------------------------------------------------------------------------------------------------------- Total return(f) (18.73%) 11.57% 9.46% 8.86% 11.32% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Sept. 30, 2008 were less than 0.01% of average daily net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 86% for the year ended Sept. 30, 2008. (f) Total return does not reflect payment of a sales charge. 144 RiverSource Balanced Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Sept. 30, 2008 2007 2006 2005 2004 Net asset value, beginning of period $11.39 $10.45 $9.78 $9.19 $8.41 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(b) .17(b) .16 .14 .11 Net gains (losses) (both realized and unrealized) (2.40) .95 .67 .59 .77 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.18) 1.12 .83 .73 .88 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.18) (.16) (.14) (.10) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.01 $11.39 $10.45 $9.78 $9.19 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $26 $52 $70 $81 $113 - -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.71% 1.84% 1.78% 1.81% 1.78% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.10% 1.53% 1.63% 1.35% 1.23% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(e) 105% 124% 126% 130% 131% - -------------------------------------------------------------------------------------------------------------- Total return(f) (19.35%) 10.78% 8.54% 8.02% 10.51% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Sept. 30, 2008 were less than 0.01% of average daily net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 86% for the year ended Sept. 30, 2008. (f) Total return does not reflect payment of a sales charge. 145 RiverSource Balanced Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Sept. 30, 2008 2007 2006 2005 2004 Net asset value, beginning of period $11.38 $10.44 $9.77 $9.19 $8.41 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(b) .17(b) .16 .14 .12 Net gains (losses) (both realized and unrealized) (2.41) .96 .67 .59 .77 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.19) 1.13 .83 .73 .89 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.19) (.16) (.15) (.11) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.99 $11.38 $10.44 $9.77 $9.19 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $4 $3 $3 - -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.71% 1.82% 1.78% 1.81% 1.78% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.11% 1.57% 1.61% 1.35% 1.25% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(e) 105% 124% 126% 130% 131% - -------------------------------------------------------------------------------------------------------------- Total return(f) (19.41%) 10.86% 8.58% 7.97% 10.57% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Sept. 30, 2008 were less than 0.01% of average daily net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 86% for the year ended Sept. 30, 2008. (f) Total return does not reflect payment of a sales charge. 146 RiverSource Partners International Select Growth Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $10.54 $9.42 $8.05 $6.85 $5.80 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(b) .04(b) .02 .02 -- Net gains (losses) (both realized and unrealized) (5.00) 2.70 2.04 1.33 1.05 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.93) 2.74 2.06 1.35 1.05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.13) (.17) (.06) (.01) -- Distributions from realized gains (.81) (1.45) (.63) (.14) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.94) (1.62) (.69) (.15) -- - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.67 $10.54 $9.42 $8.05 $6.85 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $190 $418 $294 $216 $151 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.56% 1.61% 1.61% 1.79% 1.85% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.49% 1.61% 1.61% 1.74% 1.75% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .91% .45% .23% .37% .17% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 85% 104% 124% 67% 87% - -------------------------------------------------------------------------------------------------------------- Total return(g) (50.70%)(h) 33.56% 27.21% 19.89% 18.15% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. (h) During the year ended Oct. 31, 2008, the Investment Manager reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower. 147 Partners International Select Growth Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $10.15 $9.12 $7.82 $6.69 $5.71 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01(b) (.03)(b) (.05) (.02) (.02) Net gains (losses) (both realized and unrealized) (4.80) 2.61 1.99 1.29 1.00 - -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.79) 2.58 1.94 1.27 .98 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.10) (.01) -- -- Distributions from realized gains (.81) (1.45) (.63) (.14) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.87) (1.55) (.64) (.14) -- - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.49 $10.15 $9.12 $7.82 $6.69 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $30 $75 $67 $58 $44 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 2.32% 2.37% 2.37% 2.56% 2.62% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 2.25% 2.37% 2.37% 2.51% 2.51% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .15% (.30%) (.53%) (.39%) (.59%) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 85% 104% 124% 67% 87% - -------------------------------------------------------------------------------------------------------------- Total return(g) (51.01%)(h) 32.54% 26.19% 19.13% 17.16% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. (h) During the year ended Oct. 31, 2008, the Investment Manager reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower. 148 Partners International Select Growth Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $10.14 $9.12 $7.81 $6.69 $5.71 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01(b) (.03)(b) (.04) (.02) (.02) Net gains (losses) (both realized and unrealized) (4.79) 2.61 1.99 1.28 1.00 - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (4.78) 2.58 1.95 1.26 .98 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.11) (.01) -- -- Distributions from realized gains (.81) (1.45) (.63) (.14) -- - ----------------------------------------------------------------------------------------------------------------- Total distributions (.88) (1.56) (.64) (.14) -- - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.48 $10.14 $9.12 $7.81 $6.69 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $7 $4 $3 $3 - ----------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 2.32% 2.36% 2.37% 2.55% 2.61% - ----------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 2.25% 2.36% 2.37% 2.51% 2.51% - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) .18% (.31%) (.53%) (.41%) (.60%) - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 85% 104% 124% 67% 87% - ----------------------------------------------------------------------------------------------------------------- Total return(g) (50.99%)(h) 32.56% 26.34% 18.98% 17.16% - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. (h) During the year ended Oct. 31, 2008, the Investment Manager reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower. 149 RiverSource Short Duration U.S. Government Fund - Class A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .19(b) .19 .15 .12 Net gains (losses) (both realized and unrealized) (.19) .01 .05 (.10) (.03) - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (.11) .20 .24 .05 .09 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.19) (.19) (.16) (.12) - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $586 $539 $514 $641 $894 - ----------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.03%(e) 1.04% 1.03% 1.06% 1.01% - ----------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .89%(e) .89% .89% .89% .93% - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.47%(e) 3.93% 3.99% 3.27% 2.49% - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - ----------------------------------------------------------------------------------------------------------------- Total return(i) (2.30%)(j) 4.27% 5.12% 1.00% 1.92% - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.88% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). 150 RiverSource Short Duration U.S. Government Fund - Class B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.19) .01 .05 (.11) (.03) - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (.13) .16 .20 .01 .05 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.15) (.15) (.12) (.08) - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $130 $159 $216 $338 $588 - ----------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.79%(e) 1.80% 1.79% 1.82% 1.76% - ----------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.68% - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.72%(e) 3.18% 3.23% 2.50% 1.73% - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - ----------------------------------------------------------------------------------------------------------------- Total return(i) (2.67%)(j) 3.48% 4.34% .26% 1.16% - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). 151 RiverSource Short Duration U.S. Government Fund - Class C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.19) .02 .05 (.11) (.03) - ----------------------------------------------------------------------------------------------------------------- Total from investment operations (.13) .17 .20 .01 .05 - ----------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.16) (.15) (.12) (.08) - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - ----------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $10 $10 $15 $24 - ----------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.79%(e) 1.80% 1.80% 1.83% 1.77% - ----------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.68% - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.70%(e) 3.18% 3.24% 2.51% 1.73% - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - ----------------------------------------------------------------------------------------------------------------- Total return(i) (2.67%)(j) 3.49% 4.34% .26% 1.16% - -----------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). 152 EXHIBIT A FORM OF AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization dated as of , 2009 (the "Agreement") is between each selling entity identified in Schedule A hereto (each a "Selling Corporation")(1), on behalf of each series thereof identified in Schedule A hereto as a Selling Fund (each a "Selling Fund"), each corresponding buying entity identified in Schedule A hereto (each a "Buying Corporation")(2), on behalf of each series thereof identified in Schedule A hereto as the corresponding Buying Fund (each a "Buying Fund"), and RiverSource Investments, LLC (solely for the purposes of Sections 3c and 11 of the Agreement). This Agreement shall be treated for all purposes as if each reorganization between a Selling Fund and its corresponding Buying Fund contemplated hereby had been the subject of a separate agreement. As context requires a Buying Corporation or Selling Corporation that is not organized as a series fund and that may not be considered or meet the definition of "Buying Fund" and "Selling Fund" as set forth above, may be referred to as a "Buying Fund" or a "Selling Fund," respectively, for purposes of this Agreement. In consideration of their mutual promises, the parties agree as follows: 1. SHAREHOLDER APPROVAL. Each Selling Fund will call a meeting of its shareholders for the purpose of approving the Agreement and the transactions it contemplates (each a "Reorganization"). Each Buying Fund agrees to furnish data and information, as reasonably requested, for the proxy statement to be furnished to shareholders of the corresponding Selling Fund. 2. REORGANIZATION. a. Plan of Reorganization. Each Reorganization will be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). At the Closing, each Selling Corporation will convey all of the assets of each Selling Fund to the corresponding Buying Fund. Each Buying Fund will assume all liabilities of the corresponding Selling Fund. At the Closing, each Buying Corporation will deliver shares of each Buying Fund, including fractional shares, to the corresponding Selling Corporation on behalf of the corresponding Selling Fund. The number of shares will be determined by dividing the value of the net assets attributable to each class of shares of each Selling Fund, computed as described in paragraph 3(a), by the net asset value of one share of the corresponding class of the corresponding Buying Fund, computed as described in paragraph 3(b). Each Selling Fund will not pay a sales charge on the receipt of the corresponding Buying Fund's shares in exchange for the assets of such Selling Fund. In addition, the shareholders of each Selling Fund will not pay a sales charge on distribution to them of shares of the corresponding Buying Fund. b. Closing and Effective Time of the Reorganization. The Reorganization and all related acts necessary to complete the Reorganization (the "Closing") will occur on the first day on which the New York Stock Exchange (the "NYSE") is open for business following approval of shareholders of each Selling Fund and receipt of all necessary regulatory approvals, or such later date as the officers of the Selling Corporation and Buying Corporation may agree. 3. VALUATION OF NET ASSETS. a. The net asset value of each Selling Fund will be computed as of the close of regular trading on the NYSE on the business day immediately preceding the day of Closing (the "Valuation Date") using the valuation procedures set forth in the corresponding Buying Fund's then current prospectus. b. The net asset value per share of shares of each Buying Fund will be determined as of the close of regular trading on the NYSE on the Valuation Date, using the valuation procedures in each Buying Fund's then current prospectus. c. At the Closing, each Selling Fund will provide the corresponding Buying Fund with a copy of the computation showing the valuation of the net asset value per share of such Selling Fund on the Valuation Date, and each Buying Fund will provide the corresponding Selling Fund with a copy of the computation showing the determination of the net asset value per share of such Buying Fund on the Valuation Date. Both computations will be certified by an officer of RiverSource Investments, LLC, the investment manager. - ---------- (1) The Selling Corporation for the Reorganization of Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund is a Maryland corporation. The Selling Corporation for the Reorganization of Seligman High-Yield Fund and Seligman U.S. Government Securities Fund is a Massachusetts business trust. Seligman Core Fixed Income Fund, Inc. and Seligman Income and Growth Fund, Inc. are each Maryland Corporations. (2) The Buying Corporation for each Buying Fund, RiverSource Diversified Bond Fund, Threadneedle Emerging Markets Fund, Threadneedle Global Equity Fund, RiverSource High Yield Bond Fund, RiverSource Balanced Fund, RiverSource Partners International Select Growth Fund and RiverSource Short Duration U.S. Government Fund, is a Minnesota corporation. A.1 4. LIQUIDATION AND DISSOLUTION OF THE SELLING FUND. a. On the date of the Closing, each Selling Corporation will liquidate each Selling Fund and distribute shares of each class of the corresponding Buying Fund to the shareholders of record of such Selling Fund's corresponding class. Each Buying Fund will establish shareholder accounts in the names of each corresponding Selling Fund shareholder, representing the respective pro rata number of full and fractional shares of such class of the Buying Fund due to each such shareholder. All issued and outstanding shares of each Selling Fund will simultaneously be cancelled on the books of each Selling Corporation. Each Buying Fund or its transfer agent will establish shareholder accounts in accordance with instructions from the corresponding Selling Corporation. b. Immediately after the close of business on the Valuation Date, the share transfer books of each Selling Corporation relating to each Selling Fund will be closed and no further transfer of shares will be made. c. Promptly after the Closing, each Buying Fund or its transfer agent will notify each shareholder of the corresponding Selling Fund of the number of shares distributed to the shareholder and confirm the registration in the shareholder's name. d. As promptly as practicable after the Closing, and in no event later than twelve months from the date of the Closing, each Selling Fund will be dissolved. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYING CORPORATION. With respect to each Reorganization, the Buying Corporation represents and warrants to the Selling Fund as follows: a. Organization, Existence, etc. The Buying Corporation is a corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota and has the power to carry on its business as it is now being conducted. b. Registration as Investment Company. The Buying Corporation, or in the case of separate series funds, the buying Corporation, of which the Buying Fund is a series, is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end, management investment company. c. Capitalization. The Buying Corporation has authorized capital of 10,000,000,000 shares of common stock, par value $0.01 per share. All of the outstanding shares of the Buying Corporation have been duly authorized and are validly issued, fully paid and non-assessable. Since the Buying Fund is engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily. d. Financial Statements. The Buying Fund's audited financial statements as of the end of the last fiscal year, and the subsequent unaudited semi- annual financial statements, if any (the "Buying Fund Financial Statements"), fairly present the financial position of the Buying Fund and the results of its operations and changes in its net assets for the periods shown. e. Shares to be Issued Upon Reorganization. The shares to be issued in connection with the Reorganization will be duly authorized and, at the time of the Closing, will be validly issued, fully paid and non- assessable. f. Authority Relative to the Agreement. The Buying Corporation has the power to enter into and carry out the obligations described in this Agreement. The Agreement and the transactions contemplated by it have been duly authorized by the Board of Directors of the Buying Corporation and no other proceedings by the Buying Corporation or the Buying Fund are necessary. g. No Violation. The Buying Corporation is not in violation of its Articles of Incorporation or By-Laws (the "Articles") or in default in the performance of any material agreement to which it is a party. The execution of this Agreement and the completion of the transactions contemplated by it will not conflict with, or constitute a breach of, any material contract or other instrument to which the Buying Fund is subject. The transactions will not result in any violation of the provisions of the Articles or any law, administrative regulation or administrative or court decree applicable to the Buying Fund. h. Liabilities. The Buying Fund has no known liabilities of a material amount, contingent or otherwise, other than liabilities disclosed in the Buying Fund Financial Statements, liabilities incurred in the ordinary course of business subsequent to the date of the latest annual or semi- annual financial statements, or liabilities previously disclosed to the Selling Fund. i. Litigation. There is no litigation, administrative proceeding or investigation before any court or governmental body currently pending or, to the knowledge of the Buying Fund, threatened, that would materially and adversely affect the Buying Fund, its financial condition or the conduct of its business, or that would prevent or hinder completion of the transactions contemplated by this Agreement. The Buying Fund knows of no facts that might form the basis for the A.2 institution of any such litigation, proceeding or investigation and the Buying Fund is not a party to or subject to the provisions of any order, decree or judgment. j. Contracts. Except for contracts and agreements previously disclosed to the Selling Corporation, the Buying Fund is not a party to or subject to any material contract, debt instrument, plan, lease, franchise, license or permit. k. Regulated Investment Company Qualification. The Buying Fund has qualified and met the requirements for treatment as a "regulated investment company" within the meaning of Section 851 of the Code with respect to each taxable year since commencement of its operations and will continue to meet such requirements and to so qualify at all times through the Closing. l. Taxes. As of the Closing, the Buying Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Selling Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Selling Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. m. Registration Statement. The Buying Fund will file a registration statement on Form N-14 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933 (the "1933 Act") relating to the shares to be issued in the Reorganization. At the time the Registration Statement becomes effective, at the time of the shareholders' meeting described in paragraph 1 and at the Closing, the Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, none of the representations and warranties in this subsection apply to statements in, or omissions from, the Registration Statement made in reliance on information furnished by the Selling Fund for use in the Registration Statement. n. Business Activities. The Buying Fund will operate its business in the ordinary course between the date hereof and the date of the Closing, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions and any other distribution that may be advisable. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING CORPORATION. With respect to each Reorganization, the Selling Corporation represents and warrants to the Buying Fund as follows: a. Organization, Existence, etc. For Seligman Core Fixed Income Fund, Inc., Seligman Income and Growth Fund, Inc., Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund, the Selling Corporation is a corporation duly organized, validly existing and in good standing under the laws of the state of Maryland and has the power to carry on its business as it is now being conducted. For Seligman High-Yield Fund and Seligman U.S. Government Securities Fund, the Selling Corporation is a business trust duly organized, validly existing and in good standing under the laws of the commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. b. Registration as Investment Company. The Selling Corporation, or in the case of a separate series funds, the Selling Corporation, of which the Selling Fund is a series, is registered under the 1940 Act as an open- end, management investment company. c. Capitalization. The Selling Corporation has authorized capital as follows: Seligman Core Fixed Income Fund, Inc. has 1,000,000,000 shares of common stock, par value $0.001 per share; Seligman Global Fund Series, Inc. has 2,000,000,000 shares of common stock, par value $0.001, of which 400,000,000 shares are authorized for each of Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund; Seligman Income and Growth Fund, Inc. has 500,000,000 shares of common stock, par value $1.00; and Seligman High-Yield Fund and Seligman U.S. Government Securities Fund each have an unlimited number of shares of common stock, par value $0.001. All of the outstanding shares have been duly authorized and are validly issued, fully paid and non-assessable. Since the Selling Fund is engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily. d. Financial Statements. The Selling Fund's audited financial statements as of the end of the last fiscal year, and the subsequent unaudited semi- annual financial statements, if any (the "Selling Fund Financial Statements"), fairly present the financial position of the Selling Fund, and the results of its operations and changes in its net assets for the periods shown. e. Authority Relative to the Agreement. The Selling Corporation has the power to enter into and to carry out its obligations under this Agreement. The Agreement and the transactions contemplated by it have been duly authorized A.3 by the Board of Directors of the Selling Corporation and no other proceedings by the Selling Corporation or the Selling Fund are necessary, other than the approval of shareholders contemplated in paragraph 1. f. No Violation. The Selling Corporation is not in violation of its Articles or Declaration of Trust, as applicable, or in default in the performance of any material agreement to which it is a party or in default in the performance of any material agreement to which it is a party). The execution of this Agreement and the completion of the transactions contemplated by it will not conflict with or constitute a breach of, any material contract to which the Selling Fund is subject. The transactions will not result in any violation of the provisions of the Articles or Declaration of Trust, as the case may be, or any law, administrative regulation or administrative or court decree applicable to the Selling Fund. g. Liabilities. The Selling Fund has no known liabilities of a material amount, contingent or otherwise, other than liabilities disclosed in the Selling Fund Financial Statements, liabilities incurred in the ordinary course of business subsequent to the date of the latest annual or semi- annual financial statements, or liabilities previously disclosed to the Buying Fund. h. Litigation. There is no litigation, administrative proceeding or investigation before any court or governmental body currently pending or, to the knowledge of the Selling Fund, threatened, that would materially and adversely affect the Selling Fund, its financial condition or the conduct of its business, or that would prevent or hinder completion of the transactions contemplated by this Agreement. The Selling Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding or investigation and is not a party to or subject to the provisions of any order, decree or judgment. i. Contracts. Except for contracts and agreements previously disclosed to the Buying Corporation, the Selling Fund is not a party to or subject to any material contract, debt instrument, plan, lease, franchise, license or permit. j. Regulated Investment Company Qualification. The Selling Fund has qualified and met the requirements for treatment as a "regulated investment company" within the meaning of Section 851 of the Code with respect to each taxable year since commencement of its operations and will continue to meet such requirements and to so qualify at all times through the Closing. k. Taxes. As of the Closing, the Selling Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Buying Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Buying Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. l. Fund Securities. All securities listed in the schedule of investments of the Selling Fund as of the Closing will be owned by the Selling Fund free and clear of any encumbrances, except as indicated in the schedule. m. Registration Statement. The Selling Fund will cooperate with the Buying Fund and will furnish information relating to the Selling Corporation and the Selling Fund required in the Registration Statement. At the time the Registration Statement becomes effective, at the time of the shareholders' meeting described in paragraph 1 and at the Closing, the Registration Statement, as it relates to the Selling Corporation or the Selling Fund, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, the representations and warranties in this subsection apply only to statements in or omissions from the Registration Statement made in reliance upon information furnished by the Selling Corporation or the Selling Fund for use in the Registration Statement. n. Provision of Books and Records. The Selling Fund will provide its books and records to the corresponding Buying Fund for purposes of preparing any tax returns required by law to be filed after the Closing date, including (1) the tax return for the period ending on the Closing date, and (2) the tax return for the period beginning the day after the Closing and ending the earlier of the current fiscal year-end of the corresponding Buying Fund and the taxable year end chosen by the corresponding Buying Fund following the Reorganization. o. Business Activities. The Selling Fund will operate its business in the ordinary course between the date hereof and the date of the Closing, it being understood that such ordinary course of business will include regular and customary periodic dividends and distributions and any other distribution that may be advisable. 7. CONDITIONS TO OBLIGATIONS OF THE BUYING CORPORATION. The obligations of the Buying Corporation with respect to each Reorganization are subject to the satisfaction of the following conditions: a. Shareholder Approval. This Agreement will have been approved by the affirmative vote of the holders of the majority of the voting power of all Selling Fund shares entitled to vote. A.4 b. Representations, Warranties and Agreements. The Selling Corporation and the Selling Fund will have complied with this Agreement and each of the representations and warranties in this Agreement will be true in all material respects as of the date of the Closing. An officer of the Selling Corporation will provide a certificate to each Buying Fund confirming that, as of the Closing, the representations and warranties set forth in Section 6 are true and correct and that there have been no material adverse changes in the financial condition, results of operations, business, properties or assets of the corresponding Selling Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of the Selling Corporation, and delivered to such Buying Fund on the date of the Closing. c. Regulatory Approvals. - The Registration Statement referred to in Sections 5(m) and 6(m) will be effective and no stop orders under the 1933 Act will have been issued. - All necessary approvals, consents and exemptions from federal and state regulatory authorities will have been obtained. d. Opinion of Counsel. The Buying Corporation will have received an opinion of counsel for the Selling Corporation, dated as of the date of the Closing, to the effect that: (i) the Selling Corporation is a corporation duly organized and validly existing under the laws of the state of Maryland; (ii) each Selling Fund is a series of the Selling Corporation, an open-end management investment company registered under the 1940 Act, as applicable; (iii) this Agreement and the Reorganization has been duly authorized and approved by all requisite action of the Selling Corporation and each Selling Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, the Selling Corporation. e. Declaration of Dividend. The Selling Fund will have declared, prior to the Closing, a dividend or dividends, which, together with all previous such dividends, shall have the effect of distributing to the Selling Fund shareholders (i) all of the excess of (x) the Selling Fund's investment income excludable from gross income under Section 103 of the Code over (y) the Selling Fund's deductions disallowed under Sections 265 and 171 of the Code, (ii) all of the Selling Fund's investment company taxable income as defined in Section 852 of the Code (in each case computed without regard to any deduction for dividends paid) and (iii) all of the Selling Fund's net capital gain realized (after reduction for any capital loss carryover), in each case for the current taxable year (which will end on the Closing date) and any preceding taxable years for which such a dividend is eligible to be made under Section 855 of the Code. 8. CONDITIONS TO OBLIGATIONS OF THE SELLING CORPORATION. The obligations of the Selling Corporation with respect to each Reorganization are subject to the satisfaction of the following conditions: a. Shareholder Approval. This Agreement will have been approved by the affirmative vote of the holders of the majority of the voting power of all Selling Fund shares entitled to vote. b. Representations, Warranties and Agreements. The Buying Fund will have complied with this Agreement and each of the representations and warranties in this Agreement will be true in all material respects as of the date of the Closing. An officer of the Buying Corporation will provide a certificate to each Selling Fund confirming that, as of the Closing, the representations and warranties set forth in Section 5 are true and correct and that there have been no material adverse changes in the financial condition, results of operations, business, properties or assets of the corresponding Buying Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of the Buying Corporation, and delivered to such Selling Fund on or prior to the last business day before the Closing. c. Regulatory Approvals. - The Registration Statement referred to in Sections 5(m) and 6(m) will be effective and no stop orders under the 1933 Act will have been issued. - All necessary approvals, consents and exemptions from federal and state regulatory authorities will have been obtained. d. Opinion of Counsel. The Selling Corporation will have received the opinion of counsel for the Buying Corporation, dated as of the date of the Closing, to the effect that: (i) the Buying Corporation is a corporation duly organized and validly existing under the laws of the state of Minnesota; (ii) each Buying Fund is a series of the Buying Corporation, an open-end management investment company registered under the 1940 Act; (iii) this Agreement and the Reorganization has been authorized and approved by all requisite action of the Buying Corporation and each Buying Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, the Buying Corporation; and (iv) the shares to be issued in the Reorganization are duly authorized and upon issuance in accordance with this Agreement will be validly issued, fully paid and non-assessable shares of each Buying Fund. A.5 9. CONDITIONS TO OBLIGATIONS OF THE SELLING CORPORATION AND THE BUYING CORPORATION. The obligations of each of the Selling Corporation and the Buying Corporation with respect to each Reorganization are subject to the satisfaction of the following conditions: Tax Opinion. With respect to the Reorganization between a Selling Fund and its corresponding Buying Fund, the Selling Fund shall have received an opinion of Ropes & Gray LLP satisfactory to such Selling Fund, and the Buying Fund shall have received an opinion of Ropes & Gray LLP satisfactory to such Buying Fund, each substantially to the effect that, on the basis of existing provisions of the Code, Treasury regulations promulgated thereunder, current administrative rules, pronouncements and court decisions, although the matter is not free from doubt, generally for federal income tax purposes: a. The acquisition by the Buying Fund of the assets of the Selling Fund in exchange for the Buying Fund's assumption of all liabilities of the Selling Fund and delivery to the Selling Fund of the acquisition shares, followed by the distribution by the Selling Fund of the acquisition shares to the shareholders of the Selling Fund in exchange for their Selling Fund shares, all as provided in paragraph 2(a) and 4(a) hereof, will constitute a reorganization within the meaning of Section 368(a) of the Code, and the Selling Fund and the Buying Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; b. No gain or loss will be recognized by the Selling Fund upon (i) the transfer of its assets to the Buying Fund in exchange for the acquisition shares and the assumption by the Buying Fund of all liabilities of the Selling Fund or (ii) the distribution of the acquisition shares by the Selling Fund to its shareholders in liquidation, as contemplated in paragraph 4(a) hereof; c. No gain or loss will be recognized by the Buying Fund upon receipt of the assets of the Selling Fund in exchange for acquisition shares and the assumption by the Buying Fund of all liabilities of the Selling Fund as contemplated in paragraph 2(a) hereof; d. The tax basis in the hands of the Buying Fund of the assets of the Selling Fund transferred to the Buying Fund in the Reorganization will be the same as the tax basis of such assets in the hands of the Selling Fund immediately prior to the transfer; e. The holding periods of the assets of the Selling Fund in the hands of the Buying Fund will include the periods during which such assets were held by the Selling Fund; f. No gain or loss will be recognized by the Selling Fund's shareholders upon the exchange of their shares of the Selling Fund for the acquisition shares; g. The aggregate tax basis of the acquisition shares the Selling Fund shareholder receives in the Reorganization will be the same as the aggregate tax basis of his or her Selling Fund's shares exchanged therefor; h. The Selling Fund shareholder's holding period for the acquisition shares will include the period for which he or she held the Selling Fund's shares exchanged therefor, provided that the shareholder held such Selling Fund's shares as capital assets on the date of the exchange; and i. The Buying Fund will succeed to and take into account the items of the Selling Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder. Ropes & Gray LLP will express no view with respect to the effect of the Reorganization on any transferred asset as to which any unrealized gain or loss is required to be recognized under federal income tax principles (i) at the end of a taxable year or upon the termination thereof or (ii) upon the transfer of such asset regardless of whether such a transfer would otherwise be a non-taxable transaction. Each opinion will be based on certain factual certifications made by officers of the Selling Fund and the Buying Fund, and will also be based on customary assumptions. The opinions are not guarantees that the tax consequences of the Reorganizations will be as described above. The opinions will note and distinguish certain published precedent. There is no assurance that the Internal Revenue Service or a court would agree with the opinions. 10. AMENDMENT; TERMINATION; NON-SURVIVAL OF COVENANTS, WARRANTIES AND REPRESENTATIONS. a. This Agreement may be amended in writing if authorized by the respective Boards of Directors. The Agreement may be so amended at any time before or after the shareholder approval contemplated by paragraph 1 is obtained. b. At any time prior to the Closing, any of the parties may waive in writing (i) any inaccuracies in the representations and warranties made to it and (ii) compliance with any of the covenants or conditions made for its benefit. A.6 c. Each party hereto may terminate this Agreement at any time prior to the Closing by notice to the other party if a material condition to its performance or a material covenant of the other party is not fulfilled on or before the date specified for its fulfillment or a material breach of this Agreement is made by the other party and is not cured. d. This Agreement may be terminated by any party at any time prior to the Closing, whether before or after approval by the shareholders of each Selling Fund, without any liability on the part of any party or its respective directors, officers, or shareholders, on written notice to the other party, and shall be terminated without liability as of the close of business on , , or a later date agreed upon by the officers of the Selling Corporation and the Buying Corporation, if the Closing is not effected on or prior to that date. e. The representations, warranties and covenants contained in this Agreement, or in any document delivered in connection with this Agreement, will survive the Reorganization. 11. EXPENSES. All fees paid to governmental authorities for the registration or qualification of the acquisition shares and all transfer agency costs related to the acquisition shares shall be borne by the relevant Buying Fund. Certain non-recurring Reorganization costs and related Reorganization expenses may be borne by a Selling Fund to the extent the Reorganization is expected to result in a reduction to the expense ratio for such Selling Fund. Reorganization costs and related Reorganization expenses include (i) legal and auditor or accounting fees ("Professional Fees") associated with the preparation and filing of the proxy statement/prospectus and (ii) expenses associated with the printing and mailing of any shareholder communications, including the proxy statement/prospectus that forms a part of the Registration Statement, and fees and expenses of any proxy solicitation firm retained in connection with the Reorganization ("Proxy Vendor Expenses"). Professional Fees shall be allocated among each Selling Fund on an equal weighted basis regardless of asset size or number of accounts. Proxy Vendor Expenses shall be allocated among the Selling Funds based on number of shareholder accounts. Notwithstanding the foregoing, the fees and expenses borne by any Selling Fund will not exceed the excess of (i) the total anticipated reduction in fees and expenses expected to be borne by such Selling Fund over the first twelve months following its Reorganization over (ii) the cost expected to be borne by such Selling Fund related to the discontinuance of operations of Seligman Data Corp. Any fees and expenses that would have been eligible to be borne by a Selling Fund but for the preceding sentence and all other Reorganization related costs and expenses will be borne by RiverSource Investments, LLC. Each Selling Fund will bear the full cost of any brokerage or other transaction costs associated with the sale or purchase of portfolio securities in connection with its Reorganization. Should any Reorganization fail to occur, RiverSource Investments, LLC will bear all costs associated with the Reorganization. 12. GENERAL. a. Headings. The headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. Nothing in this Agreement is intended to confer upon any other person any rights or remedies by reason of this Agreement. b. Governing Law. This Agreement will be governed by the laws of the state of Minnesota. IN WITNESS WHEREOF, each of the parties, individually and not jointly, has caused this Agreement to be signed. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC., on behalf of Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman International Growth Fund SELIGMAN HIGH INCOME FUND SERIES, on behalf of Seligman High-Yield Fund Seligman U.S. Government Securities Fund SELIGMAN INCOME AND GROWTH FUND, INC. By: -------------------------- Name: -------------------------- Title: -------------------------- A.7 RIVERSOURCE DIVERSIFIED INCOME SERIES, INC., on behalf of RiverSource Diversified Bond Fund RIVERSOURCE GLOBAL SERIES, INC., on behalf of Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC., on behalf of RiverSource High Yield Bond Fund RIVERSOURCE INVESTMENT SERIES, INC., on behalf of RiverSource Balanced Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC., on behalf of RiverSource Partners International Select Growth Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC., on behalf of RiverSource Short Duration U.S. Government Fund By: -------------------------- Name: -------------------------- Title: -------------------------- The undersigned is a party to this Agreement for the purposes of Section 3c and 11 only. RIVERSOURCE INVESTMENTS, LLC By: -------------------------- Name: -------------------------- Title: -------------------------- A.8 SCHEDULE A
- ---------------------------------------------------------------------------------------------------------- SELLING ENTITY SELLING FUND BUYING ENTITY BUYING FUND - ---------------------------------------------------------------------------------------------------------- Seligman Core Seligman Core Fixed Income RiverSource Diversified RiverSource Diversified Fixed Income Fund, Inc. Income Series, Inc. Bond Fund Fund, Inc. - ---------------------------------------------------------------------------------------------------------- Seligman Global Seligman Emerging Markets RiverSource Global Series, Threadneedle Emerging Fund Series, Fund Inc. Markets Fund Inc. - ---------------------------------------------------------------------------------------------------------- Seligman Global Seligman Global Growth RiverSource Global Series, Threadneedle Global Equity Fund Series, Fund Inc. Fund Inc. - ---------------------------------------------------------------------------------------------------------- Seligman High Seligman High-Yield Fund RiverSource High Income RiverSource High Yield Income Fund Series, Inc. Bond Fund Series (a Massachusetts business trust) - ---------------------------------------------------------------------------------------------------------- Seligman Income Seligman Income and Growth RiverSource Investment RiverSource Balanced Fund and Growth Fund, Fund, Inc. Series, Inc. Inc. - ---------------------------------------------------------------------------------------------------------- Seligman Global Seligman International RiverSource International RiverSource Partners Fund Series, Growth Fund Managers Series, Inc. International Select Inc. Growth Fund - ---------------------------------------------------------------------------------------------------------- Seligman High Seligman U.S. Government RiverSource Government RiverSource Short Duration Income Fund Securities Fund Income Series, Inc. U.S. Government Fund Series (a Massachusetts business trust) - ----------------------------------------------------------------------------------------------------------
A.9 THIS PAGE LEFT BLANK INTENTIONALLY EXHIBIT B Supplemental Information The information in the service section in this Exhibit B includes revised shareholder service policy information as it pertains to your Fund effective on or about June 13, 2009. This information supersedes the "Shareholder Information" section of, and should be maintained with, your current Fund prospectus. Please retain this supplemental information as your record for future reference. Please contact (888) 791-3380 to confirm the final effective date of this supplemental information. ADDITIONAL INFORMATION APPLICABLE TO THE BUYING FUNDS Below is information regarding the Buying Funds. All references to a Fund or the Funds refer to a Buying Fund or the Buying Funds, respectively. 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 nonaffiliated 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 annual and semiannual reports and the Reorganization SAI. 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" under the section "General Information" for more information. For RiverSource Partners International Select Growth Fund: Change in Subadviser(s). From time to time, the investment manager may add or change unaffiliated subadvisers. See "Additional Management Information, Manager of Managers Exemption." The date the current Subadviser(s) began serving the Fund is set forth under "Fund Management and Compensation, Investment Manager." When applicable, performance of the Fund prior to the date the current Subadviser(s) began serving was achieved by different subadviser(s). Similarly, the portfolio turnover rate shown in the "Financial Highlights" applies to the subadviser(s) serving during the relevant time- period. A change in subadviser(s) may result in increased portfolio turnover, as noted under "Portfolio Turnover." Multi-Manager Risk. While RiverSource Investments, as the Fund's investment manager, monitors each subadviser and the overall management of the Fund, to the extent the Fund has multiple subadvisers, each subadviser makes investment decisions independently from the other subadvisers. It is possible that the security selection process of one subadviser will not complement that of the other subadvisers. As a result, the Fund's exposure to a given security, industry, sector or market capitalization could be smaller or larger than if the Fund were managed by a single subadviser, which could affect the Fund's performance. 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 Reorganization SAI. Funds that invest primarily in fixed income securities, including RiverSource Diversified Bond Fund, RiverSource High Yield Bond Fund and RiverSource Short Duration U.S. Government Fund, do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions set forth in the Reorganization 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. B.1 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. For RiverSource Partners International Select Growth Fund, a change in a subadviser may result in increased portfolio turnover, which increase may be substantial, as the new subadviser realigns the portfolio, or if the subadviser(s) trades portfolio securities more frequently. A realignment or more active strategy could produce higher than expected capital gains. 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 from year-to-year, is shown in the "Financial Highlights." Directed Brokerage. The Fund's 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 Reorganization SAI. FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER 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 Reorganization SAI for more information. The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement ("IMS Agreement"), the fee for the most recent fiscal year was the following percentage of the Fund's average daily net assets:
PERCENTAGE OF FUND'S FUND AVERAGE DAILY NET ASSETS RiverSource Diversified Bond Fund 0.45% Threadneedle Emerging Markets Fund 1.16% Threadneedle Global Equity Fund 0.83% RiverSource High Yield Bond Fund 0.58% RiverSource Balanced Fund 0.44% RiverSource Partners International Select Growth Fund 0.92% RiverSource Short Duration U.S. Government Fund 0.48%
For Threadneedle Emerging Markets Fund, Threadneedle Global Equity Fund, RiverSource Balanced Fund and RiverSource Partners International Select Growth Fund, the fee includes an adjustment under the terms of a performance incentive arrangement. The adjustment is computed by comparing the Fund's performance to the performance of an index of comparable funds published by Lipper Inc. The index against which the Funds' performance is currently measured for purposes of the performance incentive adjustment is the Lipper Emerging Markets Funds Index for Threadneedle Emerging Markets Fund, Lipper Global Funds Index for Threadneedle Global Equity Fund, Lipper Balanced Funds Index for RiverSource Balanced Fund and Lipper International Multi-Cap Growth Funds Index for RiverSource Partners International Select Growth Fund. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.08% of the Fund's average net assets on an annual basis for RiverSource Balanced Fund and 0.12% for Threadneedle Emerging Markets Fund, Threadneedle Global Equity Fund and RiverSource Partners International Select Growth Fund. Under the IMS Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the IMS Agreement is available in the Fund's most recent annual or semiannual shareholder report. For Threadneedle Emerging Markets Fund and Threadneedle Global Equity Fund, RiverSource Investments contracts with and compensates Threadneedle International Limited (the "Subadviser" or "Threadneedle") to manage the investment of the Fund's assets. RiverSource Investments monitors the compliance of Threadneedle with the investment objectives and related policies of the Fund, reviews the performance of Threadneedle, and reports periodically to the Board. Threadneedle manages the B.2 Fund's assets based upon its experience managing funds with investment goals and strategies substantially similar to those of the Fund. For RiverSource Partners International Select Growth Fund, RiverSource Investments selects, contracts with and compensates Columbia Wanger Asset Management, L.P. ("Columbia WAM") and Principal Global Investors, LLC ("Principal Global") (each a "Subadviser" and together, the "Subadvisers") to manage the investment of the Fund's assets. RiverSource Investments monitors the compliance of Subadvisers with the investment objectives and related policies of the Fund, reviews the performance of Subadvisers, and reports periodically to the Board. Each Subadviser manages the Fund's assets based upon its experience in managing funds with investment goals and strategies substantially similar to those of the Fund. Columbia WAM, which has served as subadviser to the Fund since September 2001, is located at 227 West Monroe, Suite 3000, Chicago, Illinois. Columbia WAM, subject to the supervision of RiverSource Investments, provides day-to-day management of a portion of the Fund's portfolio, as well as investment research and statistical information under a Subadvisory Agreement with RiverSource Investments. Principal Global, which has served as subadviser to the Fund since April 2006, is located at 801 Grand Avenue, Des Moines, Iowa. Principal Global, subject to the supervision of RiverSource Investments, provides day-to-day management of a portion of the Fund's portfolio, as well as investment research and statistical information under a Subadvisory Agreement with RiverSource Investments. RiverSource Diversified Bond Fund portfolio managers: The portfolio managers responsible for the day-to-day management of the Fund are: Tom Murphy, CFA, Portfolio Manager - - Managed the Fund since 2003. - - Leader of the investment grade credit sector team. - - Joined RiverSource Investments in 2002. - - Managing Director and Portfolio Manager, BlackRock Financial Management, 2002; various positions, Zurich Scudder, 1992 to 2002. - - Began investment career in 1986. - - MBA, University of Michigan. Scott Schroepfer, CFA, Portfolio Manager - - Managed the Fund since 2008. - - Member of the high yield fixed income sector team. - - Joined RiverSource Investments in 1990. - - Began investment career in 1986. - - MBA, University of Minnesota. Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Leader of the liquid assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass- Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. The fixed income department of RiverSource Investments is divided into six specialized teams (sector teams), each focused on a specific sector of the fixed income market: leveraged debt group, liquid assets, high yield fixed income, investment grade credit, municipal bonds, and global fixed income. Each sector team includes a portfolio manager or portfolio managers and several analysts that select securities and other fixed income instruments within the sector. The Fund's portfolio managers lead or are members of one of these sector teams and also serve on a strategy committee responsible for implementation of the Fund's overall investment strategy, including determination of the Fund's sector allocation and portfolio duration. B.3 Threadneedle Emerging Markets Fund portfolio managers: The portfolio managers who lead the team responsible for the day-to-day management of the Fund are: Julian A.S. Thompson, Portfolio Manager - - Managed the Fund since 2000. - - Joined Threadneedle in 2003. - - Began investment career in 1993 as an Investment Manager for Stewart Ivory, a Scottish investment company, 1993 to 1999. Portfolio Manager, American Express Asset Management International, 1999 to 2003. - - BA and Ph.D., Magdalene College, Cambridge University. Jules Mort, Deputy Portfolio Manager - - Deputy managed the Fund since 2003. - - Joined Threadneedle in 2001 as a fund manager. - - Began investment career in 1997 as an Analyst and Portfolio Manager, Baillie Gifford & Co., 1997 to 2001. - - BA (Hons), Oxford University 1996. Threadneedle Global Equity Fund portfolio managers: The portfolio managers who lead the team responsible for the day-to-day management of the Fund are: Stephen Thornber, Portfolio Manager - - Head of global oil sector. - - Managed the Fund since 2003. - - Joined Threadneedle in 1993 as a fund manager. - - Began investment career in 1987. - - BA, Plymouth Polytechnic. Andrew Holliman, CFA, Deputy Portfolio Manager - - Deputy managed the Fund since 2008. - - Joined Threadneedle in 2004 as a fund manager. - - Began investment career in 1997 as an investment analyst and portfolio manager, Baillie Gifford & Co., 1997 to 2004. - - BCom (Hons), University of Edinburgh; MSc, University of Stirling. RiverSource High Yield Bond Fund portfolio managers: The portfolio manager responsible for the day-to-day management of the Fund is: Scott Schroepfer, CFA, Portfolio Manager - - Managed the Fund since 1999. - - Member of the high yield sector team. - - Joined RiverSource Investments in 1990. - - Began investment career in 1986. - - 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. Mr. Schroepfer is a member of the team that specializes in the sector in which the Fund primarily invests. The team, led by Jennifer Ponce de Leon, collectively determines portfolio strategy. Ms. Ponce de Leon, who holds an MBA from DePaul University, began her investment career in 1989 and joined RiverSource Investments in 1997. She has been leader of the high yield sector team since 2003. B.4 RiverSource Balanced Fund portfolio managers: The Fund is allocated among equity and fixed income asset classes. The portfolio managers responsible for the day- to-day management of the equity portion of the Fund are: Warren Spitz, Senior Portfolio Manager - - Managed the Fund since 2008. - - Joined RiverSource Investments in 2000 as a Senior Portfolio Manager. - - Portfolio Manager, Prudential Global Asset Management, 1987 to 2000. - - Began investment career in 1984. - - MBA, Wharton School, University of Pennsylvania. Steve Schroll, Portfolio Manager - - Managed the Fund since 2008. - - Joined RiverSource Investments in 1998 as a Senior Security Analyst. - - Senior Equity Analyst, Piper Jaffray, 1988 to 1998; Equity Analyst, First Asset Management, 1985 to 1988; Equity Analyst, Dain Rauscher, 1981 to 1985. - - Began investment career in 1981. - - MBA, University of Minnesota. Laton Spahr, CFA, Portfolio Manager - - Managed the Fund since 2008. - - Joined RiverSource Investments in 2001 as a Security Analyst. - - Sector Analyst, Holland Capital Management, 2000 to 2001; Statistical Research Intern, Friess Associates, 1998 to 1999. - - Began investment career in 1998. - - MS, University of Wisconsin, Applied Security Analysis Program. Paul Stocking, Portfolio Manager - - Managed the Fund since 2008. - - Joined RiverSource Investments in 1995 as a Senior Equity Analyst. - - Vice President, JP Morgan Securities, 1987 to 1995; Investment Banking. - - Began investment career in 1987. - - MBA, University of Chicago. The portfolio managers responsible for the day-to-day management of the fixed income portion of the Fund are: Tom Murphy, CFA, Portfolio Manager - - Managed the Fund since 2003. - - Leader of the investment grade credit sector team. - - Joined RiverSource Investments in 2002. - - Managing Director and Portfolio Manager, BlackRock Financial Management, in 2002, and various positions at Zurich Scudder from 1992 to 2002. - - Began investment career in 1986. - - MBA, University of Michigan. Scott Schroepfer, CFA, Portfolio Manager - - Managed the Fund since 2008. - - Member of the high yield fixed income sector team. - - Joined RiverSource Investments in 1990. - - Began investment career in 1986. - - MBA, University of Minnesota. B.5 Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Leader of the liquid assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass- Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. The fixed income department of RiverSource Investments is divided into six specialized teams (sector teams), each focused on a specific sector of the fixed income market: leveraged debt group, liquid assets, high yield fixed income, investment grade credit, municipal bonds, and global fixed income. Each sector team includes a portfolio manager or portfolio managers and several analysts that select securities and other fixed income instruments within the sector. The Fund's portfolio managers lead or are members of one of these sector teams and also serve on a strategy committee responsible for implementation of the Fund's overall investment strategy, including determination of the Fund's sector allocation and portfolio duration. RiverSource Partners International Select Growth Fund portfolio managers: The portfolio managers responsible for the day-to-day management of the portion of the Fund allocated to Columbia WAM are: - - P. Zachary Egan, co-portfolio manager, is a vice president of Columbia Acorn Trust. Mr. Egan is also the Director of International Research of Columbia WAM since December 2004. Mr. Egan has been a member of the international team since 1999 and a research fellow with the Robert Bosch Foundation in Stuttgart, Germany prior to that time. Mr. Egan is a CFA and earned his MA degree from the University of Chicago and his BA degree from Middlebury College. - - Louis J. Mendes, co-portfolio manager, is a vice president of Columbia Acorn Trust. Mr. Mendes has been a member of the international team since 2001 and an analyst and portfolio manager with Merrill Lynch Investment Managers specializing in Asian equity markets prior to that time. Mr. Mendes is a CFA and earned his MA degree in International Management from the American Graduate School of International Management in Phoenix and BA degree from Columbia University. The portfolio managers responsible for the day-to-day management of the portion of the Fund allocated to Principal Global are: - - John Pihlblad, CFA -- Portfolio Manager. Mr. Pihlblad is a portfolio manager at Principal Global Investors. He joined the firm in 2000 and led the development of Principal Global Investors' Global Research Platform. Mr. Pihlblad has over 29 years investment experience, including 17 years of experience in managing international equities. Previously, he was a partner and co-founder of GlobeFlex Capital in San Diego where he was responsible for developing and implementing the investment process for both domestic and international equity products. Prior to that, Mr. Pihlblad was a portfolio manager at Nicholas Applegate in San Diego, where he developed one of the first global systematic investment processes in the industry. Mr. Pihlblad was also director of equity research at Boatmen's Trust Company, Kansas City, Mo., where he developed a comprehensive quantitative portfolio management platform. Mr. Pihlblad received a bachelor's degree from Westminster College. He holds the Chartered Financial Analyst designation and is a member of the CFA Institute. - - Steven Larson, CFA -- Portfolio Manager. Mr. Larson is a portfolio manager at Principal Global Investors. He is responsible for co-managing Principal's international growth and value equity portfolios. He is also active in company research with an emphasis on the utilities sector. Mr. Larson joined the firm in 2001 and participated in the early integration of the systematic (quantitative fundamental) and traditional fundamental (analyst-driven) research efforts, as well as the initial phase of backtesting research to determine which factors drive stock prices within each region and sector. Previously, Mr. Larson led the investment management oversight and sub-advisor selection process for the $80 billion Wells Fargo mutual fund family. Prior to joining Wells Fargo, he was vice president and manager of the Investment Analytics Group at First American Asset Management, U.S. Bancorp's institutional asset manager. Mr. Larson received an MBA in finance from the University of Minnesota's Carlson School of Management and a bachelor's degree in finance from Drake University. He holds the Chartered Financial Analyst designation and is a member of the CFA Institute. B.6 RiverSource Short Duration U.S. Government Fund portfolio managers: The portfolio managers responsible for the day-to-day management of the Fund are: Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Leader of the liquid assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass- Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. The Reorganization SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. B.7 THIS SERVICE SECTION IS EFFECTIVE ON OR ABOUT JUNE 13, 2009. RIVERSOURCE FAMILY OF FUNDS THE RIVERSOURCE FAMILY OF FUNDS (EACH INDIVIDUALLY A "FUND" AND, COLLECTIVELY, THE "FUNDS") INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, "SELIGMAN" FUNDS AND "THREADNEEDLE" FUNDS. (THE RIVERSOURCE FUNDS, RIVERSOURCE PARTNERS FUNDS AND THREADNEEDLE FUNDS MAY BE COLLECTIVELY REFERRED TO AS THE "RIVERSOURCE FUNDS".) THE FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD") AND THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THE SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL FUNDS IN THE RIVERSOURCE FAMILY OF FUNDS OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." BUYING AND SELLING SHARES The funds are available directly and through broker-dealers, banks and other financial intermediaries or institutions (financial intermediaries), and through certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial intermediaries. NOT ALL FINANCIAL INTERMEDIARIES OFFER THE FUNDS. FINANCIAL INTERMEDIARIES THAT OFFER THE FUNDS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial intermediaries through which your shares of the fund are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial intermediary through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial intermediaries to carry out its obligations to its customers. DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial advisor can help you with this decision. The following table shows the key features of each share class. INVESTMENT OPTIONS SUMMARY
Contingent Deferred Plan Sales Distribution and/or Administration AVAILABILITY(a) Initial Sales Charge Charge (CDSC) Service Fee(b) Services Fee - --------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at time No.(c) Yes. No. all investors. of purchase. Lower or 0.25% no sales charge for larger investments. - --------------------------------------------------------------------------------------------------------------------------------- Class Available to No. Entire purchase Maximum 5% CDSC during Yes. No. B(d)(e)(f) all investors. price is invested in the first year 1.00% shares of the fund. decreasing to 0% after six years. - --------------------------------------------------------------------------------------------------------------------------------- Class C(f) Available to No. Entire purchase 1% CDSC may apply if Yes. No. all investors. price is invested in you sell shares within 1.00% shares of the fund. one year after purchase. - --------------------------------------------------------------------------------------------------------------------------------- Class I Limited to qualifying No. No. No. No. institutional investors. - --------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to qualifying No. No. Yes. Yes. institutional 0.50% 0.25% investors. - --------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to qualifying No. No. Yes. Yes. institutional 0.25% 0.25% investors. - --------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to qualifying No. No. No. Yes. institutional 0.25% investors. - ---------------------------------------------------------------------------------------------------------------------------------
B.8 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Deferred Plan Sales Distribution and/or Administration AVAILABILITY(a) Initial Sales Charge Charge (CDSC) Service Fee(b) Services Fee - --------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to qualifying No. No. No. No. institutional investors. - --------------------------------------------------------------------------------------------------------------------------------- Class W Limited to qualifying No. No. Yes. No. discretionary managed 0.25% accounts. - --------------------------------------------------------------------------------------------------------------------------------- Class Y Limited to qualifying No. No. No. Yes. institutional 0.15% investors. - ---------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. For all funds except money market funds. (d) Class B shares automatically convert to Class A hares. See "Buying and Selling Shares, Sales Charges, Class B and Class C -- CDSC alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. (e) Class B shares of RiverSource Short Duration U.S. Government Fund is closed to new investors and new purchases. Existing shareholders in this fund may continue to own Class B shares and make exchanges into and out of existing accounts where Class B shares of this fund are maintained. (f) The money market funds may offer Class B and Class C shares, but only to facilitate exchanges with other funds offering Class B and Class C shares, respectively. DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing the fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and/or shareholder servicing fees to financial intermediaries that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B*, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial intermediaries also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial intermediaries, and to pay for other distribution related expenses. Financial intermediaries may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INTERMEDIARY OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES MAY BE RETAINED BY THE DISTRIBUTOR AS REIMBURSEMENT FOR INCURRING CERTAIN DISTRIBUTION AND SHAREHOLDER SERVICING RELATED EXPENSES. * For money market funds that offer Class B shares, 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 shares. PLAN ADMINISTRATION FEE Class R2, Class R3, Class R4 and Class Y shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. The fee for Class Y shares is equal on an annual basis to 0.15% of average daily net assets attributable to the class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE Each of the fund's classes represent an interest in the same portfolio of investments. However, as set forth above, each class has its own sales charge schedule, and its ongoing distribution and shareholder service fees may differ from other classes. When deciding which class of shares to buy, you should consider, among other things: - - The amount you plan to invest. - - How long you intend to remain invested in the fund or another fund in the RiverSource Family of Funds. - - Whether you may be eligible for reduced or no sales charges when you buy or sell shares. B.9 Your authorized financial intermediary or financial advisor will be able to help you decide which class of shares best meets your needs. 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" for information on rights of accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares. Class B shares purchased through reinvested dividends and distributions will convert to Class A shares in the same proportion as the other Class B shares. See "Class B and Class C -- CDSC alternative" for information on timing of Class B share conversion to Class A shares. Class C shares have a higher annual distribution fee than Class A shares and a CDSC for one year. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a share class with a CDSC (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial intermediary or financial advisor. * For money market funds, new investments must be made in Class A shares of the fund. The fund offers Class B and Class C shares only to facilitate exchanges between classes of these shares in other funds. CLASS I SHARES. The following eligible investors may purchase Class I shares: - - Any fund distributed by the distributor, if the fund seeks to achieve its investment objective by investing primarily in shares of funds in the RiverSource Family of Funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. CLASS R SHARES. The following eligible institutional investors may 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. - - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - - Health Savings Accounts created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all funds in the RiverSource Family of Funds). - - Bank trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SARSEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. CLASS W SHARES. The following eligible investors may purchase Class W shares: - - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial intermediary. Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. B.10 IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INTERMEDIARIES TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. Please consult your financial advisor for assistance in selecting the appropriate class of shares. For more information, see the SAI. 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 intermediary through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly from the fund (not through an authorized financial intermediary). Sales charges vary depending on the amount of your purchase. INITIAL SALES CHARGE(A) FOR CLASS A SHARES For equity funds and funds-of-funds (equity)
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - --------------------------------------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 5.00% $50,000--$99,999 4.75 4.99 4.00 $100,000--$249,999 3.50 3.63 3.00 $250,000--$499,999 2.50 2.56 2.15 $500,000--$999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00(c),(d)
For fixed income funds except those listed below and funds-of-funds (fixed income)
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - --------------------------------------------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% 4.00% $50,000--$99,999 4.25 4.44 3.50 $100,000--$249,999 3.50 3.63 3.00 $250,000--$499,999 2.50 2.56 2.15 $500,000--$999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00(c),(d)
For RiverSource Short Duration U.S. Government Fund
Maximum reallowance AS A % OF As a % of as a % of TOTAL MARKET VALUE PURCHASE PRICE(b) net amount invested purchase price - --------------------------------------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% 2.50% $50,000--$99,999 3.00 3.09 2.50 $100,000--$249,999 2.50 2.56 2.15 $250,000--$499,999 2.00 2.04 1.75 $500,000--$999,999 1.50 1.52 1.25 $1,000,000 or more 0.00 0.00 0.00(c),(d)
(a) Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. (b) Purchase price includes the sales charge. (c) Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial intermediary the following out of its own resources: a sales commission of up to 1.00% for a sale of $1,000,000 to $3,999,999; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. (d) For certain eligible employee benefit plans defined under section 401(a), 401(k), 457 and 403(b) which meet eligibility rules for the waiver of applicable sales charges, the distributor may pay the following out of its own resources: a sales commission of 1.00% for a sale of $1 to $3,999,999 received in eligible employee benefit plans; a sales commission up to 0.50% for a sale of $4,000,000 to $49,999,999; and a sales commission up to 0.25% for a sale of $50,000,000 or more. See "Initial Sales Charge -- Waivers of the sales charge for Class A shares" for employee benefit plan eligibility rules. There is no initial sales charge on reinvested dividends or capital gain distributions. B.11 INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group. Your ROA group includes the current market values of the following investments which are eligible to be added together for purposes of determining the sales charge on your next purchase: - - Your current investment in a fund; and - - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other funds in the RiverSource Family of Funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21, all of whom share a mailing address. The following accounts are eligible to be included in your ROA group in order to determine the sales charge on your purchase: - - Individual or joint accounts; - - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; - - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in your ROA group in order to determine the sales charge on your purchase: - - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - - Investments in Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - - Charitable and irrevocable trust accounts. If you purchase fund shares through different financial intermediaries, and you want to include those assets toward a reduced sales charge, you must inform your financial intermediary in writing about the other accounts when placing your purchase order. Contact your financial intermediary to determine what information is required. Unless you provide your financial intermediary in writing with information about all of the accounts that may count toward a sales charge reduction, there can be no assurance that you will receive all of the reductions for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. For more information on ROA, please see the SAI. INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including any existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial intermediary. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining amount of the unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in the funds. Shareholder completes an LOI to invest $100,000 in the funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in the funds' Class A shares (any non-money market fund in the RiverSource Family of Funds) in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. B.12 Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial intermediary provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial intermediary or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - - current or retired Board members, officers or employees of the funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - current or retired Ameriprise Financial Services, Inc. financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - registered representatives and other employees of affiliated or unaffiliated financial intermediaries having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - - portfolio managers employed by subadvisers of the funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - - partners and employees of outside legal counsel to the funds or the funds' directors or trustees who regularly provide advice and services to the funds, or to their directors or trustees. - - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another fund in the RiverSource Family of Funds; - through or under a wrap fee product or other investment product sponsored by a financial intermediary that charges an account management fee that has, or that clear trades through a financial intermediary that has, a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; or - through bank trust departments. - - separate accounts established and maintained by an insurance company which are exempt from registration under Section 3(c)(11). - - purchases made through "employee benefit plans" created under section 401(a), 401(k), 457 and 403(b) which: - have at least $1 million in plan assets at the time of investment; and - have a plan level or omnibus account that is maintained with the fund or its transfer agent; and - transact directly with the fund or its transfer agent through a third party administrator or third party recordkeeper. For more information regarding waivers of sales charge for Class A purchases, please see the SAI. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional classes of investors. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial intermediary with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. Because the current prospectus is available on the funds' website at riversource.com or seligman.com free of charge, information regarding breakpoint discounts is not separately disclosed on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased without a sales charge where a commission was separately paid by the distributor to an authorized financial intermediary effecting the purchase, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - - to which no sales commission or transaction fee was paid to an authorized financial intermediary at the time of purchase. - - purchased through reinvestment of dividends and capital gain distributions. B.13 - - in the event of the shareholder's death. - - from a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - - in an account that has been closed because it falls below the minimum account balance. - - that result from required minimum distributions taken from retirement accounts upon the shareholders attainment of age 70 1/2. - - that result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - - of RiverSource funds purchased prior to Dec. 1, 2008. - - initially purchased by an employee benefit plan that is not connected with a plan level termination. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CDSC ALTERNATIVE The money market funds (except RiverSource Tax-Exempt Money Market Fund) offer Class B and Class C shares, but only to facilitate exchanges with other funds offering Class B and Class C shares, respectively. For example, if you own Class B or Class C shares of another fund, but want to hold your money in a money market fund, you may exchange into Class B or Class C shares of a money market fund. Funds that offer Class B and Class C shares have limitations on the amount you may invest in those share classes. If you are considering purchasing Class B or Class C shares of a fund, please see the prospectus for that fund for any effective purchase limitations. Although you may not purchase Class B and Class C shares of the money market funds directly, if you exchange into Class B or Class C shares of a money market fund from another fund, you will be subject to the rules governing CDSC set forth in this section. To minimize the amount of CDSC you may pay when you sell your shares, the fund assumes that shares acquired through reinvested dividends and capital gain distributions (which are not subject to CDSC) are sold first. Shares that have been in your account long enough so that they are not subject to a CDSC are sold next. After these shares are exhausted, shares will be sold in the order they were purchased (earliest to latest). FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline over time:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 3%** Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. ** For shares purchased in a RiverSource fund prior to June 12, 2009, the CDSC percentage for the third year is 4%. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial intermediaries that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Class B shares purchased in a RiverSource fund prior to May 21, 2005 age on a calendar year basis. Class B shares purchases made in a RiverSource fund beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. Class B shares originally purchased in a RiverSource fund prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares originally purchased in a Seligman fund on or prior to June 12, 2009 will convert to Class A shares in the month prior to the ninth year of ownership. Class B shares purchased in a RiverSource fund B.14 beginning May 21, 2005 and Class B shares purchased in a Seligman fund beginning June 13, 2009 will convert to Class A shares one month after the completion of the eighth year of ownership. FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial intermediaries that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C shares, the amount of any CDSC you pay will be based on the lower of the original purchase price of those shares or current net asset value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - - in the event of the shareholder's death. - - that result from required minimum distributions taken from retirement accounts upon the shareholders' attainment of age 70 1/2. - - sold under an approved substantially equal periodic payment arrangement. - - by certain other investors, including certain institutions as set forth in more detail in the SAI. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares: - - in the event of the shareholder's death. - - to which no sales commission or transaction fee was paid to an authorized financial intermediary at the time of purchase. - - that result from required minimum distributions taken from retirement accounts upon the shareholders' attainment of age 70 1/2. - - initially purchased by an eligible employee benefit plan that are not connected with a plan level termination. - - by certain other investors, including certain institutions as set forth in more detail in the SAI. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional classes of investors. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 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. The fund's Board believes that no conflict of interest currently exists between the fund's classes of shares. On an ongoing basis, the Board, in the exercise of its fiduciary duties, seeks to ensure that no such conflicts arise. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the fund or the financial intermediary through which you are investing in the fund may not be able to open an account for you. If the fund or the financial intermediary through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. B.15 When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial intermediary. Any applicable sales charge will be added to the purchase price for Class A shares. You may establish and maintain your account with an authorized financial intermediary or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts established with the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. CLASS B SHARES OF RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ARE CLOSED TO NEW INVESTORS AND NEW PURCHASES. EXISTING SHAREHOLDERS IN THIS FUND MAY CONTINUE TO OWN CLASS B SHARES AND MAKE EXCHANGES INTO AND OUT OF EXISTING ACCOUNTS WHERE CLASS B SHARES OF THIS FUND ARE MAINTAINED. ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INTERMEDIARY ALL REQUESTS The financial intermediary through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. - -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial intermediary through which you buy shares may establish an account with the fund. To establish an account in this fashion, complete a fund account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or seligman.com or may be requested by calling (800) 221-2450. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number, and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. - -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (800) 221-2450 to notify the fund's transfer agent of the wire and to receive further instructions. If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial intermediary may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY EXCHANGE Call (800) 221-2450 or send signed written instructions to the address above. - -------------------------------------------------------------------------------- B.16 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS, CLASSES AND ACCOUNTS EXCEPT THOSE LISTED TO THE RIGHT (NONQUALIFIED) TAX QUALIFIED ACCOUNTS CLASS W - --------------------------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $500 - --------------------------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 None - --------------------------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $1,000 None $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, CLASSES AND ACCOUNTS EXCEPT THOSE LISTED TO THE RIGHT (NONQUALIFIED) TAX QUALIFIED ACCOUNTS CLASS W - --------------------------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100(a) $100(b) $500 - --------------------------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 None - --------------------------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None(b) None $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. (a)Money Market Funds -- $2,000 (b)Money Market Funds -- $1,000 ------------------------------------------------------------------------------- These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are a part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial intermediary for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 14 days to clear. If you request a sale within 14 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial intermediary process your transaction. If you maintain your account directly with your financial intermediary, you must contact that financial intermediary to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INTERMEDIARY ALL REQUESTS You can exchange or sell shares by having your financial intermediary process your transaction. The financial intermediary through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. - -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL P.O. BOX 8041 BOSTON, MA 02266-8041 ------------------------------------------------------------------------------- B.17 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) EXPRESS MAIL RIVERSOURCE FAMILY OF FUNDS C/O BOSTON FINANCIAL 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 Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than the registered account owner(s). - Your address of record has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial intermediary providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. - -------------------------------------------------------------------------------- BY TELEPHONE Call (800) 221-2450. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate, qualified retirement accounts and trust accounts which the current trustee is not listed. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $50,000 per day. - -------------------------------------------------------------------------------- BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (800) 221-2450 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. ------------------------------------------------------------------------------- B.18 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH (CONT.) Minimum amount: by ACH: $100 by wire: $500 Your bank or financial intermediary may charge additional fees for wire transactions. - -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. - -------------------------------------------------------------------------------- CHECK REDEMPTION SERVICE Class A shares of the money market funds offer check writing privileges. If you have $2000 in a money market fund, you may request checks which may be drawn against your account. You can elect this service on your initial application, or, thereafter. Call (800) 221-2450 for the appropriate forms to establish this service. If you own Class A shares that were both in another fund at NAV because of the size of the purchase, and then exchanged into a money market fund, check redemptions may be subject to a CDSC. EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered fund in the RiverSource Family of Funds without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. IF YOU HOLD YOUR FUND SHARES IN AN ACCOUNT WITH AMERIPRISE FINANCIAL SERVICES, YOU MAY HAVE LIMITED EXCHANGEABILITY WITHIN THE RIVERSOURCE FAMILY OF FUNDS. MARKET TIMING SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. FOR A FUND ORGANIZED AS A FUND-OF-FUND, ITS ASSETS CONSIST PRIMARILY OF SHARES OF THE UNDERLYING FUNDS IN WHICH IT INVESTS. THE UNDERLYING FUNDS MAY BE MORE SUSCEPTIBLE TO THE RISKS OF MARKET TIMING. FUNDS THAT INVEST DIRECTLY IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. FUNDS AND THE UNDERLYING FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS CALCULATED. TO THE EXTENT THAT A FUND OR UNDERLYING FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS, FLOATING RATE LOANS, HIGH YIELD BONDS, TAX-EXEMPT SECURITIES OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "PRICING AND VALUING OF FUND SHARES" FOR A DISCUSSION OF THE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: - - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial intermediary for the benefit of its participants or B.19 clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial intermediaries in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - - The fund may rely on the monitoring policy of a financial intermediary, for example, a retirement plan administrator or similar financial intermediary authorized to distribute the funds, if it determines the policy and procedures of such financial intermediaries are sufficient to protect the fund and its shareholders. - - If an investor's trading activity is determined to be market timing or otherwise harmful to existing shareholders, the fund reserves the right to modify or discontinue the investor's exchange privilege or reject the investor's purchases or exchanges, including purchases or exchanges accepted by a financial intermediary. The fund may treat accounts it believes to be under common control as a single account for these purposes, although it may not be able to identify all such accounts. - - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial intermediaries where market timing activity may not always be successfully detected. B.20 Other exchange policies: - - Exchanges must be made into the same class of shares of the share class being exchanged out of. - - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - - Once the fund receives your exchange request, you cannot cancel it after the market closes. - - Shares of the purchased fund may not be used on the same day for another exchange or sale. - - New investments in Class A shares of a money market fund may be exchanged for either Class A, Class B or Class C shares of any other publicly offered fund in the RiverSource Family of Funds. - - If you exchange shares from Class A shares of a money market fund to another fund in the RiverSource Family of Funds, any further exchanges must be between shares of the same class. For example, if you exchange from Class A shares of a money market fund into Class B shares of another fund in the RiverSource Family of funds, you may not exchange from Class B shares of that fund back to Class A shares of a money market fund. Exchange rules for money market funds are illustrated in the following tables. - - Shares of Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to.
TO OTHER FUNDS FROM A MONEY MARKET FUND ----------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------ Class A Yes Yes Yes Class B No Yes No Class C No No Yes
TO A MONEY MARKET FUND FROM OTHER FUNDS ----------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------ Class A Yes No No Class B No Yes No Class C No No Yes
If your initial investment was in a money market fund and you exchange into an equity or fixed income fund, you will pay an initial sales charge if you exchange into Class A and be subject to a CDSC if you exchange into Class B or Class C. If your initial investment was in Class A shares of an equity or fixed income fund and you exchange shares into a money market fund, you may exchange that amount to another fund, including dividends earned on that amount, without paying a sales charge. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of a fund in the RiverSource Family of Funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. For a Class A repurchase on shares that were originally charged a CDSC, the amount of the CDSC will be reinvested at the NAV on the date the repurchase is processed. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. B.21 In order for you to take advantage of this repurchase waiver, you must notify your financial intermediary or the fund's transfer agent if your account is held at the fund within 90 days of the date your sale request was processed. Contact your financial intermediary for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. If you sold shares of a Seligman fund on or before February 3, 2009 and wish to repurchase shares, you have the option of taking advantage of the current repurchase policy (described above) within 90 days of the date your sale request was processed, or you may use all or part of your sale proceeds to purchase shares of the fund you sold or any other fund in the RiverSource Family of Funds without paying an initial sales charge or, if you paid a CDSC when you sold your shares, receiving a credit for the applicable CDSC, within 120 days of the date your sale request was processed. Contact your financial intermediary or, if you opened an account directly with the fund, the transfer agent, for more information on the required documentation to complete a repurchase transaction. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. PRICING AND VALUING OF FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. For a fund organized as a fund-of-fund, the assets will consist primarily of shares of the underlying funds, which are valued at their NAVs. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both market quotations and indicative bids are obtained from outside pricing services approved and monitored under procedures adopted by the Board. Certain short-term securities with maturities of 60 days or less are valued at amortized cost. When reliable market quotations or indicative bids are not readily available, investments are priced at fair value based on procedures adopted by the Board. These procedures are also used when the value of an investment held by a fund or underlying fund is materially affected by events that occur after the close of a securities market but prior to the time as of which the fund's or underlying fund's NAV is determined. Valuing investments at fair value involves reliance on judgment. The fair value of an investment is likely to differ from any available quoted or published price. To the extent that a fund or an underlying fund has significant holdings of small cap stocks, high yield bonds, floating rate loans, tax-exempt securities or foreign securities that may trade infrequently, fair valuation may be used more frequently than for other funds. The funds use an unaffiliated service provider to assist in determining fair values for foreign securities. Foreign investments are valued in U.S. dollars. Some of a fund's or an underlying fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's or underlying fund's shares may change on days when shareholders will not be able to purchase or sell the fund's or underlying fund's shares. For money markets funds -- The fund's investments are valued at amortized cost, which approximates market value, as explained in the SAI. Although the fund cannot guarantee it will always be able to maintain a constant net asset value of $1 per share, it will use its best efforts to do so. DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. 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 B.22 security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund unless you request distributions in cash. The financial intermediary through which you purchased shares may have different policies. Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91st day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91st day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. FOR TAXABLE FUNDS. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt securities (exempt-interest dividends) are exempt from federal income taxes but may be subject to state and local taxes and potentially the alternative minimum tax. Dividends distributed from net capital gains, if any, and other income earned are not exempt from federal income taxes. Any taxable distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum tax. To the extent the fund earns such income, it will flow through to its shareholders and may affect those shareholders who are subject to the alternative minimum tax. See the SAI for more information. Because interest on municipal bonds and notes is tax-exempt for federal income tax purposes, any interest on money you borrow that is used directly or indirectly to purchase fund shares is not deductible on your federal income tax return. You should consult a tax advisor regarding its deductibility for state and local income tax purposes. For a fund organized as a fund-of-fund, because most of the fund's investments are shares of underlying funds, the tax treatment of the fund's gains, losses, and distributions may differ from the tax treatment that would apply if either the fund B.23 invested directly in the types of securities held by the underlying funds or the fund shareholders invested directly in the underlying funds. As a result, fund shareholders may recognize higher amounts of capital gain distributions or ordinary income dividends than they otherwise would. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial intermediary to determine the availability of the funds. The funds may only be purchased or sold directly or through financial intermediaries authorized by the distributor to offer the funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE RIVERSOURCE FAMILY OF FUNDS AND CERTAIN FINANCIAL INTERMEDIARIES THAT OFFER THE RIVERSOURCE FAMILY OF FUNDS MAY NOT OFFER ALL FUNDS ON ALL INVESTMENT PLATFORMS. If you set up an account at a financial intermediary that does not have, and is unable to obtain, a selling agreement with the distributor, you will not be able to transfer fund holdings to that account. In that event, you must either maintain your fund holdings with your current financial intermediary, find another financial intermediary with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the funds. These services include administrative, accounting, treasury, and other services. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Fund Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, (the distributor), provides underwriting and distribution services to the funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial intermediaries that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the funds. The funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial intermediaries that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement, the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INTERMEDIARIES The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial intermediaries, in connection with agreements between the distributor and financial intermediaries pursuant to which these financial intermediaries sell fund shares and provide services to their clients B.24 who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial intermediary may elevate the prominence or profile of the fund within the financial intermediary's organization, and may provide the distributor and its affiliates with preferred access to the financial intermediary's registered representatives or preferred access to the financial intermediary's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial intermediary's pecuniary interest and its duties to its customers, for example, if the financial intermediary receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial intermediary or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial intermediary, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial intermediary, and the access the distributor or other representatives of the fund may have within the financial intermediary for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial intermediary and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial intermediary and/or as a percentage of fund sales attributable to the financial intermediary. Certain financial intermediaries require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial intermediary charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial intermediary (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial intermediaries and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of fund assets (from the RiverSource Family of Funds, in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker- dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial intermediaries or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial intermediaries and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial intermediary to the extent the cost of such services was less than the actual expense of the service. The financial intermediary through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the B.25 payments your financial intermediary may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial intermediary. The SAI contains additional detail regarding payments made by the distributor to financial intermediaries. The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial intermediaries for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial intermediaries for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial intermediary to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." ADDITIONAL MANAGEMENT INFORMATION AFFILIATED PRODUCTS. RiverSource Investments serves as investment manager to all funds in the RiverSource Family of Funds, including those that are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other funds (funds of funds) in the RiverSource Family of Funds (collectively referred to as underlying funds) and to discretionary managed accounts (collectively referred to as affiliated products) that invest exclusively in underlying funds. These affiliated products, individually or collectively, may own a significant percentage of the outstanding shares of the underlying funds, and RiverSource Investments seeks to balance potential conflicts between the affiliated products and the underlying funds in which they invest. The affiliated products investment in the underlying funds may also have the effect of creating economies of scale (including lower expense ratios) because the affiliated products may own substantial portions of the shares of underlying funds and, comparatively, a redemption of underling fund shares by one or more affiliated products could cause the expense ratio of an underlying fund to increase as its fixed costs would be spread over a smaller asset base. Because of these large positions of the affiliated products, the underlying funds may experience relatively large purchases or redemptions. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, underlying funds may experience increased expenses as they buy and sell securities to manage these transactions. When RiverSource Investments structures transactions over a reasonable period of time in order to manage the potential impact of the buy and sell decisions for the affiliated products, these affiliated products, including funds of funds, may pay more or less for shares of the underlying funds than if the transactions were executed in one transaction. In addition, RiverSource Investments has an economic conflict of interest in determining the allocation of the affiliated products' assets among the underlying funds as it earns different fees from the underlying funds. RiverSource Investments monitors expense levels of the funds and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. CASH RESERVES. A fund may invest its daily cash balance in a money market fund selected by RiverSource Investments, including but not limited to RiverSource Short-Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of funds in the RiverSource Family of Funds and other institutional clients of RiverSource Investments. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund or any other money market fund selected by RiverSource Investments only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. B.26 EXHIBIT C SUMMARY OF INTEGRATION RELATED CHANGES At its Jan. 8, 2009 meeting, the Board approved certain changes to the Seligman Funds' share class structure, service provider arrangements and shareholder service policies, including: SHARE CLASS STRUCTURE. Approval of the redesignation of each Seligman Fund's Class R shares as Class R2 shares and Class I shares as Class R5 shares, as applicable, with a shareholder servicing and pricing structure consistent with Class R2 and Class R5 shares offered by other funds in the RiverSource Family of Funds, discussed below. INVESTMENT MANAGEMENT AND ADMINISTRATION. Approval of changes to each Seligman Fund that is a Buying Fund's (i) Administrative Services Agreement to add a fee schedule consistent with the fee schedules for other, comparable funds in the RiverSource Family of Funds, and (ii) Investment Management Services ("IMS") Agreement to reduce the fee by an amount at least equal to the amount of the increase in the fee under the Administrative Services Agreement. (IMS and Administration Agreements for Seligman Funds that are Selling Funds were not considered at this time.) TRANSFER AGENCY AND SHAREHOLDER SERVICING, AND PLAN ADMINISTRATION. Approval of a transition to RiverSource Service Corporation ("RSC") as the Seligman Funds' transfer and shareholder servicing agent, including adoption of the fee structure paid by other funds in the RiverSource Family of Funds. The Seligman Funds' previous transfer and shareholder servicing agent allocated 100% of its expenses to the Seligman Funds that benefited from the services it provided. Under the new pricing structure, fees are either asset based (Class R2 and Class R5) or account based (Class A, Class B and Class C). See the Reorganization SAI for more information. For Seligman Funds' Class R shares (to be redesignated as Class R2 shares), approval of this pricing structure included adoption of a Plan Administration Agreement, which includes an asset based fee. CUSTODY AND SECURITIES LENDING. Approval of a transition from State Street Bank & Trust, Co. to JPMorgan Bank, N.A. ("JPMorgan") as custodian, and approval of JPMorgan as securities lending agent. (The Seligman Funds did not previously have securities lending arrangements.) SHAREHOLDER SERVICE POLICIES. Approval of changes to certain shareholder service policies establishing a consistent shareholder experience across the combined RiverSource Family of Funds. Certain of these changes are described below (newly applicable shareholder service policies are set forth in Exhibit B): Class A at Net Asset Value. Adopt a uniform set of investor classes eligible for waiver of Class A share front-end sales load across RiverSource Family of Funds. Class A Front-End Sales Load and Breakpoint Structure. Adopt (i) a uniform breakpoint schedule for fixed-income and equity funds, increasing the first and second breakpoint from fixed-income and equity funds, respectively, from 4.50% to 4.75%, and (ii) a uniform dealer reallowance structure, paying out to financial intermediaries a maximum of 2.15% instead of 2.25% at the fourth breakpoint (no impact to shareholders). Class B Contingent Deferred Sales Charge Waivers. Adopt a uniform set of investor class waivers of CDSC on Class B shares across RiverSource Family of Funds. Class B Conversion to Class A. Adopt a uniform time horizon for automatic conversion from Class B shares to Class A shares in the month after the eighth year of ownership. For Class B shares sold prior to the change, previous conversion rules apply. Class C Contingent Deferred Sale Charge Waivers. Adopt a uniform set of investor class waivers of CDSC on Class C shares across RiverSource Family of Funds. Class R (redesignated Class R2) Contingent Deferred Sales Charge. Eliminate the CDSC on Class R (redesignated Class R2) shares. Repurchase Policy. Adopt repurchase policy of 90 days and require that, for Class B shares sold, repurchases will be put into Class A shares at net asset value. C.1 THIS PAGE LEFT BLANK INTENTIONALLY EXHIBIT D MASSACHUSETTS APPRAISAL RIGHTS Massachusetts law requires that we provide shareholders of Seligman U.S. Government Securities Fund and Seligman High-Yield Fund with a copy of the state law on appraisal rights. Notwithstanding the provisions of the law set out below, the SEC has taken the position that use of state appraisal procedures by a registered mutual fund such as either such Fund would be a violation of Rule 22c-1, the forward pricing rule, under the 1940 Act. As a result, if any shareholder elects to exercise appraisal rights under Massachusetts law, the relevant Fund intends to submit this question to a court of competent jurisdiction. In that event, a dissenting shareholder would not receive any payment until the end of the court proceeding. In addition, Section 13.02(a)(3) of the MBCA provides for an exception to appraisal rights for which we believe, in light of the rationale expressed in the Comments of The Task Force on the Revision of the Massachusetts Business Corporation Law accompanying the MBCA, a reasonable argument exists for applying such exception to a transaction involving an open-end mutual fund. If any shareholder of either Seligman U.S. Government Securities Fund or Seligman High- Yield Fund elects to exercise appraisal rights under Massachusetts law, the relevant Selling Fund, in connection with submitting the question of the supremacy of Rule 22c-1 to a court of competent jurisdiction, may also argue that appraisal rights under Massachusetts law do not apply. CHAPTER 156D. BUSINESS CORPORATIONS PART 13 SUBDIVISION A -- RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES SECTION 13.01. DEFINITIONS In this part the following words shall have the following meanings unless the context requires otherwise: "Affiliate", any person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control of or with another person. "Beneficial shareholder", the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. "Corporation", the issuer of the shares held by a shareholder demanding appraisal and, for matters covered in sections 13.22 to 13.31, inclusive, includes the surviving entity in a merger. "Fair value", with respect to shares being appraised, the value of the shares immediately before the effective date of the corporate action to which the shareholder demanding appraisal objects, excluding any element of value arising from the expectation or accomplishment of the proposed corporate action unless exclusion would be inequitable. "Interest", interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. "Marketable securities", securities held of record by, or by financial intermediaries or depositories on behalf of, at least 1,000 persons and which were (a) listed on a national securities exchange, (b) designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or (c) listed on a regional securities exchange or traded in an interdealer quotation system or other trading system and had at least 250,000 outstanding shares, exclusive of shares held by officers, directors and affiliates, which have a market value of at least $5,000,000. "Officer", the chief executive officer, president, chief operating officer, chief financial officer, and any vice president in charge of a principal business unit or function of the issuer. "Person", any individual, corporation, partnership, unincorporated association or other entity. "Record shareholder", the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. "Shareholder", the record shareholder or the beneficial shareholder. D.1 SECTION 13.02. RIGHT TO APPRAISAL (a) A shareholder is entitled to appraisal rights, and obtain payment of the fair value of his shares in the event of, any of the following corporate or other actions: (1) consummation of a plan of merger to which the corporation is a party if shareholder approval is required for the merger by section 11.04 or the articles of organization or if the corporation is a subsidiary that is merged with its parent under section 11.05, unless, in either case, (A) all shareholders are to receive only cash for their shares in amounts equal to what they would receive upon a dissolution of the corporation or, in the case of shareholders already holding marketable securities in the merging corporation, only marketable securities of the surviving corporation and/or cash and (B) no director, officer or controlling shareholder has a direct or indirect material financial interest in the merger other than in his capacity as (i) a shareholder of the corporation, (ii) a director, officer, employee or consultant of either the merging or the surviving corporation or of any affiliate of the surviving corporation if his financial interest is pursuant to bona fide arrangements with either corporation or any such affiliate, or (iii) in any other capacity so long as the shareholder owns not more than five percent of the voting shares of all classes and series of the corporation in the aggregate; (2) consummation of a plan of share exchange in which his shares are included unless: (A) both his existing shares and the shares, obligations or other securities to be acquired are marketable securities; and (B) no director, officer or controlling shareholder has a direct or indirect material financial interest in the share exchange other than in his capacity as (i) a shareholder of the corporation whose shares are to be exchanged, (ii) a director, officer, employee or consultant of either the corporation whose shares are to be exchanged or the acquiring corporation or of any affiliate of the acquiring corporation if his financial interest is pursuant to bona fide arrangements with either corporation or any such affiliate, or (iii) in any other capacity so long as the shareholder owns not more than five percent of the voting shares of all classes and series of the corporation whose shares are to be exchanged in the aggregate; (3) consummation of a sale or exchange of all, or substantially all, of the property of the corporation if the sale or exchange is subject to section 12.02, or a sale or exchange of all, or substantially all, of the property of a corporation in dissolution, unless: (i) his shares are then redeemable by the corporation at a price not greater than the cash to be received in exchange for his shares; or (ii) the sale or exchange is pursuant to court order; or (iii) in the case of a sale or exchange of all or substantially all the property of the corporation subject to section 12.02, approval of shareholders for the sale or exchange is conditioned upon the dissolution of the corporation and the distribution in cash or, if his shares are marketable securities, in marketable securities and/or cash, of substantially all of its net assets, in excess of a reasonable amount reserved to meet unknown claims under section 14.07, to the shareholders in accordance with their respective interests within one year after the sale or exchange and no director, officer or controlling shareholder has a direct or indirect material financial interest in the sale or exchange other than in his capacity as (i) a shareholder of the corporation, (ii) a director, officer, employee or consultant of either the corporation or the acquiring corporation or of any affiliate of the acquiring corporation if his financial interest is pursuant to bona fide arrangements with either corporation or any such affiliate, or (iii) in any other capacity so long as the shareholder owns not more than five percent of the voting shares of all classes and series of the corporation in the aggregate; (4) an amendment of the articles of organization that materially and adversely affects rights in respect of a shareholder's shares because it: (i) creates, alters or abolishes the stated rights or preferences of the shares with respect to distributions or to dissolution, including making non-cumulative in whole or in part a dividend theretofore stated as cumulative; (ii) creates, alters or abolishes a stated right in respect of conversion or redemption, including any provision relating to any sinking fund or purchase, of the shares; (iii) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (iv) excludes or limits the right of the holder of the shares to vote on any matter, or to cumulate votes, except as such right may be limited by voting rights given to new shares then being authorized of an existing or new class; or D.2 (v) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under section 6.04; (5) the articles of organization or of the bylaws or the entering into by the corporation of any agreement to which the shareholder is not a party that adds restrictions on the transfer or registration or any outstanding shares held by the shareholder or amends any pre-existing restrictions on the transfer or registration of his shares in a manner which is materially adverse to the ability of the shareholder to transfer his shares; (6) any corporate action taken pursuant to a shareholder vote to the extent the articles of organization, bylaws or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to appraisal; (7) consummation of a conversion of the corporation to nonprofit status pursuant to subdivision B of PART 9; or (8) consummation of a conversion of the corporation into a form of other entity pursuant to subdivision D of PART 9. (b) Except as otherwise provided in subsection (a) of section 13.03, in the event of corporate action specified in clauses (1), (2), (3), (7) or (8) of subsection (a), a shareholder may assert appraisal rights only if he seeks them with respect to all of his shares of whatever class or series. (c) Except as otherwise provided in subsection (a) of section 13.03, in the event of an amendment to the articles of organization specified in clause (4) of subsection (a) or in the event of an amendment of the articles of organization or the bylaws or an agreement to which the shareholder is not a party specified in clause (5) of subsection (a), a shareholder may assert appraisal rights with respect to those shares adversely affected by the amendment or agreement only if he seeks them as to all of such shares and, in the case of an amendment to the articles of organization or the bylaws, has not voted any of his shares of any class or series in favor of the proposed amendment. (d) The shareholder's right to obtain payment of the fair value of his shares shall terminate upon the occurrence of any of the following events: (i) the proposed action is abandoned or rescinded; or (ii) a court having jurisdiction permanently enjoins or sets aside the action; or (iii) the shareholder's demand for payment is withdrawn with the written consent of the corporation. (e) A shareholder entitled to appraisal rights under this chapter may not challenge the action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. SECTION 13.03. ASSERTION OF RIGHTS BY NOMINEES AND BENEFICIAL OWNERS (a) A record shareholder may assert appraisal rights as to fewer than all the shares registered in the record shareholder's name but owned by a beneficial shareholder only if the record shareholder objects with respect to all shares of the class or series owned by the beneficial shareholder and notifies the corporation in writing of the name and address of each beneficial shareholder on whose behalf appraisal rights are being asserted. The rights of a record shareholder who asserts appraisal rights for only part of the shares held of record in the record shareholder's name under this subsection shall be determined as if the shares as to which the record shareholder objects and the record shareholder's other shares were registered in the names of different record shareholders. (b) A beneficial shareholder may assert appraisal rights as to shares of any class or series held on behalf of the shareholder only if such shareholder: (1) submits to the corporation the record shareholder's written consent to the assertion of such rights no later than the date referred to in subclause (ii) of clause (2) of subsection (b) of section 13.22; and (2) does so with respect to all shares of the class or series that are beneficially owned by the beneficial shareholder. SUBDIVISION B. -- PROCEDURE FOR EXERCISE OF APPRAISAL RIGHTS SECTION 13.20. NOTICE OF APPRAISAL RIGHTS (a) If proposed corporate action described in subsection (a) of section 13.02 is to be submitted to a vote at a shareholders' meeting or through the solicitation of written consents, the meeting notice or solicitation of consents shall state that the corporation has concluded that shareholders are, are not or may be entitled to assert appraisal rights under this chapter and refer to the necessity of the shareholder delivering, before the vote is taken, written notice of his intent to demand payment and to the requirement that he not vote his shares in favor of the proposed action. If the corporation concludes that appraisal rights are or may be available, a copy of this chapter shall accompany the meeting notice sent to those record shareholders entitled to exercise appraisal rights. D.3 (b) In a merger pursuant to section 11.05, the parent corporation shall notify in writing all record shareholders of the subsidiary who are entitled to assert appraisal rights that the corporate action became effective. Such notice shall be sent within 10 days after the corporate action became effective and include the materials described in section 13.22. SECTION 13.21. NOTICE OF INTENT TO DEMAND PAYMENT (a) If proposed corporate action requiring appraisal rights under section 13.02 is submitted to vote at a shareholders' meeting, a shareholder who wishes to assert appraisal rights with respect to any class or series of shares: (1) shall deliver to the corporation before the vote is taken written notice of the shareholder's intent to demand payment if the proposed action is effectuated; and (2) shall not vote, or cause or permit to be voted, any shares of such class or series in favor of the proposed action. (b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment under this chapter. SECTION 13.22. APPRAISAL NOTICE AND FORM (a) If proposed corporate action requiring appraisal rights under subsection (a) of section 13.02 becomes effective, the corporation shall deliver a written appraisal notice and form required by clause (1) of subsection (b) to all shareholders who satisfied the requirements of section 13.21 or, if the action was taken by written consent, did not consent. In the case of a merger under section 11.05, the parent shall deliver a written appraisal notice and form to all record shareholders who may be entitled to assert appraisal rights. (b) The appraisal notice shall be sent no earlier than the date the corporate action became effective and no later than 10 days after such date and must: (1) supply a form that specifies the date of the first announcement to shareholders of the principal terms of the proposed corporate action and requires the shareholder asserting appraisal rights to certify (A) whether or not beneficial ownership of those shares for which appraisal rights are asserted was acquired before that date and (B) that the shareholder did not vote for the transaction; (2) state: (i) where the form shall be sent and where certificates for certificated shares shall be deposited and the date by which those certificates shall be deposited, which date may not be earlier than the date for receiving the required form under subclause (ii); (ii) a date by which the corporation shall receive the form which date may not be fewer than 40 nor more than 60 days after the date the subsection (a) appraisal notice and form are sent, and state that the shareholder shall have waived the right to demand appraisal with respect to the shares unless the form is received by the corporation by such specified date; (iii) the corporation's estimate of the fair value of the shares; (iv) that, if requested in writing, the corporation will provide, to the shareholder so requesting, within 10 days after the date specified in clause (ii) the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and (v) the date by which the notice to withdraw under section 13.23 shall be received, which date shall be within 20 days after the date specified in subclause (ii) of this subsection; and (3) be accompanied by a copy of this chapter. SECTION 13.23. PERFECTION OF RIGHTS; RIGHT TO WITHDRAW (a) A shareholder who receives notice pursuant to section 13.22 and who wishes to exercise appraisal rights shall certify on the form sent by the corporation whether the beneficial owner of the shares acquired beneficial ownership of the shares before the date required to be set forth in the notice pursuant to clause (1) of subsection (b) of section 13.22. If a shareholder fails to make this certification, the corporation may elect to treat the shareholder's shares as after-acquired shares under section 13.25. In addition, a shareholder who wishes to exercise appraisal rights shall execute and return the form and, in the case of certificated shares, deposit the shareholder's certificates in accordance with the terms of the notice by the date referred to in the notice pursuant to subclause (ii) of clause (2) of subsection (b) of section 13.22. Once a shareholder deposits that shareholder's certificates or, in the case of uncertificated shares, returns the executed forms, that shareholder loses all rights as a shareholder, unless the shareholder withdraws pursuant to said subsection (b). (b) A shareholder who has complied with subsection (a) may nevertheless decline to exercise appraisal rights and withdraw from the appraisal process by so notifying the corporation in writing by the date set forth in the appraisal D.4 notice pursuant to subclause (v) of clause (2) of subsection (b) of section 13.22. A shareholder who fails to so withdraw from the appraisal process may not thereafter withdraw without the corporation's written consent. (c) A shareholder who does not execute and return the form and, in the case of certificated shares, deposit that shareholder's share certificates where required, each by the date set forth in the notice described in subsection (b) of section 13.22, shall not be entitled to payment under this chapter. SECTION 13.24. PAYMENT (a) Except as provided in section 13.25, within 30 days after the form required by subclause (ii) of clause (2) of subsection (b) of section 13.22 is due, the corporation shall pay in cash to those shareholders who complied with subsection (a) of section 13.23 the amount the corporation estimates to be the fair value of their shares, plus interest. (b) The payment to each shareholder pursuant to subsection (a) shall be accompanied by: (1) financial statements of the corporation that issued the shares to be appraised,0 consisting of a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) a statement of the corporation's estimate of the fair value of the shares, which estimate shall equal or exceed the corporation's estimate given pursuant to subclause (iii) of clause (2) of subsection (b) of section 13.22; and (3) a statement that shareholders described in subsection (a) have the right to demand further payment under section 13.26 and that if any such shareholder does not do so within the time period specified therein, such shareholder shall be deemed to have accepted the payment in full satisfaction of the corporation's obligations under this chapter. SECTION 13.25. AFTER-ACQUIRED SHARES (a) A corporation may elect to withhold payment required by section 13.24 from any shareholder who did not certify that beneficial ownership of all of the shareholder's shares for which appraisal rights are asserted was acquired before the date set forth in the appraisal notice sent pursuant to clause (1) of subsection (b) of section 13.22. (b) If the corporation elected to withhold payment under subsection (a), it must, within 30 days after the form required by subclause (ii) of clause (2) of subsection (b) of section 13.22 is due, notify all shareholders who are described in subsection (a): (1) of the information required by clause (1) of subsection (b) of section 13.24; (2) of the corporation's estimate of fair value pursuant to clause (2) of subsection (b) of said section 13.24; (3) that they may accept the corporation's estimate of fair value, plus interest, in full satisfaction of their demands or demand appraisal under section 13.26; (4) that those shareholders who wish to accept the offer shall so notify the corporation of their acceptance of the corporation's offer within 30 days after receiving the offer; and (5) that those shareholders who do not satisfy the requirements for demanding appraisal under section 13.26 shall be deemed to have accepted the corporation's offer. (c) Within 10 days after receiving the shareholder's acceptance pursuant to subsection(b), the corporation shall pay in cash the amount it offered under clause (2) of subsection (b) to each shareholder who agreed to accept the corporation's offer in full satisfaction of the shareholder's demand. (d) Within 40 days after sending the notice described in subsection (b), the corporation must pay in cash the amount if offered to pay under clause (2) of subsection (b) to each shareholder deserved in clause (5) of subsection (b). SECTION 13.26. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER (a) A shareholder paid pursuant to section 13.24 who is dissatisfied with the amount of the payment shall notify the corporation in writing of that shareholder's estimate of the fair value of the shares and demand payment of that estimate plus interest, less any payment under section 13.24. A shareholder offered payment under section 13.25 who is dissatisfied with that offer shall reject the offer and demand payment of the shareholder's stated estimate of the fair value of the shares plus interest. (b) A shareholder who fails to notify the corporation in writing of that shareholder's demand to be paid the shareholder's stated estimate of the fair value plus interest under subsection (a) within 30 days after receiving the corporation's payment or offer of payment under section 13.24 or section 13.25, respectively, waives the right to demand payment under this section and shall be entitled only to the payment made or offered pursuant to those respective sections. D.5 SUBDIVISION C. -- JUDICIAL APPRAISAL OF SHARES SECTION 13.30. COURT ACTION (a) If a shareholder makes demand for payment under section 13.26 which remains unsettled, the corporation shall commence an equitable proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60-day period, it shall pay in cash to each shareholder the amount the shareholder demanded pursuant to section 13.26 plus interest. (b) The corporation shall commence the proceeding in the appropriate court of the county where the corporation's principal office, or, if none, its registered office, in the commonwealth is located. If the corporation is a foreign corporation without a registered office in the commonwealth, it shall commence the proceeding in the county in the commonwealth where the principal office or registered office of the domestic corporation merged with the foreign corporation was located at the time of the transaction. (c) The corporation shall make all shareholders, whether or not residents of the commonwealth, whose demands remain unsettled parties to the proceeding as an action against their shares, and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law or otherwise as ordered by the court. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint 1 or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers shall have the powers described in the order appointing them, or in any amendment to it. The shareholders demanding appraisal rights are entitled to the same discovery rights as parties in other civil proceedings. (e) Each shareholder made a party to the proceeding is entitled to judgment (i) for the amount, if any, by which the court finds the fair value of the shareholder's shares, plus interest, exceeds the amount paid by the corporation to the shareholder for such shares or (ii) for the fair value, plus interest, of the shareholder's shares for which the corporation elected to withhold payment under section 13.25. SECTION 13.31. COURT COSTS AND COUNSEL FEES (a) The court in an appraisal proceeding commenced under section 13.30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess cost against all or some of the shareholders demanding appraisal, in amounts the court finds equitable, to the extent the court finds such shareholders acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter. (b) The court in an appraisal proceeding may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (1) against the corporation and in favor of any or all shareholders demanding appraisal if the court finds the corporation did not substantially comply with the requirements of sections 13.20, 13.22, 13.24 or 13.25; or (2) against either the corporation or a shareholder demanding appraisal, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter. (c) If the court in an appraisal proceeding finds that the services of counsel for any shareholder were of substantial benefit to other shareholders similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to such counsel reasonable fees to be paid out of the amounts awarded the shareholders who were benefited. (d) To the extent the corporation fails to make a required payment pursuant to sections 13.24, 13.25, or 13.26, the shareholder may sue directly for the amount owed and, to the extent successful, shall be entitled to recover from the corporation all costs and expenses of the suit, including counsel fees. D.6 EXHIBIT E COMPARISON OF ORGANIZATIONAL DOCUMENTS This chart highlights material differences between the terms of the Declarations of Trust/ Articles of Incorporation and By-Laws of: RiverSource Diversified Income Series, Inc. (a "RiverSource Minnesota Corporation"), of which RiverSource Diversified Bond Fund is a series, RiverSource Global Series (a "RiverSource Minnesota Corporation"), of which each of Threadneedle Emerging Markets Fund and Threadneedle Global Equity Fund is a series, RiverSource High Income Series, Inc. (a "RiverSource Minnesota Corporation"), of which RiverSource High Yield Bond Fund is a series, RiverSource Government Income Series, Inc. (a "RiverSource Minnesota Corporation"), of which RiverSource Short Duration U.S. Government Securities Fund is a series, RiverSource International Managers Series, Inc. (a "RiverSource Minnesota Corporation"), of which RiverSource Partners International Select Growth Fund is a series, and RiverSource Investment Series, Inc. (a "RiverSource Minnesota Corporation"), of which RiverSource Balanced Fund is a series; Seligman Core Fixed Income Fund, Inc. (a "Seligman Maryland Corporation"); Seligman Global Fund Series, Inc. (a "Seligman Maryland Corporation"), of which each of Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund is a series; Seligman High Income Fund Series (a "Seligman Massachusetts Business Trust"), of which each of Seligman High-Yield Fund and Seligman U.S. Government Securities Fund is a series; and Seligman Income and Growth Fund, Inc. (a "Seligman Maryland Corporation").
- ------------------------------------------------------- SHAREHOLDER LIABILITY - ------------------------------------------------------- SELIGMAN The shareholders of a Massachusetts MASSACHUSET- business trust could, under certain TS BUSINESS circumstances, be held personally TRUSTS liable as partners for its obligations. However, the declaration of trust contains express disclaimers of shareholder liability for acts, obligations or affairs of the trust. The declaration of trust also provides for indemnification and reimbursement of expenses out of a series' assets for any shareholder held personally liable for obligations of such series. Therefore, the possibility that a shareholder could be held liable would be limited to a situation in which the assets of the applicable series had been exhausted. - ------------------------------------------------------- SELIGMAN Under the Maryland General Corporation MARYLAND Law ("MGCL"), a stockholder of a CORPORATIONS corporation is not obligated to the corporation or its creditors with respect to the stock, except to the extent that the subscription price or other agreed upon price for the stock has not been paid or liability is otherwise imposed under the MGCL. - ------------------------------------------------------- RIVERSOURCE Under Minnesota law, a shareholder's MINNESOTA liability to the corporation or its CORPORATIONS creditors is limited to paying the amount agreed to be paid for the shares which the shareholder holds or has agreed to purchase. - ------------------------------------------------------- SHAREHOLDER VOTING RIGHTS - ------------------------------------------------------- SELIGMAN At all meetings, shareholders of record MASSACHUSET- entitled to vote have one vote for each TS BUSINESS share (and each fractional share shall TRUSTS be entitled to a proportionate fractional vote) standing in his name on the books of the trust on the record date, either in person or by proxy. The shareholders have the power to vote (i) for the election of trustees, (ii) with respect to any investment advisory contract, (iii) with respect to termination of the trust, (iv) with respect to any amendment of the declaration of trust, (v) with respect to any merger, consolidation or sale of assets, (vi) with respect to incorporation of the trust, (vii) to the same extent as stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the trust or shareholder, and (viii) with respect to such additional matters relating to the trust as required by law, the declaration of trust, the bylaws or any registration of the trust with the SEC (or any successor agency) or any state, or as and when the trustees may consider necessary or desirable. There is no cumulative voting in the election of trustees. On any matter submitted to a vote of shareholders of the trust, all shares entitled to vote will be voted by individual shares, except that (1) when required by the 1940 Act, shares will be voted in the aggregate and not by individual series, and (2) when the trustees have determined that the matter affects only the interests of shareholders of a limited number of series, then only the shareholders of such series will be entitled to vote on the matter. Classes within a series shall vote with all other shares of the series except that the trustees may provide that any class shall vote separately as a class as to any matter when (i) required by law, rule or exemptive order, (ii) they determine that such matter affects only the interests of shares of such class or affects the interests of shares of such class in a manner different from that of the other classes or (iii) they otherwise determine that to do so is desirable and in the best interests of the shareholders of such class under the circumstances. - -------------------------------------------------------
E.1
- ------------------------------------------------------- SELIGMAN On each matter submitted to vote of the MARYLAND stockholders, each holder of a share of CORPORATIONS any series or class issued by the corporation ("Common Stock") is entitled to one vote for each share standing held irrespective of the series of Common Stock ("Series") and all shares of all Series will vote as a single class ("Single Class Voting"); except, that (a) as to any matter requiring a separate vote of any Series by the 1940 Act or would be required under the MGCL, the requirements as to a separate vote by that Series apply in lieu of Single Class Voting as described above; (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more Series, then, subject to (c) below, the shares of all other Series will vote as a single class; and (c) as to any matter which does not affect the interest of a particular Series, only the holders of shares of the one or more affected Series will be entitled to vote. Holders of shares of Common Stock of the corporation are not be entitled to cumulative voting in the election of directors or on any other matter. As to any matter with respect to which a separate vote of any class is required by the 1940 Act or by MGCL (including, without limitation, approval of any plan, agreement or other arrangement relating to expenses), such requirement as to a separate vote by the class applies in lieu of single class voting, and, if permitted by the 1940 Act or any rules, regulations or orders thereunder and MGCL, all classes of a particular Series vote together as a single class on any matter that has the same effect on each class of that Series. As to any matter that does not affect the interest of a particular class, only the holders of shares of the affected class are entitled to vote. - ------------------------------------------------------- RIVERSOURCE At all meetings of the shareholders, MINNESOTA each shareholder of record entitled to CORPORATIONS vote is entitled to one vote for each dollar of net asset value (number of shares owned times net asset value per share) and each fractional dollar amount is entitled to a proportionate fractional vote. Shareholders have the power to vote (i) for the election of directors; (ii) on most amendments to the corporation's Articles of Incorporation and on certain amendments to the corporation's By-Laws; (iii) on certain proposed mergers and exchanges to which the corporation is a party; (iv) on the proposed sale of all or substantially all of the corporation's property and assets not in the usual and regular course of its business; and (v) on the proposed dissolution of the corporation. At all elections of directors, each shareholder is entitled to as many votes equal to the number of dollars of net asset value of shares owned multiplied by the number of directors to be elected and may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them. The standard form of certifying resolution creating rights and preferences for series of capital stock provides that each share may be voted by series (i) as required by the provisions of the 1940 Act and all rules and regulations promulgated thereunder; (ii) when the Board of Directors ("board of directors") determines that a matter affects series in a materially different way; or (iii) when the board of directors determines a matter affects only one or some of the series. In addition, under Minnesota law, shareholders are entitled to vote as separate series or classes with respect to certain amendments to the corporation's Articles of Incorporation and on certain mergers and exchanges to which the corporation is a party. - ------------------------------------------------------- SHAREHOLDER MEETINGS - ------------------------------------------------------- SELIGMAN The declaration of trust and bylaws do MASSACHUSET- not address annual shareholder TS BUSINESS meetings. Regular shareholder meetings TRUSTS are not required for business trusts under the General Laws of Massachusetts. Special or extraordinary meetings of the shareholders may be called by the chairman or a majority of the trustees, and will be called by the secretary upon receipt of the request signed by shareholders holding not less than 25% of the shares issued and outstanding and entitled to vote. The shareholders must send written notice to the secretary and other procedural requirements must be met. The secretary shall inform such shareholders of the reasonably estimated costs of preparing and mailing such notice of meeting and upon payment to the trust of such costs, the secretary shall give notice stating the purpose or purposes of the meeting as required in the declaration of trust and bylaws to all shareholders entitled to notice of such meeting. A special meeting may not be called by the request of the holders of shares entitled to cast less than a majority of all votes entitled to be cast at such meeting to consider any matter which is substantially the same as a matter voted upon at any special meeting of shareholders held during the preceding twelve months. - -------------------------------------------------------
E.2
- ------------------------------------------------------- SELIGMAN Regular stockholder meetings are not MARYLAND required, unless stockholders are CORPORATIONS required to meet for the purposes of electing directors pursuant to the 1940 Act. The chairman of the board, president, chief executive officer or Board of Directors may call a special meeting of the stockholders. In addition, a special meeting of stockholders shall be called by the secretary of the corporation on the written request of stockholders holding at least a majority of the voting power of all shares entitled to vote. The stockholders must send written notice to the secretary and other procedural requirements must be met. The secretary of the Corporation will also call a special meeting of the stockholders on the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting. Any stockholder of record seeking to have stockholders request a special meeting must send written notice to the secretary (the "Record Date Request Notice") requesting the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the "Request Record Date"). The Record Date Request Notice must state the purpose of the meeting and the matters proposed to be acted on it, signed by one or more stockholders of record as of the date of signature, bear the date of signature of each such stockholder (or their agent) and state all information that must be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon receiving the Record Date Request Notice, the Board of Directors may fix a Request Record Date that may not precede and also not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which the Record Date Request Notice is received by the secretary. In order for any stockholder to request a special meeting, one or more written requests for a special meeting signed by stockholders of record (or their agents) as of the Request Record Date entitled to cast not less than a majority (the "Special Meeting Percentage") of all of the votes entitled to be cast at such meeting (the "Special Meeting Request") must be delivered to the secretary. Additionally, the Special Meeting Request (a) shall set forth the purpose of the meeting and the matters proposed to be acted on at it (which is limited to the lawful matters set forth in the Record Date Request Notice received by the secretary), (b) shall bear the date of signature of each such stockholder (or such agent) signing the Special Meeting Request, (c) shall set forth the name and address, as they appear in the Corporation's books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class, series and number of all shares of stock of the Corporation which are owned by each such stockholder, and the nominee holder for, and number of, shares owned by such stockholder beneficially but not of record, (d) shall be sent to the secretary by registered mail, return receipt requested, and (e) shall be received by the secretary within 60 days after the Request Record Date. Any stockholder requesting a special stock holder meeting may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary. The secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including the corporation's proxy materials). The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the aforementioned documents, the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting. Any special meeting to be held pursuant to stockholders' request may not be held more than 90 days after the record date for the meeting. . - ------------------------------------------------------- RIVERSOURCE Regular shareholder meetings are not MINNESOTA required; however, a majority of CORPORATIONS directors present at a duly held meeting may call a regular meeting of shareholders by fixing the date, time and place for a meeting. 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. Within 30 days after receipt of the demand by one of those officers, the board of directors must 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. Special meetings of the shareholders may be called at any time as provided for by the laws of the State of Minnesota. In addition, a special meeting of shareholders may be called at any time by a shareholder or shareholders holding 10% or more of the voting power of all shares entitled to vote, except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or effect a business combination must be called by 25% or more of the voting power of all shares entitled to vote. - -------------------------------------------------------
E.3
- ------------------------------------------------------- SHAREHOLDER QUORUM - ------------------------------------------------------- SELIGMAN The presence in person or by proxy of MASSACHUSET- the holders of record of a majority of TS BUSINESS the shares of the trust issued and TRUSTS outstanding and entitled to vote constitutes a quorum at all meetings of the shareholders. - ------------------------------------------------------- SELIGMAN The presence in person or by proxy of MARYLAND the holders of record of one-third of CORPORATIONS the shares of all Series and classes issued and outstanding and entitled to vote at a meeting constitute a quorum except as otherwise provided by law or the articles of incorporation. Where the holders of shares of any Series or class are entitled to vote separately as a class, the presence in person or by proxy of the holders of one-third of the shares of that separate class issued and outstanding and entitled to vote at the meeting constitutes a quorum for that vote. If a quorum is not present or represented at the meeting, the holders of a majority of the shares present in person or by proxy and entitled to vote have the power to adjourn the meeting without notice other than announcement at the meeting, until a quorum is present. If, however, such quorum shall not be present at any meeting of the stockholders, the stockholders or the chairman of the meeting shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than 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. The absence from any meeting of stockholders of the number of shares in excess of one-third of the shares of all Series and classes, or of the affected Series, class or classes, as the case may be, which may be required by the laws of the State of Maryland, the 1940 Act or any other applicable law or the Articles of Incorporation, for action upon any given matter will not prevent action of such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares required for action in respect of such other matter or matters. Notwithstanding any provision of law requiring any action to be taken or authorized by the holders of a greater proportion than a majority of the shares of all Series and classes or of the shares of a particular Series, class or classes, as the case may be, entitled to vote thereon, such action will be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of the shares of all Series and classes or of such particular Series, Class or classes, as the case may be, outstanding and entitled to vote thereon. The stockholders present either in person or by proxy, at a meeting which has been duly called and convened, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. - ------------------------------------------------------- RIVERSOURCE The holders of at least 10% of the MINNESOTA shares outstanding and entitled to CORPORATIONS vote, present in person or by proxy, constitute a quorum, but the holders of a smaller amount may adjourn 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 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. - ------------------------------------------------------- SHAREHOLDER CONSENT - ------------------------------------------------------- SELIGMAN Except as otherwise provided by law, MASSACHUSET- the declaration of trust and the TS BUSINESS bylaws, any action required or TRUSTS permitted to be taken at any meeting of shareholders may be taken without a meeting if a majority of the shareholders entitled to vote consent to the action in writing and the consents are filed with the records of the trust. The consent will be treated for all purposes as a vote taken at a meeting of shareholders. - ------------------------------------------------------- SELIGMAN Under the MGCL, if authorized by the MARYLAND charter of the corporation, the holders CORPORATIONS of common stock entitled to vote generally in the election of directors may take action or consent to any action by delivering a consent in writing or by electronic transmission of the stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a stockholders meeting. The corporation's charter does not authorize such action; therefore, any action required or permitted of stockholders must be taken at a meeting. - ------------------------------------------------------- RIVERSOURCE An action required or permitted to be MINNESOTA taken at a shareholder meeting may be CORPORATIONS taken by written action signed, or consented to by authorized electronic communication, by all of the shareholders entitled to vote on that action. Such a written action is not effective if it is signed or consented to by fewer than all the shareholders entitled to vote on the action. - ------------------------------------------------------- NOTICE TO SHAREHOLDERS OF RECORD DATE - ------------------------------------------------------- SELIGMAN In general, stockholders entitled to MASSACHUSET- vote at or notice of a stockholder TS BUSINESS meeting must be given written notice of TRUSTS at least 10 days and not more than 90 days before the meeting. The trustees may set a record date for the purpose of determining the shareholders entitled to notice of or to vote at a stockholder meeting. The record date cannot be more than 90 days or less than 10 days before the date of the meeting. - -------------------------------------------------------
E.4
- ------------------------------------------------------- SELIGMAN In general, stockholders entitled to MARYLAND vote at or notice of a stockholder CORPORATIONS meeting must be given written notice of at least 10 days and not more than 90 days before the meeting. Unless otherwise required by statute, any business may be conducted at the annual meeting without being designated in the notice. No business may be transacted at a special meeting of stockholders except as specifically designated in the notice. The directors may set a record date for the purpose of determining the stockholders entitled to notice of or to vote at a stockholder meeting. The record date cannot be more than 90 days or less than 10 days before the date of the meeting. Instead of fixing a record date, the Board of Directors may close the stock transfer books for not more than 20 days. If the stock transfer books are closed for this purpose, they must be closed for at least 10 days before the date of the meeting. - ------------------------------------------------------- RIVERSOURCE In general, shareholders who are MINNESOTA entitled to vote at a shareholder CORPORATIONS meeting must be given notice of the meeting at least ten and not more than 60 days before the meeting. In certain cases, the notice of meeting must include specified information required by Minnesota law. The board of directors can establish a record date for determining the shareholders who are entitled to vote at a shareholder meeting. The record date cannot be more than 60 days before the date of the meeting. - ------------------------------------------------------- SHAREHOLDER PROXIES - ------------------------------------------------------- SELIGMAN Shareholders may vote in person or by MASSACHUSET- proxy. TS BUSINESS TRUSTS No proxy is valid eleven months after its date. Pursuant to a resolution of a majority of the trustees, proxies may be solicited in the name of one or more trustees or officers of the trust. - ------------------------------------------------------- SELIGMAN A stockholder may cast the votes by the MARYLAND stockholder in person or by proxy CORPORATIONS executed by the stockholder or by the stockholder's duly authorized agent in any manner permitted or not prohibited by law. The proxy or evidence of authorization of the proxy must be filed with the secretary of the corporation before or at the meeting. No proxy is valid more than eleven months after its date unless otherwise provided in the proxy. - ------------------------------------------------------- RIVERSOURCE At each shareholder meeting, the polls MINNESOTA may be opened and closed, the proxies CORPORATIONS 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. Minnesota law provides that shareholders can submit proxies in writing or by telephonic transmission or authenticated electronic communication. It also provides that the board of directors can establish procedures whereby a record holder can certify in writing that another person is the beneficial owner of shares, and the beneficial owner then can vote the shares or appoint a proxy. - ------------------------------------------------------- DIRECTORS' POWER TO AMEND ARTICLES OF INCORPORATION / TRUSTEES' POWER TO AMEND DECLARATION OF TRUST - ------------------------------------------------------- SELIGMAN The trustees may amend the declaration MASSACHUSET- of trust without the vote or consent of TS BUSINESS shareholders to change the name of the TRUSTS trust, to supply any omission, to cure, correct or supplement any ambiguous, defective or inconsistent provision of the declaration of trust, to conform the declaration of trust to the requirements of, or to reduce or eliminate the payment of taxes by the trust or any series thereof under, applicable federal or state laws or regulations or the requirements of the regulated investment company provisions of the Internal Revenue Code of 1986, as amended, but the trustees will not be liable for failing to do so. - ------------------------------------------------------- SELIGMAN The corporation may amend the articles MARYLAND of incorporation if a majority of all CORPORATIONS the shares at the time issued and outstanding entitled to vote, vote in favor of the amendment, or consent in writing to such amendment. - ------------------------------------------------------- RIVERSOURCE The Articles of Incorporation, or any MINNESOTA provision hereof, may be amended, CORPORATIONS altered, changed or repealed in a manner prescribed by the laws of the State of Minnesota. With respect to RiverSource Global Series, Inc., the directors, acting without shareholder approval, can amend the corporation's Articles of Incorporation to (i) change the name of the corporation; (ii) increase or decrease, but not below the number of then-outstanding shares, the aggregate number of shares the corporation has authority to issue, including shares of any class or series; and (iii) amend or cancel a certificate fixing the rights and preferences of a class or series of shares, but only when no shares of that class or series are outstanding. In all other cases, the corporation's Articles of Incorporation only can be amended with the approval of the requisite shareholders. - ------------------------------------------------------- TERMINATION OF CORPORATION / TRUST - ------------------------------------------------------- SELIGMAN The trust may be terminated: (i) by the MASSACHUSET- affirmative vote of the holders of at TS BUSINESS least two-thirds of the shares TRUSTS outstanding and entitled to vote at any shareholder meeting, or (ii) by a written instrument, without a meeting, signed by a majority of the trustees and consented to by at least two-thirds of the shares outstanding and entitled to vote, or by another vote established by the trustees with respect to any class or series of shares, or (iii) by the trustees by notice to the shareholders of the trust. - -------------------------------------------------------
E.5
- ------------------------------------------------------- SELIGMAN Under the MGCL, a majority of the MARYLAND entire board of directors of the CORPORATIONS corporation proposing to dissolve the corporation shall (1) adopt a resolution which declares that dissolution of the corporation is advisable; and (2) direct that the proposed dissolution be submitted for consideration at either an annual or a special meeting of the stockholders. Under the MGCL, unless the corporation's charter provides a lesser proportion of votes, but in no case less than a majority of all votes entitled to be cast on the proposal, the proposed dissolution shall be approved by the stockholders of the corporation by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter. Each Seligman Fund's charter provides that notwithstanding any provision of law requiring any action to be taken or authorized by the holders of a greater proportion than a majority of the shares of all series and classes or of the shares of a particular series, class or classes, as the case may be, entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of the shares of all series and classes or of such particular series, class or classes, as the case may be, outstanding and entitled to vote thereon. - ------------------------------------------------------- RIVERSOURCE In order to dissolve a Minnesota MINNESOTA corporation, the affirmative vote of a CORPORATIONS majority of the voting power of all shares entitled to vote is required. In order to discontinue an individual class or series of shares without dissolving the corporation, an amendment to the corporation's Articles of Incorporation is required. In order to adopt such an amendment, shareholders must approve the amendment by the affirmative vote of the greater of (i) a majority of the voting power of the shares of that class or series present and entitled to vote or (ii) a majority of the voting power of the minimum number of shares of such class or series entitled to vote that would constitute a quorum for the transaction of business at the meeting (a "Minnesota Statutory Vote"). The board of directors, acting without a shareholder vote, does not have the power to dissolve the corporation or to discontinue an individual class or series of shares. - ------------------------------------------------------- MERGER OR CONSOLIDATION OF TRUST / CORPORATION - ------------------------------------------------------- SELIGMAN Any merger, consolidation or sale or MASSACHUSET- exchange of assets of the trust TS BUSINESS requires the affirmative vote of at TRUSTS least two-thirds of shares outstanding and entitled to vote, or by an instrument(s) in writing without a meeting, consented to by the holders of not less than two-thirds of shares outstanding and entitled to vote, or by such other vote as may be established by the trustees with respect to any series or class of shares; provided, however, that, if such merger or consolidation is recommended by the trustees, then a majority shareholder vote shall be sufficient authorization. With respect to any merger or consolidation, all shareholders are entitled to the same appraisal rights as a stockholder of a Massachusetts business corporation. In the event of a merger, consolidation, sale or exchange of assets, appraisal rights will be the exclusive remedy for any dissenting shareholder. - ------------------------------------------------------- SELIGMAN Under the MGCL, unless the MARYLAND corporation's charter provides a lesser CORPORATIONS proportion of votes, but in no case less than a majority of all votes entitled to be cast on the proposal, any consolidation, merger, share exchange, or transfer requires the affirmative vote of two-thirds of all the votes entitled to be cast on the matter. Each Seligman Fund's charter provides that notwithstanding any provision of law requiring any action to be taken or authorized by the holders of a greater proportion than a majority of the shares of all series and classes or of the shares of a particular series, class or classes, as the case may be, entitled to vote thereon, such action shall be valid and effective if taken or authorized by the affirmative vote of the holders of a majority of the shares of all series and classes or of such particular series, class or classes, as the case may be, outstanding and entitled to vote thereon. A stockholder who has not received payment for his stock in connection with a merger, consolidation, share exchange or transfer may petition a court of equity in the county where the principal office of the corporation is located or where the resident agent of the successor is located, for an appraisal to determine the fair value of the stock. - ------------------------------------------------------- RIVERSOURCE In most cases, any merger or exchange MINNESOTA in which a Minnesota corporation is not CORPORATIONS the continuing entity, and any sale of all or substantially all of the corporation's property and assets not in the usual and regular course of its business, requires the affirmative vote of a majority of the voting power of all shares entitled to vote. Any sale of the assets belonging to an individual series of shares of a Minnesota corporation in exchange for shares of another corporation or trust or shares of another series of the corporation, while leaving other series of the corporation outstanding, would require an amendment to the corporation's Articles of Incorporation. In order to adopt such an amendment, shareholders of that series would have to approve the amendment by a Minnesota Statutory Vote. - ------------------------------------------------------- REMOVAL OF DIRECTORS / TRUSTEES - ------------------------------------------------------- SELIGMAN Any of the trustees may be removed MASSACHUSET- (provided the aggregate number of TS BUSINESS trustees after removal is not less than TRUSTS two) with cause, by the consent of two- thirds of the remaining trustees. Upon the incapacity or death of any trustee, his legal representative must execute and deliver on his behalf all documents demanded by the remaining trustees. - ------------------------------------------------------- SELIGMAN Under the MGCL, stockholders of the MARYLAND corporation may remove any director, CORPORATIONS with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast generally for the election of directors. - -------------------------------------------------------
E.6
- ------------------------------------------------------- RIVERSOURCE Under Minnesota law, the board of MINNESOTA directors can remove a director by a CORPORATIONS majority vote of the remaining directors, but only if the director was appointed by the board of directors to fill a vacancy and has not subsequently been elected by shareholders. In all other cases, a director can only be removed by shareholder vote. In general, such removal requires the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote at an election of directors. However, where a corporation has cumulative voting (as do the Funds), unless the entire board of directors is removed simultaneously, a director is not removed from the board of directors if there are cast against removal of the director the votes of a proportion of the voting power sufficient to elect the director at an election of the entire board of directors under cumulative voting. - ------------------------------------------------------- DIRECTOR / TRUSTEE COMMITTEES - ------------------------------------------------------- SELIGMAN The trustees, by the majority vote of MASSACHUSET- all the trustees, may appoint from the TS BUSINESS trustees committees which must consist TRUSTS of at least two trustees and will have and may exercise powers as the trustees may determine in the resolution appointing them. A majority of all the members of any committee may determine its action and fix the time and place of its meetings, unless the trustees otherwise provide. The trustees have power at any time to change the members and powers of any such committee, to fill vacancies and to discharge any such committee. - ------------------------------------------------------- SELIGMAN The Board of Directors may appoint from MARYLAND among its members an Executive CORPORATIONS Committee, an Audit Committee, a Board Operations Committee, a Nominating Committee and other committees, composed of one or more directors, to serve at the pleasure of the Board of Directors. Any director may give notice to the Board of Directors at any time of his or her resignation from any committee on which he or she serves. The Board of Directors may delegate to committees appointed pursuant to the articles of incorporation any of the powers of the Board of Directors, except as prohibited by law. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent to such action in writing or by electronic transmission is given by each member of the committee and filed with the minutes of proceedings of such committee. Subject to the previous sections, the Board of Directors has the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. Subject to the power of the Board of Directors, the members of a committee have the power to fill any vacancies on such committee. - ------------------------------------------------------- RIVERSOURCE From time to time the board of MINNESOTA directors may, by resolution passed by CORPORATIONS a majority of the whole board of directors, appoint any other committee or committees for any purpose or purposes, which committee or committees will have such powers as specified in the resolution of appointment. The corporation's By-Laws provide that the board of directors may, by resolution passed by a majority of the whole board of directors, 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 of directors. The Executive Committee will 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. The board of directors also may, by resolution passed by a majority of the whole board of directors, appoint any other committee or committees for any purpose or purposes, which committee or committees will have such powers as specified in the resolution of appointment. The quorum for such committee established by the board of directors is two members regardless of the number of members serving on the committee. Under Minnesota law, the members of such other committees do not need to be directors. - ------------------------------------------------------- DIRECTOR / TRUSTEE LIABILITY - ------------------------------------------------------- SELIGMAN No trustee will be subject to any MASSACHUSET- personal liability, other than to the TS BUSINESS trust or its shareholders in connection TRUSTS with the trust property or the affairs of the trust, except for conduct involving bad faith, wilful misfeasance, gross negligence or reckless disregard for his duties. Additionally, no trustee will be liable for any action or failure to act, including the failure to compel a present or former trustee to redress any breach of trust. All persons must look solely to the trust property for satisfaction of claims of any nature arising in connection with the affairs of the trust. - -------------------------------------------------------
E.7
- ------------------------------------------------------- SELIGMAN The Fund's Articles of Incorporation MARYLAND provide that a director or officer of CORPORATIONS the corporation will not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, except to the extent such exemption from liability or limitation thereof is not permitted by law (including the 1940 Act). Under the MGCL, the foregoing provision is not effective to eliminate a director's personal liability to the Funds or its shareholders for, among other things, any act or omission of the director that was material to the matter giving rise to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative ("Proceeding"), and (1) was committed in bad faith; or (2) was the result of active and deliberate dishonesty; or (ii) the director actually received an improper personal benefit in money, property, or services; or (iii) in the case of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful. Under the MGCL, the charter of a Maryland corporation may include any provision expanding or limiting the liability of its directors to the corporation or its stockholders for money damages, but may not include any provision that restricts or limits the liability of its directors to the corporation or its stockholders: (A) to the extent that it is proved that the person actually received an improper benefit or profit in money, property, or services for the amount of the benefit or profit in money, property, or services actually received; or (B) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. - ------------------------------------------------------- RIVERSOURCE To the full extent permitted by the MINNESOTA laws of the State of Minnesota, no CORPORATIONS director of the Fund will be liable to the Fund or to its shareholders for monetary damages for breach of fiduciary duty as a director but such limit on liability will be permitted only to the extent allowable under the provisions of the 1940 Act. Under Minnesota law, the foregoing provision is not effective to eliminate a director's personal liability to the Funds or its shareholders for, among other things, (i) any breach of the director's duty of loyalty to the corporation or its shareholders; (ii) acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law; or (iii) any transaction from which the director derived an improper personal benefit. - -------------------------------------------------------
E.8
- ------------------------------------------------------- DIRECTOR / TRUSTEE INDEMNIFICATION - ------------------------------------------------------- SELIGMAN A representative of the trust will be MASSACHUSET- indemnified by the trust with respect TS BUSINESS to each proceeding against him or her, TRUSTS except for a proceeding brought by or on behalf of the trust, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the representative in connection with the proceeding, provided that the representative acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the trust and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner in which he reasonably believed to be in or not opposed to the best interests of the trust and, with respect to any criminal proceeding, had reasonable cause to believe that his conduct was unlawful. A representative of the trust will be indemnified by the trust, with respect to each proceeding brought by or on behalf of the trust to obtain a judgment or decree in its favor, against expenses (including attorneys' fees) actually and reasonable incurred by him in connection with the defense or settlement of such proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the trust; except that no indemnification will be made in respect of any claim, issue, or matter as to which such representative has been adjudged to be liable for negligence or misconduct in the performance of his duty to the trust, unless and only to the extent that the court in which the proceeding was brought, or a court of equity in the county in which the trust has its principal office, despite the adjudication of liability but in view of all circumstances of the case, the representative is fairly and reasonably entitled to indemnity for the expenses which the court considers proper. To the extent that the representative of the trust has been successful on the merits or otherwise in defense of any proceeding referred to in the preceding two paragraphs, or in defense of any claim, issue or matter therein, the trust will indemnify him against all expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the proceeding. Except as provided above, any indemnification under the first two provisions of this section (unless ordered by a court) will be made by the trust only as authorized in the specific case upon a determination that indemnification of the representative of the trust is proper in the circumstances because he has met the applicable standard of conduct set forth in the paragraphs. The determination will be made (1) by the trustees by a majority vote of a quorum consisting of trustees who were not parties to the proceeding, or (2) if a quorum is not obtainable or if a quorum of disinterested trustees so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. Expenses (including attorneys' fees) incurred in defending a proceeding may be paid by the trust in advance of the final disposition if (1) authorized by the trustees in the specific case, and (2) the trust receives and undertaking by or on behalf of the representative of the trust to repay the advance if it is not ultimately determined that he is entitled to the indemnified by the trust as authorized by the above. The indemnification provided above is not exclusive of any other rights that a representative of the trust or other person may be entitled under any agreement, vote of shareholders or disinterested trustees or otherwise, both as to action in his official capacity and as to action in another capacity while holding the office, and will continue as to a person who has ceased to be a trustee, officer, employee or agent and inure to the benefit of his heirs and personal representatives. - -------------------------------------------------------
E.9
- ------------------------------------------------------- SELIGMAN The corporation will indemnify to the MARYLAND fullest extent permitted by law any CORPORATIONS person made or threatened to be made a party to any action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person is or was a director, officer or employee of the corporation or serves or served at the request of the corporation any other enterprise as a director, officer or employee. To the fullest extent permitted by law, expenses incurred by any such person in defending any such action, suit or proceeding will be paid or reimbursed by the corporation promptly, provided that such person agrees to repay such expenses if it is ultimately determined that such person is not entitled to be indemnified by the corporation. The articles of incorporation may not be amended to adversely affect this protection. These provisions do not waive compliance with the Securities Act of 1933 or the 1940 Act or other valid rule, regulation or order of the SEC. Under the MGCL, a corporation may indemnify a director made a party to any Proceeding by reason of service in that capacity unless found liable under provisions (1) and (2) under "Director/ Trustee Liability". Indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding. However, if the proceeding was one by or in the right of the corporation, indemnification may not be made in respect of any proceeding in which the director shall have been adjudged to be liable to the corporation. The Corporation's By-Laws provide to the maximum extent permitted by Maryland law, as in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity or (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of another corporation, or a real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity. The Corporation may, with the approval of its Board of Directors or any duly authorized committee thereof, provide such indemnification and advance for expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation. The termination of any claim, action, suit or other proceeding involving any person, by judgment, settlement (whether with or without court approval) or conviction or upon a plea of guilty or nolo contendere, or its equivalent, shall not create a presumption that such person did not meet the standards of conduct required for indemnification or payment of expenses to be required or permitted under Maryland law, the By-laws or the charter of the Corporation. Any indemnification or advance of expenses made pursuant to the By-laws shall be subject to applicable requirements of the 1940 Act. The indemnification and payment of expenses provided in the Bylaws shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification or payment of expenses may be or may become entitled under any bylaw, regulation, insurance, agreement or otherwise. - -------------------------------------------------------
E.10
- ------------------------------------------------------- RIVERSOURCE The Fund will indemnify any person who MINNESOTA was or is a party and is threatened to CORPORATIONS 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. Any indemnification hereunder will not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification will be made in violation of the 1940 Act. Under Minnesota law, a corporation is required to indemnify and advance expenses to present and former directors against judgments, penalties, fines, settlements and reasonable expenses, including attorneys' fees and disbursements, if they are made parties to a legal proceeding by virtue of their position as directors. However, indemnification and advances are not required or permitted if a director engaged in specified disabling conduct. The corporation's Articles of Incorporation and By-Laws provide that each person made or threatened to be made a party to or who 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 or agent, will be indemnified and held harmless by the Fund to the full extent authorized by laws of the State of Minnesota, 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 the indemnification will continue as to any person who has ceased to be a director or officer and will 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 will be indemnified only if the action was authorized by the board of directors of the Fund. The right to indemnification conferred by these provisions is a contract right and includes 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 will 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. Each person who upon written request to the Funds has not received payment within thirty days may at any time thereafter bring suit against the Funds to recover any unpaid amount and, to the extent successful, in whole or in part, will be entitled to be paid the expenses of prosecuting such suit. Each person will be presumed to be entitled to indemnification upon filing a written request for payment and the Fund will 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 will be a defense or create the presumption that the director or officer is not entitled to indemnification. The right to indemnification and to the payment of expenses prior to any final determination will 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 the Funds' By-Laws, the Funds are 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 1940 Act. - ------------------------------------------------------- DIVIDENDS - ------------------------------------------------------- SELIGMAN The trustees, in their discretion, may MASSACHUSET- distribute proportionately among the TS BUSINESS shareholders any share of the profits, TRUSTS surplus (including paid-in surplus) capital or assets held by the trustees. - ------------------------------------------------------- SELIGMAN The Board of Directors may declare and MARYLAND pay dividends and distributions from CORPORATIONS income and capital gains, accrued or unrealized, from the assets belonging to a Series, at such times and in such manner as they may determine in their discretion. Dividends and distributions on shares of a particular class may be paid to the holders of shares of that class at such times, in such manner and from such of the income and capital gains, accrued or realized, from the assets belonging to that class, after providing for actual and accrued liabilities belonging to that class, as the Board of Directors may determine. Dividends and other distributions upon the stock of the corporation may be authorized by the Board of Directors, subject to the provisions of law and the charter of the corporation. Dividends and other distributions may be paid in cash, property or stock of the corporation, subject to the provisions of law and the charter. - -------------------------------------------------------
E.11
- ------------------------------------------------------- RIVERSOURCE The corporation's Articles of MINNESOTA Incorporation provide that the CORPORATIONS directors may declare and pay dividends in their discretion at any time and from time to time to the extent and from such sources as permitted by the laws of the State of Minnesota. Under Minnesota law, the board of directors can authorize a dividend if it determines that the corporation will be able to pay its debts in the ordinary course of business after paying the dividend. - ------------------------------------------------------- CAPITALIZATION - ------------------------------------------------------- SELIGMAN The interest of the beneficiaries will MASSACHUSET- be divided into transferrable shares of TS BUSINESS beneficial interest of $.001 par value. TRUSTS The number of shares of beneficial interest authorized is unlimited. - ------------------------------------------------------- SELIGMAN The Board of Directors has power and MARYLAND authority to increase or decrease the CORPORATIONS number of shares of stock, series or class of stock, that the corporation has the authority to issue. With respect to Seligman Core Fixed Income Fund, Inc., the total number of shares of capital stock of all classes which the corporation has authority to issue is 1,000,000,000 shares of the par value of $.001 per share, having an aggregate par value of $1,000,000. With respect to Seligman Global Fund Series, Inc., the total number of shares of all classes of stock which the Corporation has authority to issue is 2,000,000,000 shares of common stock of the par value of $.001 each having an aggregate par value of $2,000,000.00. With respect to Seligman Income and Growth Fund, Inc., the total number of shares of capital stock of all classes which the corporation has authority to issue is 500,000,000 shares of capital stock (par value $1.00 per share), amounting to an aggregate par value of $500,000,000. - ------------------------------------------------------- RIVERSOURCE The Corporation's articles of MINNESOTA incorporation authorize the issuance of CORPORATIONS up to 10,000,000,000 shares of stock with a par value of $.01 per share. The Board of Directors can authorize the issuance of shares in such classes or series with such designations, preferences and relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, as are stated in the Board resolution establishing the class or series. The Board of Directors can, without shareholder approval, increase or decrease the total number of authorized shares, or the authorized shares of a class or series, in the manner and to the extent set forth under "Directors' Power to Amend Articles of Incorporation/Trustees' Power to Amend Declaration of Trust" above. - ------------------------------------------------------- NUMBER OF DIRECTORS / TRUSTEES AND VACANCIES - ------------------------------------------------------- SELIGMAN There may be no less than two nor more MASSACHUSET- than twenty trustees. TS BUSINESS TRUSTS The term of office of a trustee will terminate and a vacancy will occur in the event of the death, resignation, removal, bankruptcy, adjudicated incompetence, or other incapacity to perform the duties of the office of a trustee. In the case of any vacancy of a trustee for any reason other than an increase in the number of trustees, a majority of the remaining trustees, although a majority is less than a quorum, by an affirmative vote, or the sole remaining trustee, may elect a successor to hold office. - ------------------------------------------------------- SELIGMAN The number of directors will never be MARYLAND less than the greater of three and the CORPORATIONS minimum number required by the MGCL (one), nor more than 20, and the tenure of a directorship will not be affected by any decrease in the number of directors. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, even if such majority is less than a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by a majority of the entire Board of Directors then in office. A director elected by the Board of Directors to fill a vacancy will be elected to hold office until the next annual meeting of stockholders and until his or her successor is elected and qualifies. - ------------------------------------------------------- RIVERSOURCE There may be no less than two or more MINNESOTA than 15 directors. If a vacancy occurs CORPORATIONS in the board of directors by reason of death, resignation or otherwise, such vacancy may be filled for the unexpired term by a majority vote of the remaining directors, even if the remaining number of directors is less than a quorum. - ------------------------------------------------------- INDEPENDENT CHAIR OF THE BOARD - ------------------------------------------------------- SELIGMAN The declaration of trust and bylaws do MASSACHUSET- not require an independent chair of the TS BUSINESS Board of Trustees. TRUSTS - ------------------------------------------------------- SELIGMAN The articles of incorporation and MARYLAND bylaws do not require an independent CORPORATIONS chair of the Board of Directors. - ------------------------------------------------------- RIVERSOURCE The corporation's Bylaws require the MINNESOTA board of directors to elect one CORPORATIONS independent member to serve as Chair of the Board of Directors whose duties include serving as the lead independent director. - -------------------------------------------------------
E.12
- ------------------------------------------------------- INSPECTION OF BOOKS AND RECORDS - ------------------------------------------------------- SELIGMAN The declaration of trust and bylaws do MASSACHUSET- not give shareholders any right to TS BUSINESS inspect the books and records of the TRUSTS trust. - ------------------------------------------------------- SELIGMAN Under the MGCL, any stockholder or his MARYLAND agent may inspect and copy during usual CORPORATIONS business hours the corporation's By- laws, minutes of the proceedings of the stockholders, annual statements of affairs, and voting trust agreements on file at the corporation's principal office. In addition, one or more persons who together are and for at least six months have been stockholders of record of at least 5 percent of the outstanding stock of any class of the corporation may, in person or by agent, on written request, inspect and copy during usual business hours the corporation's books of account and its stock ledger, present to any officer or resident agent of the corporation a written request for a statement of its affairs, and in the case of any corporation which does not maintain the original or a duplicate stock ledger at its principal office, present to any officer or resident agent of the corporation a written request for a list of its stockholders. A stockholder with the right, under applicable law, to inspect the corporation's books of account, stock ledger, or other specified documents of the corporation has no right to make an inspection if the Board of Directors determines that the stockholder has an improper purpose for requesting the inspection. - ------------------------------------------------------- RIVERSOURCE Minnesota law requires the corporation MINNESOTA (each Fund) to keep (i) a share CORPORATIONS register containing the names and addresses of its shareholders and the number and classes of shares held by each; (ii) records of all proceedings of shareholders for the last three years; (iii) records of all proceedings of the board of directors for the last three years; (iv) its Articles of Incorporation and Bylaws, as amended; (v) certain financial statements which Minnesota law requires the corporation (each Fund) to prepare; (vi) all reports to shareholders generally within the last three years; and (vii) a statement of the names and usual business addresses of its directors and principal officers. The Fund's shareholders and beneficial owners have the right, upon written demand stating the purpose, at any reasonable time to examine and copy those records which are reasonably related to the stated purpose, provided that the stated purpose is reasonably related to the person's interest as a shareholder or beneficial owner. - -------------------------------------------------------
E.13 EXHIBIT F RIVERSOURCE FAMILY OF FUNDS PRIVACY NOTICE The RiverSource Family of Funds, which includes RiverSource, Seligman, and Threadneedle, branded funds (collectively, the "funds"), are committed to respecting shareholders' rights of privacy and we have adopted the following policy to maintain the confidentiality of the information you share with us: INFORMATION WE COLLECT We know that you expect us to conduct and process your business in a manner that is both accurate and efficient. To do so, we may collect information about you such as your name, address, Social Security number and the names of your beneficiaries. This information is collected from applications or other forms that you provide to us or the financial intermediaries that distribute the funds. We also collect information about your transactions in the funds. In addition, we may obtain information about you from third parties in order to service your account. Financial intermediaries which distribute the funds and service your account, whether or not affiliated with us, may have a customer relationship with you and may independently collect information from you. This Privacy Notice does not apply to their independent collection or use of information about you. INFORMATION WE DISCLOSE We do not disclose any nonpublic personal information about our customers or former customers to anyone, except in two circumstances. We disclose information to companies, whether or not affiliated with us, that help us by providing services to you including companies that market funds on our behalf. We also disclose information when we are permitted or required by law to do so, such as when information is provided to the IRS for tax purposes. SECURITY We maintain physical, electronic, and procedural safeguards to protect your personal information. In addition, we insist that the distributors and other companies that perform services for us limit access to your personal information to authorized employees and agents, and maintain appropriate physical, electronic and procedural safeguards. This privacy notice applies to each fund in the RiverSource Family of Funds and to Tri-Continental Corporation. It also applies to RiverSource Investments, LLC, RiverSource Fund Distributors, Inc. and RiverSource Service Corporation with respect to the investment advisory, distribution and shareholder services each may provide to the funds. F.1 PROXY SELIGMAN FUNDS PROXY NOTICE OF A JOINT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 2, 2009 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS/TRUSTEES OF THE SELIGMAN FUND(S) LISTED BELOW. The undersigned hereby constitutes and appoints Stephen R. Lewis, Jr., Scott R. Plummer and Christopher O. Petersen, and each of them, as proxies for the undersigned, with full power of substitution and resubstitution, and hereby authorizes said proxies, and each of them, to represent and vote, as designated on the reverse side, all shares of the Seligman Fund(s) listed below held of record by the undersigned on April 3, 2009 at the Joint Special Meeting of Shareholders to be held on June 2, 2009 (the Meeting), and at any adjournment thereof. The undersigned hereby revokes any previous proxies with respect to such shares of the undersigned. THIS PROXY CARD, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S), AND, IN THE DISCRETION OF SUCH PROXIES, UPON ANY AND ALL OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF, INCLUDING, BUT NOT LIMITED TO, PROPOSING AND/OR VOTING ON ADJOURNMENT OF THE MEETING WITH RESPECT TO THE PROPOSAL(S), INCLUDING, BUT NOT LIMITED TO, IN THE EVENT THAT SUFFICIENT VOTES IN FAVOR OF ANY PROPOSAL ARE NOT RECEIVED. IF THIS PROXY CARD IS SIGNED, DATED AND RETURNED WITH NO VOTING INSTRUCTION INDICATED AS TO THE PROPOSAL(S) ON WHICH SHARES REPRESENTED BY THE UNDERSIGNED ARE ENTITLED TO VOTE, SUCH SHARES SHALL BE VOTED FOR THE PROPOSAL(S). VOTE VIA TELEPHONE: 1-866-241-6192 VOTE VIA THE INTERNET: WWW.PROXY-DIRECT.COM ----------------- ----------------------- 999 9999 9999 999 ----------------- ----------------------- NOTE: Please sign exactly as your name appears on this Proxy Card and date it. If signing for estates, trusts or corporations, title or capacity should be stated. If shares are held jointly, each holder must sign. ------------------------------------------- Signature ------------------------------------------- Additional Signature (if held jointly) ------------------------------------------- Date RSF_19833_040609 FUND FUND - ---- ---- Seligman Core Fixed Income Fund, Inc. Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman High-Yield Fund Seligman Income and Growth Fund, Inc. Seligman International Growth Fund Seligman U.S. Government Securities Fund VOTING OPTIONS READ YOUR PROXY STATEMENT AND HAVE IT AT HAND WHEN VOTING. (GRAPHIC) (GRAPHIC) (GRAPHIC) (GRAPHIC) VOTE ON THE INTERNET VOTE BY PHONE VOTE BY MAIL VOTE IN PERSON LOG ON TO: CALL 1-866-241-6192 VOTE, SIGN AND DATE THIS PROXY ATTEND SHAREHOLDER MEETING WWW.PROXY-DIRECT.COM FOLLOW THE RECORDED CARD AND RETURN IN THE MARQUETTE HOTEL FOLLOW THE ON-SCREEN INSTRUCTIONS INSTRUCTIONS POSTAGE-PAID ENVELOPE 710 MARQUETTE AVENUE AVAILABLE 24 HOURS AVAILABLE 24 HOURS MINNEAPOLIS, MN 55402 ON JUNE 2, 2009
# var, , page 1 of 2 PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW. THIS PROXY CARD CONTAINS PROPOSALS RELATING TO MULTIPLE FUNDS. IF YOU DO NOT OWN SHARES OF A FUND, "NOT APPLICABLE" IS NOTED UNDER THAT PROPOSAL. YOU ARE ONLY PERMITTED TO VOTE ON PROPOSALS OF FUND(S) FOR WHICH YOU OWN SHARES. IF YOU DO NOT INDICATE YOUR VOTING INSTRUCTION FOR THE PROPOSALS THAT YOU ARE ENTITLED TO VOTE, YOUR PROXY WILL BE VOTED FOR EACH SUCH PROPOSAL THAT YOU ARE ENTITLED TO VOTE. PLEASE MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. EXAMPLE: [x] - -------------------------------------------------------------------------------- [ ] Mark this box to vote FOR all proposals of fund(s) for which you own shares. (No other vote is necessary.) - -------------------------------------------------------------------------------- 1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN CORE FIXED INCOME FUND, INC. AND RIVERSOURCE DIVERSIFIED BOND FUND. FOR AGAINST ABSTAIN Seligman Core Fixed Income Fund, Inc. [ ] [ ] [ ] 2. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN EMERGING MARKETS FUND AND THREADNEEDLE EMERGING MARKETS FUND. FOR AGAINST ABSTAIN Seligman Emerging Markets Fund [ ] [ ] [ ] 3. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN GLOBAL GROWTH FUND AND THREADNEEDLE GLOBAL EQUITY FUND. FOR AGAINST ABSTAIN Seligman Global Growth Fund [ ] [ ] [ ] 4. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN HIGH-YIELD FUND AND RIVERSOURCE HIGH YIELD BOND FUND. FOR AGAINST ABSTAIN Seligman High-Yield Fund [ ] [ ] [ ] 5. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN INCOME AND GROWTH FUND, INC. AND RIVERSOURCE BALANCED FUND. FOR AGAINST ABSTAIN Seligman Income and Growth Fund, Inc. [ ] [ ] [ ] 6. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN INTERNATIONAL GROWTH FUND AND RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND. FOR AGAINST ABSTAIN Seligman International Growth Fund [ ] [ ] [ ] 7. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SELIGMAN U.S. GOVERNMENT SECURITIES FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND. FOR AGAINST ABSTAIN Seligman U.S. Government Securities Fund [ ] [ ] [ ] 8. TO APPROVE A POLICY AUTHORIZING RIVERSOURCE INVESTMENTS, LLC, WITH THE APPROVAL OF THE BOARD OF DIRECTORS, TO ENTER INTO AND MATERIALLY AMEND A SUBADVISORY AGREEMENT, WITHOUT OBTAINING SHAREHOLDER APPROVAL. FOR AGAINST ABSTAIN Seligman Emerging Markets Fund [ ] [ ] [ ] 9. TO APPROVE A POLICY AUTHORIZING RIVERSOURCE INVESTMENTS, LLC, WITH THE APPROVAL OF THE BOARD OF DIRECTORS, TO ENTER INTO AND MATERIALLY AMEND A SUBADVISORY AGREEMENT, WITHOUT OBTAINING SHAREHOLDER APPROVAL. FOR AGAINST ABSTAIN Seligman Global Growth Fund [ ] [ ] [ ] 10. TO APPROVE A POLICY AUTHORIZING RIVERSOURCE INVESTMENTS, LLC, WITH THE APPROVAL OF THE BOARD OF DIRECTORS, TO ENTER INTO AND MATERIALLY AMEND A SUBADVISORY AGREEMENT, WITHOUT OBTAINING SHAREHOLDER APPROVAL. FOR AGAINST ABSTAIN Seligman International Growth Fund [ ] [ ] [ ] IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SELIGMAN FUNDS SHAREHOLDER MEETING TO BE HELD ON JUNE 2, 2009. THE PROXY STATEMENT FOR THIS MEETING IS AVAILABLE AT HTTPS://WWW.PROXY-DIRECT.COM/RFS19833 EVERY VOTE IS IMPORTANT! PLEASE VOTE TODAY USING ONE OF THE FOUR AVAILABLE OPTIONS! RSF_19833_040609 SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Emerging Markets Fund Seligman Global Growth Fund Seligman International Growth Fund SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman High-Yield Fund Seligman U.S. Government Securities Fund Combined Proxy Statement/Prospectus April 17, 2009 HERE IS A BRIEF OVERVIEW OF THE CHANGES BEING RECOMMENDED FOR YOUR FUND. WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED COMBINED PROXY STATEMENT/PROSPECTUS. Q: WHY AM I BEING ASKED TO VOTE? Mutual funds are required to get shareholders' approval for certain kinds of changes, like the proposals in this combined proxy statement/prospectus. Q: IS MY VOTE IMPORTANT? Absolutely! While the Board of Directors/Trustees (the "Board" or the "Board of Directors/Trustees") of each Fund listed above has reviewed these proposals and recommends that you approve them, you have the right to voice your opinion. Until a Fund is sure that a quorum has been reached, it will continue to contact shareholders asking them to vote. Q: WHAT AM I BEING ASKED TO VOTE ON? Shareholders are being asked to vote on: THE REORGANIZATION PROPOSALS: The reorganization (each a "Reorganization") of each Selling Fund (each a "Selling Fund" and together, the "Selling Funds") into its corresponding Buying Fund (each a "Buying Fund" and together, the "Buying Funds"), as noted in the table below:
SELLING FUND BUYING FUND Seligman Core Fixed Income Fund, Inc. RiverSource Diversified Bond Fund Seligman Emerging Markets Fund Threadneedle Emerging Markets Fund Seligman Global Growth Fund Threadneedle Global Equity Fund Seligman High-Yield Fund RiverSource High Yield Bond Fund Seligman Income and Growth Fund, Inc. RiverSource Balanced Fund Seligman International Growth Fund RiverSource Partners International Select Growth Fund Seligman U.S. Government Securities Fund RiverSource Short Duration U.S. Government Fund
If the Reorganization of your Selling Fund is approved by shareholders and the other closing conditions are met, your shares of the Selling Fund will, in effect, be converted into shares of the corresponding Buying Fund with the same aggregate net asset value as your Selling Fund shares at the time of the Reorganization. (Selling Funds and Buying Funds may be individually or collectively referred to as a "Fund" or the "Funds.") THE MANAGER OF MANAGERS PROPOSALS: Shareholders of each of Seligman Emerging Markets Fund, Seligman Global Growth Fund and Seligman International Growth Fund (each a "Seligman Subadvised Fund" and together the "Seligman Subadvised Funds") are being asked to consider a proposal to approve a policy authorizing RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), the Seligman Subadvised Funds' investment adviser, with the approval of the Board, to retain and to replace subadvisers, or to modify subadvisory agreements, without obtaining shareholder approval (each a "Manager of Managers Proposal" and together the "Manager of Managers Proposals"). The approval of each Manager of Managers Proposal will eliminate the need for shareholder meetings and related proxy solicitation if the Board determines that such retention, replacement or modification is appropriate, thereby reducing associated delays and costs. We encourage you to read the full text of the combined proxy statement/prospectus to obtain a more detailed understanding of the issues. Q: WHY ARE THE REORGANIZATIONS BEING PROPOSED? RiverSource Investments, a wholly-owned subsidiary of Ameriprise Financial, Inc. and the investment manager of the RiverSource Funds, recently purchased all of the outstanding capital stock of J. & W. Seligman & Co. Incorporated ("Seligman"), the former investment manager of the Seligman Funds, and became the investment manager of the Seligman Funds. In connection with the purchase of Seligman, the RiverSource Family of Funds now includes the Seligman Funds in addition to funds branded "RiverSource," "RiverSource Partners" and "Threadneedle". RiverSource Investments has proposed that the Selling Funds be reorganized into the Buying Funds. The Reorganization of each Selling Fund into the corresponding Buying Fund would result in a larger combined fund with the same or similar investment objectives, principal investment strategies and fundamental investment policies, which will allow for more focused distribution, potentially increasing sales of and economies of scale in the combined fund. Additionally, following each Reorganization, expenses of the larger combined fund are expected to be lower than the expenses would have been for the Selling Fund. Q: IF APPROVED, WHEN WILL THE REORGANIZATIONS HAPPEN? The Reorganizations will take place as soon as practicable following shareholder approval, and are expected to close before the end of the third quarter of 2009. Q: HOW DOES THE BOARD RECOMMEND THAT I VOTE ON THE REORGANIZATION PROPOSALS? After careful consideration, the Board of each Selling Fund recommends that you vote FOR the Reorganization of your Selling Fund. Q: WHY ARE THE MANAGER OF MANAGERS PROPOSALS BEING PROPOSED? As explained above, in connection with its recent purchase of all of the outstanding capital stock of Seligman, RiverSource Investments became the investment manager of each of the Seligman Subadvised Funds. Shareholders of the Seligman Subadvised Funds are being asked to approve the Manager of Managers Proposals in order to conform the Seligman Subadvised Funds' policies in this respect to the policies of the other funds in the RiverSource Family of Funds. The Manager of Managers Proposals will allow the investment manager, with the oversight and approval of the Board, the flexibility to appoint new subadvisers and/or materially modify subadvisory agreements without the delay and cost associated with holding a shareholder meeting. Q: HOW DOES THE BOARD RECOMMEND THAT I VOTE ON THE MANAGER OF MANAGER PROPOSALS? After careful consideration, the Board of each Seligman Subadvised Fund recommends that you vote FOR the Manager of Managers proposal for your Seligman Subadvised Fund. Q: HOW DO I VOTE? You can vote in one of four ways: - - By telephone - - By internet - - By mail with the enclosed proxy card - - In person at the meeting Please refer to the enclosed proxy card for the telephone number and internet address. Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS? If you have questions about any of the proposals described in the combined proxy statement/prospectus or about voting procedures, please call the Funds' proxy solicitor, Computershare Fund Services, toll free at (866) 438-8932. STATEMENT OF ADDITIONAL INFORMATION RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RiverSource Diversified Bond Fund RIVERSOURCE GLOBAL SERIES, INC. Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RiverSource High Yield Bond Fund RIVERSOURCE INVESTMENT SERIES, INC. RiverSource Balanced Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RiverSource Partners International Select Growth Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RiverSource Short Duration U.S. Government Fund APRIL 17, 2009 This Statement of Additional Information ("SAI") incorporates by reference the following described Buying and Selling Fund documents, each of which has been previously filed and accompanies this SAI. 1. The most recent annual report for Seligman Core Fixed Income Fund, Inc. for the period ended Sept. 30, 2008 2. The most recent annual report for Seligman Emerging Markets Fund, for the period ended Oct. 31, 2008; 3. The most recent annual report for Seligman Global Growth Fund, for the period ended Oct. 31, 2008; 4. The most recent annual report for Seligman High-Yield Fund, Inc. for the period ended Dec. 31, 2008; 5. The most recent annual report for Seligman Income and Growth Fund, Inc. for the period ended Dec. 31, 2008; 6. The most recent annual report for Seligman International Growth Fund, for the period ended Oct. 31, 2008; 7. The most recent annual report for Seligman U.S. Government Securities Fund for the period ended Dec. 31, 2008; 8. The most recent annual report for RiverSource Balanced Fund, for the period ended Sept. 30, 2008. 9. The most recent annual report for RiverSource Diversified Bond Fund, for the period ended Aug. 31, 2008; 10. The most recent annual report for RiverSource High Yield Bond Fund for the period ended May 31, 2008 and semiannual report, for the period ended Nov. 30, 2008. 11. The most recent annual report for RiverSource Partners International Select Growth Fund, for the period ended Oct. 31, 2008; 12. The most recent annual report for RiverSource Short Duration U.S. Government Fund for the period ended May 31, 2008 and semiannual report, for the period ended Nov. 30, 2008. 13. The most recent annual report for Threadneedle Emerging Markets Fund, for the period ended Oct. 31, 2008; 14. The most recent annual report for Threadneedle Global Equity Fund, for the period ended Oct. 31, 2008; 15. The most recent SAI for the Buying Funds, dated Jan. 29, 2009. This SAI is not a prospectus. It should be read in conjunction with the proxy statement/prospectus, dated the same date as this SAI, which may be obtained by calling (866) 438-8932 or writing to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474. In accordance with Securities and Exchange Commission requirements, pro forma financial statements are not included for RiverSource Balanced Fund, RiverSource Diversified Bond Fund and Threadneedle Global Equity Fund since the net asset value of each Selling Fund is less than 10% of the net asset value of its corresponding Buying Fund. TABLE OF CONTENTS RIVERSOURCE HIGH YIELD BOND FUND PRO FORMA FINANCIALS Introduction to Proposed Fund Reorganization.................................. 3 Pro Forma Combining Statement of Assets and Liabilities....................... 4 Pro Forma Combining Statement of Operations................................... 5 Notes to Pro Forma Financial Statements....................................... 6 Combined Portfolio of Investments............................................. 8 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND PRO FORMA FINANCIALS Introduction to Proposed Fund Reorganization.................................. 21 Pro Forma Combining Statement of Assets and Liabilities....................... 22 Pro Forma Combining Statement of Operations................................... 23 Notes to Pro Forma Financial Statements....................................... 24 Combined Portfolio of Investments............................................. 26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND PRO FORMA FINANCIALS Introduction to Proposed Fund Reorganization.................................. 41 Pro Forma Combining Statement of Assets and Liabilities....................... 42 Pro Forma Combining Statement of Operations................................... 43 Notes to Pro Forma Financial Statements....................................... 44 Combined Portfolio of Investments............................................. 46 THREADNEEDLE EMERGING MARKETS FUND PRO FORMA FINANCIALS Introduction to Proposed Fund Reorganization.................................. 57 Pro Forma Combining Statement of Assets and Liabilities....................... 58 Pro Forma Combining Statement of Operations................................... 59 Notes to Pro Forma Financial Statements....................................... 60 Combined Portfolio of Investments............................................. 62
2 RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) SELIGMAN HIGH-YIELD FUND (SELLING FUND) INTRODUCTION TO PROPOSED FUND REORGANIZATION Nov. 30, 2008 The accompanying unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Nov. 30, 2008. These statements have been derived from financial statements prepared for the RiverSource High Yield Bond Fund and the Seligman High-Yield Fund as of Nov. 30, 2008. RiverSource High Yield Bond Fund invests primarily in high-yield debt instruments including corporate debt securities and bank loans rated below investment grade and may invest up to 25% of the Fund's net assets in high-yield debt instruments of foreign issuers. Seligman High-Yield Fund invests primarily in non-investment grade, high-yield securities which carry non-investment grade ratings or are securities deemed to be below investment grade by RiverSource Investments, LLC (the investment manager). Under the proposed Agreement and Plan of Reorganization, share classes of Seligman High-Yield Fund would be exchanged for share classes of RiverSource High Yield Bond Fund.
SELLING FUND BUYING FUND - ------------------------------------------------------------------------------------------------------ Seligman High-Yield Fund Class A RiverSource High Yield Bond Fund Class A - ------------------------------------------------------------------------------------------------------ Seligman High-Yield Fund Class B RiverSource High Yield Bond Fund Class B - ------------------------------------------------------------------------------------------------------ Seligman High-Yield Fund Class C RiverSource High Yield Bond Fund Class C - ------------------------------------------------------------------------------------------------------ Seligman High-Yield Fund Class R* RiverSource High Yield Bond Fund Class R2 - ------------------------------------------------------------------------------------------------------ Seligman High-Yield Fund Class I* RiverSource High Yield Bond Fund Class R5 - ------------------------------------------------------------------------------------------------------
* Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman High-Yield Fund will be redesignated as Class R2 and Class R5 shares, respectively. Note: RiverSource High Yield Bond Fund also offers Class I, Class R3, Class R4 and Class W shares. The pro forma combining statements have been prepared to give effect to the proposed transaction on the historical operations of the accounting survivor, RiverSource High Yield Bond Fund, as if the transaction had occurred at the beginning of the fiscal year ending Nov. 30, 2008. 3 RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) SELIGMAN HIGH-YIELD FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
RIVERSOURCE HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA NOV. 30, 2008 (UNAUDITED) BOND FUND FUND ADJUSTMENTS ASSETS Investments in securities, at cost Unaffiliated issuers $ 1,211,689,995 $ 163,289,838 $ -- Affiliated money market fund $ 66,162,340 $ -- $ -- Other affiliated issuers $ 13,076,335 $ -- $ -- ---------------------------------------------------------- Investments in securities, at value Unaffiliated issuers $ 822,980,918 $ 127,106,462 $ -- Affiliated money market fund $ 66,162,340 $ -- $ -- Other affiliated issuers $ 11,527 $ -- $ -- Cash -- 3,632 -- Capital shares receivable 2,727,895 4,197 -- Dividends and accrued interest receivable 24,621,619 3,901,780 -- Receivable for investment securities sold 10,722,081 1,823,750 -- Investment management services fees receivable (Note 2) -- -- 34,185(a) Transfer agency fees receivable (Note 2) -- -- 392,580(b) Receivable from RiverSource Investments, LLC (Note 2) -- -- 681,805(f) Other receivable 220,452 -- -- Prepaid expenses -- 108,057 -- Other assets -- 31,087 -- - ------------------------------------------------------------------------------------------------------------------- Total assets 927,446,832 132,978,965 1,108,570 - ------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 1,079,069 620,026 -- Capital shares payable 1,174,736 416,745 -- Payable for reorganization costs (Note 2) -- -- 133,709(g) Payable for investment securities purchased 47,332,115 2,428,444 -- Accrued investment management services fees (Note 2) 28,261 74,785 (103,046)(a) Accrued distribution fees 177,586 51,162 -- Accrued transfer agency fees (Note 2) 10,097 135,884 (145,981)(b) Accrued administrative services fees (Note 2) 3,250 -- 136,428(c) Accrued plan administration services fees (Note 2) 280 -- 11,230(d) Other accrued expenses (Note 2) 195,332 142,408 (264,597)(e) - ------------------------------------------------------------------------------------------------------------------- Total liabilities 50,000,726 3,869,454 (232,257) - ------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 877,446,106 $ 129,109,511 $1,340,827 - ------------------------------------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value for RiverSource High Yield Bond Fund and $.001 par value for Seligman High-Yield Fund (Notes 2 and 3) $ 4,577,329 $ 69,634 $ 610,679(g) Additional paid-in capital (Notes 2 and 3) 2,703,836,895 1,607,816,870 (744,388)(g) Undistributed (excess of distributions over) net investment income (Note 2) (1,038,245) 397,138 1,474,536 Accumulated net realized gain (loss) (1,428,376,440) (1,442,990,755) -- Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (401,553,433) (36,183,376) -- - ------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 877,446,106 $ 129,109,511 $1,340,827 - ------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares: Class A $ 713,352,124 $ 80,764,011 $ 838,750 Class B $ 89,891,192 $ 7,772,228 $ 80,716 Class C $ 11,662,478 $ 32,094,382 $ 333,306 Class I $ 49,225,589 N/A $ -- Class R2 $ 3,413 $ 3,465,127 $ 35,986 Class R3 $ 503,624 N/A $ -- Class R4 $ 876,565 N/A $ -- Class R5 $ 3,253 $ 5,013,763 $ 52,069 Class W $ 11,927,868 N/A $ -- Shares outstanding (Note 3): Class A shares 372,021,638 43,609,141 -- Class B shares 46,900,987 4,196,149 -- Class C shares 6,121,775 17,254,169 -- Class I shares 25,697,857 N/A -- Class R2 shares 1,775 1,867,498 -- Class R3 shares 261,213 N/A -- Class R4 shares 457,103 N/A -- Class R5 shares 1,695 2,706,982 -- Class W shares 6,268,887 N/A -- Net asset value per share of outstanding capital stock: Class A $ 1.92 $ 1.85 $ -- Class B $ 1.92 $ 1.85 $ -- Class C $ 1.91 $ 1.86 $ -- Class I $ 1.92 N/A $ -- Class R2 $ 1.92 $ 1.86 $ -- Class R3 $ 1.93 N/A $ -- Class R4 $ 1.92 N/A $ -- Class R5 $ 1.92 $ 1.85 $ -- Class W $ 1.90 N/A $ -- - ------------------------------------------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND PRO FORMA NOV. 30, 2008 (UNAUDITED) COMBINED ASSETS Investments in securities, at cost Unaffiliated issuers $ 1,374,979,833 Affiliated money market fund $ 66,162,340 Other affiliated issuers $ 13,076,335 ------------------ Investments in securities, at value Unaffiliated issuers $ 950,087,380 Affiliated money market fund $ 66,162,340 Other affiliated issuers $ 11,527 Cash 3,632 Capital shares receivable 2,732,092 Dividends and accrued interest receivable 28,523,399 Receivable for investment securities sold 12,545,831 Investment management services fees receivable (Note 2) 34,185 Transfer agency fees receivable (Note 2) 392,580 Receivable from RiverSource Investments, LLC (Note 2) 681,805 Other receivable 220,452 Prepaid expenses 108,057 Other assets 31,087 - --------------------------------------------------------------------------- Total assets 1,061,534,367 - --------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 1,699,095 Capital shares payable 1,591,481 Payable for reorganization costs (Note 2) 133,709 Payable for investment securities purchased 49,760,559 Accrued investment management services fees (Note 2) -- Accrued distribution fees 228,748 Accrued transfer agency fees (Note 2) -- Accrued administrative services fees (Note 2) 139,678 Accrued plan administration services fees (Note 2) 11,510 Other accrued expenses (Note 2) 73,143 - --------------------------------------------------------------------------- Total liabilities 53,637,923 - --------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 1,007,896,444 - --------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value for RiverSource High Yield Bond Fund and $.001 par value for Seligman High-Yield Fund (Notes 2 and 3) $ 5,257,642 Additional paid-in capital (Notes 2 and 3) 4,310,909,377 Undistributed (excess of distributions over) net investment income (Note 2) 833,429 Accumulated net realized gain (loss) (2,871,367,195) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (437,736,809) - --------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 1,007,896,444 - --------------------------------------------------------------------------- Net assets applicable to outstanding shares: Class A $ 794,954,885 Class B $ 97,744,136 Class C $ 44,090,166 Class I $ 49,225,589 Class R2 $ 3,504,526 Class R3 $ 503,624 Class R4 $ 876,565 Class R5 $ 5,069,085 Class W $ 11,927,868 Shares outstanding (Note 3): Class A shares 414,523,076 Class B shares 50,991,062 Class C shares 23,099,622 Class I shares 25,697,857 Class R2 shares 1,825,271 Class R3 shares 261,213 Class R4 shares 457,103 Class R5 shares 2,640,149 Class W shares 6,268,887 Net asset value per share of outstanding capital stock: Class A $ 1.92 Class B $ 1.92 Class C $ 1.91 Class I $ 1.92 Class R2 $ 1.92 Class R3 $ 1.93 Class R4 $ 1.92 Class R5 $ 1.92 Class W $ 1.90 - ---------------------------------------------------------------------------
See accompanying notes to pro forma financial statements. 4 RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) SELIGMAN HIGH-YIELD FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF OPERATIONS
RIVERSOURCE RIVERSOURCE RIVERSOURCE SELIGMAN HIGH YIELD BOND HIGH YIELD BOND HIGH YIELD BOND HIGH-YIELD FUND PRO FORMA FUND PRO FORMA YEAR ENDED NOV. 30, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS COMBINED INVESTMENT INCOME Income: Interest $ 124,067,760 $ 22,473,977 $ -- $ 146,541,737 Dividends -- 266,828 -- 266,828 Income distributions from affiliated money market fund 1,517,178 -- -- 1,517,178 Fee income from securities lending 22,882 -- -- 22,882 - -------------------------------------------------------------------------------------------------------------------- Total income 125,607,820 22,740,805 -- 148,348,625 - -------------------------------------------------------------------------------------------------------------------- Expenses: Investment management services fees (Note 2) 7,820,685 1,417,953 (137,231)(a) 9,101,407 Distribution fees Class A 2,638,990 335,142 -- 2,974,132 Class B 1,596,920 168,117 -- 1,765,037 Class C 175,066 533,476 -- 708,542 Class R2 41 22,363 -- 22,404 Class R3 183 -- -- 183 Class W 75,149 -- -- 75,149 Transfer agency fees (Note 2) Class A 1,796,231 541,812 (353,808)(b) 1,984,235 Class B 286,547 67,752 (45,432)(b) 308,867 Class C 30,617 214,354 (122,042)(b) 122,929 Class R2 4 18,132 (15,886)(b) 2,250 Class R3 37 -- -- 37 Class R4 444 -- -- 444 Class R5 3 5,071 (1,393)(b) 3,681 Class W 60,119 -- -- 60,119 Administrative services fees (Note 2) 878,544 -- 136,428(c) 1,014,972 Plan administration services fees (Note 2) Class R2 20 -- 11,230(d) 11,250 Class R3 183 -- -- 183 Class R4 2,218 -- -- 2,218 Compensation of board members (Note 2) 29,856 19,110 (14,254)(e) 34,712 Custodian fees (Note 2) 140,800 93,296 (70,396)(e) 163,700 Printing and postage (Note 2) 296,530 53,952 (5,724)(e) 344,758 Registration fees (Note 2) 99,374 109,010 (92,848)(e) 115,536 Professional fees (Note 2) 67,557 73,395 (62,407)(e) 78,545 Other (Note 2) 39,441 25,383 (18,968)(e) 45,856 - -------------------------------------------------------------------------------------------------------------------- Total expenses 16,035,559 3,698,318 (792,731) 18,941,146 Expenses waived/reimbursed by RiverSource Investments, LLC (Note 2) (663,066) -- (681,805)(f) (1,344,871) Earnings and bank fee credits on cash balances (38,953) -- -- (38,953) - -------------------------------------------------------------------------------------------------------------------- Total net expenses 15,333,540 3,698,318 (1,474,536) 17,557,322 - -------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 110,274,280 19,042,487 1,474,536 130,791,303 - -------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (117,233,769) (72,066,506) -- (189,300,275) Swap transactions (7,852,423) -- -- (7,852,423) - -------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (125,086,192) (72,066,506) -- (197,152,698) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (312,462,142) (25,895,747) -- (338,357,889) - -------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (437,548,334) (97,962,253) -- (535,510,587) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(327,274,054) $(78,919,766) $ 1,474,536 $(404,719,284) - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements. 5 RIVERSOURCE HIGH YIELD BOND FUND (BUYING FUND) SELIGMAN HIGH-YIELD FUND (SELLING FUND) NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited as to Nov. 30, 2008) 1. BASIS OF COMBINATION The unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Nov. 30, 2008. These statements have been derived from financial statements prepared for the RiverSource High Yield Bond Fund and the Seligman High-Yield Fund as of Nov. 30, 2008. Each Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The primary investments of each Fund are as follows: RiverSource High Yield Bond Fund invests primarily in high-yield debt instruments including corporate debt securities and bank loans rated below investment grade and may invest up to 25% of the Fund's net assets in high-yield debt instruments of foreign issuers. Seligman High-Yield Fund invests primarily in non-investment grade, high-yield securities which carry non-investment grade ratings or are securities deemed to be below investment grade by RiverSource Investments, LLC (the investment manager). The pro forma statements give effect to the proposed transfer of the assets and liabilities of Seligman High-Yield Fund in exchange for Class A, Class B, Class C, Class R2 and Class R5 shares of RiverSource High Yield Bond Fund under U.S. generally accepted accounting principles. The pro forma statements reflect estimates for the combined RiverSource High Yield Bond Fund based on the increased asset level of the Reorganization and associated economies of scale, adjusted to reflect current fees. The pro forma combining statements should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statement of Additional Information. The pro forma statement of operations give effect to the proposed transaction on the historical operations of the accounting survivor, RiverSource High Yield Bond Fund, as if the transaction had occurred at the beginning of the year presented. 2. PRO FORMA ADJUSTMENTS (a) To reflect the change in investment management services fee due to the Reorganization. (b) To reflect the change in transfer agent fees due to the Reorganization including adjusting for closed account fees for each Seligman High-Yield Fund shareholder account that will be closed on the system as a result of the Reorganization. (c) To reflect the change in administrative services fees due to the Reorganization. (d) To reflect the change in plan administration services fees due to the Reorganization. (e) To reflect the change in other fees due to the Reorganization. (f) To adjust the expense reimbursement to reflect the net reduction in fees resulting from the Reorganization per the agreement (through May 31, 2009) by RiverSource Investments, LLC and its affiliates to waive certain fees and absorb certain expenses of the combined fund. (g) Includes the impact of estimated Reorganization costs of $133,709, none of which are recurring expenses. 6 3. CAPITAL SHARES The pro forma net asset value per share assumes the issuance of additional Class A, Class B, Class C, Class R2 and Class R5 shares of RiverSource High Yield Bond Fund as if the Reorganization were to have taken place on Nov. 30, 2008. The following table reflects the number of RiverSource High Yield Bond Fund shares assumed to be issued to the shareholders of the Seligman High-Yield Fund.
SELIGMAN RIVERSOURCE TOTAL HIGH-YIELD FUND HIGH YIELD BOND FUND PRO FORMA SHARES ISSUED SHARES OUTSTANDING SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------ Class A 42,501,438 372,021,638 414,523,076 - ------------------------------------------------------------------------------------------------------------------ Class B 4,090,075 46,900,987 50,991,062 - ------------------------------------------------------------------------------------------------------------------ Class C 16,977,847 6,121,775 23,099,622 - ------------------------------------------------------------------------------------------------------------------ Class I N/A 25,697,857 25,697,857 - ------------------------------------------------------------------------------------------------------------------ Class R2* 1,823,496 1,775 1,825,271 - ------------------------------------------------------------------------------------------------------------------ Class R3 N/A 261,213 261,213 - ------------------------------------------------------------------------------------------------------------------ Class R4 N/A 457,103 457,103 - ------------------------------------------------------------------------------------------------------------------ Class R5* 2,638,454 1,695 2,640,149 - ------------------------------------------------------------------------------------------------------------------ Class W N/A 6,268,887 6,268,887 - ------------------------------------------------------------------------------------------------------------------
* Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman High-Yield Fund will be redesignated as Class R2 and Class R5 shares, respectively. 7 COMBINED PORTFOLIO OF INVESTMENTS RiverSource High Yield Bond Fund NOV. 30, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (80.0%) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED MORTGAGE-BACKED (0.2%)(F) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09/25/47 1.90% $ 8,876,968 $ -- $ 8,876,968(i) $ 2,073,730 $ -- $ 2,073,730 ------------------------------------------ AEROSPACE & DEFENSE (1.8%) Alion Science and Technology 02/01/15 10.25 10,600,000 1,300,000 11,900,000 5,830,000 721,500 6,551,500 L-3 Communications 06/15/12 7.63 983,000 -- 983,000 904,360 -- 904,360 07/15/13 6.13 2,035,000 -- 2,035,000 1,729,750 -- 1,729,750 01/15/15 5.88 -- 2,000,000 2,000,000 -- 1,630,000 1,630,000 L-3 Communications Series B 10/15/15 6.38 8,575,000 -- 8,575,000 7,117,250 -- 7,117,250 Moog Sr Sub Nts 06/15/18 7.25 629,000 -- 629,000(d) 484,330 -- 484,330 ------------------------------------------ Total 16,065,690 2,351,500 18,417,190 ------------------------------------------ AUTOMOTIVE (0.1%) Ford Motor Sr Unsecured 07/16/31 7.45 -- 4,250,000 4,250,000 -- 1,083,750 1,083,750 ------------------------------------------ BROKERAGE (0.1%) Lehman Brothers Holdings Sr Unsecured 05/02/18 6.88 6,150,000 -- 6,150,000(b,g,o) 615,000 -- 615,000 ------------------------------------------ BUILDING MATERIALS (0.8%) Gibraltar Inds Series B 12/01/15 8.00 11,907,000 1,590,000 13,497,000 7,441,875 1,001,700 8,443,575 ------------------------------------------ CHEMICALS (4.6%) Chemtura 06/01/16 6.88 14,736,000 2,285,000 17,021,000 8,104,800 1,268,175 9,372,975 Hexion US Finance/Nova Scotia Finance Sr Secured 11/15/14 9.75 6,881,000 -- 6,881,000 3,578,120 -- 3,578,120 INVISTA Sr Unsecured 05/01/12 9.25 16,861,000 2,685,000 19,546,000(d) 13,320,190 1,973,475 15,293,665 MacDermid Sr Sub Nts 04/15/17 9.50 7,518,000 1,000,000 8,518,000(d) 3,909,360 545,000 4,454,360 Momentive Performance Pay-in-kind 12/01/14 10.13 15,620,000 3,000,000 18,620,000(n) 4,607,900 930,525 5,538,425 NALCOnrg 11/15/11 7.75 3,370,000 -- 3,370,000 2,990,875 -- 2,990,875 11/15/13 8.88 5,155,000 825,000 5,980,000 4,124,000 664,125 4,788,125 ------------------------------------------ Total 40,635,245 5,381,300 46,016,545 ------------------------------------------ CONSUMER CYCLICAL SERVICES (0.8%) Service Corp Intl Sr Unsecured 06/15/17 7.00 -- 1,725,000 1,725,000 -- 1,250,625 1,250,625
8
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED West Corp 10/15/16 11.00 $14,909,000 $2,000,000 $ 16,909,000 $ 6,410,870 $ 870,000 $ 7,280,870 ------------------------------------------ Total 6,410,870 2,120,625 8,531,495 ------------------------------------------ CONSUMER PRODUCTS (2.1%) AAC Group Holding Sr Unsecured 10/01/12 10.25 5,800,000 -- 5,800,000(d) 5,220,000 -- 5,220,000 American Achievement Group Holding Sr Unsecured Pay-in-kind 10/01/12 14.75 1,632,455 -- 1,632,455(n) 1,552,873 -- 1,552,873 Jarden 05/01/17 7.50 7,263,000 1,335,000 8,598,000 4,720,950 874,425 5,595,375 Sealy Mattress 06/15/14 8.25 2,256,000 -- 2,256,000 1,229,520 -- 1,229,520 Visant Holding Sr Disc Nts (Zero coupon through 12- 01-08, thereafter 10.25%) 12/01/13 8.91 4,815,000 2,525,000 7,340,000(m) 3,514,950 1,862,188 5,377,138 Visant Holding Sr Nts 12/01/13 8.75 3,080,000 -- 3,080,000 2,217,600 -- 2,217,600 ------------------------------------------ Total 18,455,893 2,736,613 21,192,506 ------------------------------------------ ELECTRIC (5.7%) AES Sr Unsecured 09/15/10 9.38 -- 2,250,000 2,250,000 -- 1,946,250 1,946,250 Allegheny Energy Supply Sr Unsecured 03/15/11 7.80 -- 2,000,000 2,000,000 -- 1,910,000 1,910,000 Dynegy Holdings Sr Unsecured 02/15/12 8.75 -- 1,000,000 1,000,000 -- 847,500 847,500 05/01/16 8.38 4,852,000 2,500,000 7,352,000 3,372,140 1,750,000 5,122,140 05/15/18 7.13 8,020,000 -- 8,020,000 4,731,800 -- 4,731,800 Edison Mission Energy Sr Unsecured 06/15/16 7.75 1,672,000 -- 1,672,000 1,308,340 -- 1,308,340 05/15/17 7.00 -- 1,950,000 1,950,000 -- 1,472,250 1,472,250 Energy Future Holdings 11/15/14 5.55 -- 2,000,000 2,000,000 -- 968,514 968,514 11/01/17 10.88 10,711,000 955,000 11,666,000(d) 6,908,595 620,750 7,529,345 Midwest Generation LLC Pass-Through Ctfs Series A 07/02/09 8.30 -- 697,732 697,732 -- 668,078 668,078 Midwest Generation LLC Pass-Through Ctfs Series B 01/02/16 8.56 5,858,628 -- 5,858,628 5,360,644 -- 5,360,644 Mirant Americas Generation LLC Sr Unsecured 10/01/21 8.50 -- 500,000 500,000 -- 352,500 352,500 Mirant North America LLC 12/31/13 7.38 7,769,000 -- 7,769,000 6,720,185 -- 6,720,185 NRG Energy 02/01/16 7.38 -- 1,900,000 1,900,000 -- 1,548,500 1,548,500 01/15/17 7.38 14,165,000 -- 14,165,000 11,438,238 -- 11,438,238 Sierra Pacific Resources 03/15/14 8.63 -- 609,000 609,000 -- 567,571 567,571 Texas Competitive Electric Holdings LLC 11/01/15 10.25 7,395,000 -- 7,395,000(d) 4,732,800 -- 4,732,800 ------------------------------------------ Total 44,572,742 12,651,913 57,224,655 ------------------------------------------
9
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED ENTERTAINMENT (1.3%) AMC Entertainment 02/01/16 11.00 $ 5,748,000 $1,000,000 $ 6,748,000 $ 4,081,080 $ 715,000 $ 4,796,080 HRP Myrtle Beach Operations Sr Secured 04/01/12 0.00 -- 1,000,000 1,000,000(b,d) -- 445,000 445,000 United Artists Theatre Circuit Pass-Through Ctfs Series BB5 07/01/15 9.30 6,368,250 -- 6,368,250(k) 5,986,154 -- 5,986,154 United Artists Theatre Circuit Pass-Through Ctfs Series BC3 07/01/15 9.30 2,047,393 -- 2,047,393(k) 1,924,550 -- 1,924,550 ------------------------------------------ Total 11,991,784 1,160,000 13,151,784 ------------------------------------------ ENVIRONMENTAL (0.3%) Browning-Ferris Inds 09/15/35 7.40 -- 1,500,000 1,500,000 -- 1,087,500 1,087,500 Clean Harbors Sr Secured 07/15/12 11.25 957,000 -- 957,000 972,551 -- 972,551 Crown Cork & Seal Sr Unsecured 04/15/23 8.00 -- 1,500,000 1,500,000 -- 1,113,750 1,113,750 ------------------------------------------ Total 972,551 2,201,250 3,173,801 ------------------------------------------ FOOD AND BEVERAGE (4.0%) ASG Consolidated LLC/Finance Sr Disc Nts 11/01/11 11.50 19,195,000 1,500,000 20,695,000 16,411,725 1,290,000 17,701,725 Constellation Brands 12/01/11 8.38 -- 500,000 500,000 -- 437,500 437,500 Cott Beverages USA 12/15/11 8.00 16,541,000 2,200,000 18,741,000 9,759,190 1,309,000 11,068,190 Del Monte 12/15/12 8.63 -- 1,950,000 1,950,000 -- 1,774,500 1,774,500 02/15/15 6.75 -- 750,000 750,000 -- 615,000 615,000 Pinnacle Foods Finance LLC 04/01/15 9.25 -- 1,515,000 1,515,000 -- 1,007,475 1,007,475 04/01/17 10.63 13,508,000 -- 13,508,000 7,564,480 -- 7,564,480 Smithfield Foods Sr Unsecured 08/01/11 7.00 -- 650,000 650,000 -- 393,250 393,250 07/01/17 7.75 -- 1,000,000 1,000,000 -- 527,500 527,500 ------------------------------------------ Total 33,735,395 7,354,225 41,089,620 ------------------------------------------ GAMING (6.4%) Boyd Gaming Sr Sub Nts 02/01/16 7.13 15,590,000 2,175,000 17,765,000 8,808,350 1,239,750 10,048,100 Circus & Eldorado Jt Venture/Silver Legacy Capital 1st Mtge 03/01/12 10.13 9,215,000 -- 9,215,000 5,943,675 -- 5,943,675 Firekeepers Development Authority Sr Secured 05/01/15 13.88 7,160,000 -- 7,160,000(d) 4,725,600 -- 4,725,600 Fontainebleau Las Vegas Holdings LLC/Capital 2nd Mtge 06/15/15 10.25 14,586,000 -- 14,586,000(d) 1,896,180 -- 1,896,180 Indianapolis Downs LLC/Capital Sr Secured 11/01/12 11.00 7,040,000 1,495,000 8,535,000(d) 3,308,800 717,600 4,026,400 MGM Mirage 04/01/13 6.75 2,475,000 -- 2,475,000 1,287,000 -- 1,287,000 06/01/16 7.50 4,450,000 -- 4,450,000 2,291,750 -- 2,291,750 MGM Mirage Sr Secured 11/15/13 13.00 5,150,000 785,000 5,935,000(d) 4,377,500 659,400 5,036,900
10
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED Pokagon Gaming Authority Sr Nts 06/15/14 10.38 $ 8,325,000 $1,000,000 $ 9,325,000(d) $ 7,034,625 $ 850,000 $ 7,884,625 San Pasqual Casino 09/15/13 8.00 -- 1,000,000 1,000,000(d) -- 745,000 745,000 Shingle Springs Tribal Gaming Authority Sr Nts 06/15/15 9.38 15,499,000 2,700,000 18,199,000(d) 7,362,025 1,228,500 8,590,525 Tunica-Biloxi Gaming Authority Sr Unsecured 11/15/15 9.00 10,245,000 -- 10,245,000(d) 8,759,475 -- 8,759,475 Wynn Las Vegas LLC/Capital 1st Mtge 12/01/14 6.63 3,700,000 1,000,000 4,700,000 2,617,750 712,500 3,330,250 ------------------------------------------ Total 58,412,730 6,152,750 64,565,480 ------------------------------------------ GAS DISTRIBUTORS (0.8%) Southwestern Energy Sr Nts 02/01/18 7.50 4,875,000 855,000 5,730,000(d) 4,119,375 726,750 4,846,125 Williams Partners LP/Finance Sr Unsecured 02/01/17 7.25 4,835,000 -- 4,835,000 3,795,475 -- 3,795,475 ------------------------------------------ Total 7,914,850 726,750 8,641,600 ------------------------------------------ GAS PIPELINES (0.7%) El Paso Sr Unsecured 06/15/17 7.00 -- 2,000,000 2,000,000 -- 1,433,986 1,433,986 Southern Star Central Sr Nts 03/01/16 6.75 6,815,000 -- 6,815,000 5,520,150 -- 5,520,150 ------------------------------------------ Total 5,520,150 1,433,986 6,954,136 ------------------------------------------ HEALTH CARE (6.1%) Community Health Systems 07/15/15 8.88 8,208,000 1,000,000 9,208,000 6,586,920 807,500 7,394,420 DaVita 03/15/13 6.63 4,421,000 -- 4,421,000 3,912,585 -- 3,912,585 03/15/15 7.25 4,236,000 1,500,000 5,736,000 3,664,140 1,305,000 4,969,140 HCA Sr Secured 11/15/14 9.13 -- 500,000 500,000 -- 407,500 407,500 11/15/16 9.25 1,255,000 500,000 1,755,000 1,019,688 407,500 1,427,188 HCA Sr Secured Pay-in-kind 11/15/16 9.63 2,860,000 415,000 3,275,000(n) 2,059,200 299,837 2,359,037 HCA Sr Unsecured 02/15/16 6.50 12,190,000 2,000,000 14,190,000 6,826,400 1,130,000 7,956,400 11/06/33 7.50 -- 1,900,000 1,900,000 -- 940,500 940,500 IASIS Healthcare LLC/Capital 06/15/14 8.75 -- 1,800,000 1,800,000 -- 1,377,000 1,377,000 NMH Holdings Sr Unsecured Pay-in-kind 06/15/14 9.94 5,927,654 -- 5,927,654(d,i,n) 4,208,634 -- 4,208,634 Omnicare 12/15/13 6.75 4,638,000 -- 4,638,000 3,872,730 -- 3,872,730 12/15/15 6.88 -- 1,350,000 1,350,000 -- 1,100,250 1,100,250 Omnicare Sr Sub Nts 06/01/13 6.13 3,765,000 -- 3,765,000 3,012,000 -- 3,012,000 Select Medical Sr Unsecured 09/15/15 8.83 15,812,000 2,250,000 18,062,000(i) 9,012,840 1,293,750 10,306,590
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BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED Vanguard Health Holding I LLC (Zero coupon through 10- 01-09, thereafter 11.25%) 10/01/15 7.09 $ 2,955,000 $ -- $ 2,955,000(m) $ 2,275,350 $ -- $ 2,275,350 Vanguard Health Holding II LLC 10/01/14 9.00 6,532,000 1,000,000 7,532,000 5,225,600 805,000 6,030,600 ------------------------------------------ Total 51,676,087 9,873,837 61,549,924 ------------------------------------------ HOME CONSTRUCTION (1.4%) K Hovnanian Enterprises Sr Secured 05/01/13 11.50 7,930,000 875,000 8,805,000 6,066,450 673,750 6,740,200 Norcraft Holdings LP/Capital Sr Disc Nts 09/01/12 9.75 6,200,000 -- 6,200,000 4,960,000 -- 4,960,000 Toll Corp 12/01/11 8.25 -- 250,000 250,000 -- 206,250 206,250 William Lyon Homes 02/15/14 7.50 12,380,000 -- 12,380,000 2,352,200 -- 2,352,200 ------------------------------------------ Total 13,378,650 880,000 14,258,650 ------------------------------------------ INDEPENDENT ENERGY (6.0%) Chesapeake Energy 07/15/13 7.63 -- 3,050,000 3,050,000 -- 2,096,875 2,096,875 08/15/14 7.00 5,722,000 -- 5,722,000 4,348,720 -- 4,348,720 01/15/16 6.63 6,892,000 -- 6,892,000 4,807,170 -- 4,807,170 01/15/18 6.25 2,520,000 -- 2,520,000 1,650,600 -- 1,650,600 Compton Petroleum Finance 12/01/13 7.63 10,221,000 -- 10,221,000(c) 4,190,610 -- 4,190,610 Connacher Oil and Gas Sr Secured 12/15/15 10.25 9,160,000 1,485,000 10,645,000(c,d) 4,763,200 779,625 5,542,825 EXCO Resources 01/15/11 7.25 9,018,000 1,300,000 10,318,000 6,943,860 1,007,500 7,951,360 Forest Oil 06/15/19 7.25 -- 2,000,000 2,000,000 -- 1,380,000 1,380,000 Hilcorp Energy I LP/Finance Sr Unsecured 11/01/15 7.75 9,690,000 -- 9,690,000(d) 6,928,350 -- 6,928,350 PetroHawk Energy 07/15/13 9.13 -- 1,000,000 1,000,000 -- 770,000 770,000 Quicksilver Resources 08/01/15 8.25 6,324,000 -- 6,324,000 4,110,600 -- 4,110,600 04/01/16 7.13 3,900,000 1,700,000 5,600,000 2,242,500 986,000 3,228,500 Range Resources 05/15/16 7.50 3,250,000 -- 3,250,000 2,697,500 -- 2,697,500 05/01/18 7.25 2,010,000 1,000,000 3,010,000 1,602,975 798,750 2,401,725 SandRidge Energy Pay-in-kind 04/01/15 8.63 11,738,000 1,625,000 13,363,000(n) 7,453,630 1,040,000 8,493,630 ------------------------------------------ Total 51,739,715 8,858,750 60,598,465 ------------------------------------------ LODGING (0.3%) Felcor Lodging Sr Unsecured 06/01/11 9.00 -- 2,750,000 2,750,000 -- 1,918,125 1,918,125 Host Hotels & Resorts Sr Secured 06/01/16 6.75 -- 2,000,000 2,000,000 -- 1,340,000 1,340,000 ------------------------------------------ Total -- 3,258,125 3,258,125 ------------------------------------------ MEDIA CABLE (3.5%) Charter Communications Holdings I LLC/Capital Sr Secured 10/01/15 11.00 -- 720,000 720,000 -- 194,400 194,400 Charter Communications Holdings II LLC/Capital 10/01/13 10.25 7,680,000 -- 7,680,000 3,494,400 -- 3,494,400 10/01/13 10.25 2,860,000 415,000 3,275,000(d) 1,215,500 178,450 1,393,950
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BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED Charter Communications Holdings II LLC/Capital Sr Unsecured 09/15/10 10.25 $ -- $1,500,000 $ 1,500,000 $ -- $ 768,750 $ 768,750 Charter Communications Holdings II LLC/Capital Sr Unsecured Series B 09/15/10 10.25 4,617,000 -- 4,617,000 2,193,075 -- 2,193,075 Charter Communications Operating LLC/Capital Sr Secured 04/30/14 8.38 4,056,000 2,000,000 6,056,000(d) 2,758,080 1,370,000 4,128,080 CSC Holdings Sr Unsecured 04/15/12 6.75 -- 1,000,000 1,000,000 -- 842,500 842,500 06/15/15 8.50 12,095,000 2,200,000 14,295,000(d) 9,676,000 1,787,500 11,463,500 Mediacom Broadband LLC Sr Unsecured 10/15/15 8.50 -- 1,000,000 1,000,000 -- 715,000 715,000 Mediacom LLC/Capital Sr Unsecured 01/15/13 9.50 7,220,000 -- 7,220,000 5,920,400 -- 5,920,400 Virgin Media Finance 04/15/14 8.75 5,145,000 800,000 5,945,000(c) 3,717,263 582,000 4,299,263 ------------------------------------------ Total 28,974,718 6,438,600 35,413,318 ------------------------------------------ MEDIA NON CABLE (9.1%) Dex Media Sr Disc Nts 11/15/13 9.00 4,505,000 3,225,000 7,730,000 585,650 435,375 1,021,025 Dex Media West LLC/Finance Sr Sub Nts Series B 08/15/13 9.88 3,819,000 500,000 4,319,000 840,180 111,250 951,430 DIRECTV Holdings LLC/Financing 06/15/15 6.38 5,175,000 1,675,000 6,850,000 4,204,688 1,369,313 5,574,001 05/15/16 7.63 7,266,000 -- 7,266,000 6,194,265 -- 6,194,265 EchoStar DBS 10/01/14 6.63 5,040,000 2,550,000 7,590,000 3,603,600 1,829,625 5,433,225 02/01/16 7.13 10,449,000 -- 10,449,000 7,418,790 -- 7,418,790 Intelsat Sr Unsecured 08/15/14 9.25 6,925,000 1,600,000 8,525,000(d) 5,886,250 1,388,000 7,274,250 Lamar Media 08/15/15 6.63 7,632,000 2,835,000 10,467,000 5,533,200 2,069,550 7,602,750 Lamar Media Series B 08/15/15 6.63 6,030,000 -- 6,030,000 4,371,750 -- 4,371,750 Lamar Media Series C 08/15/15 6.63 4,146,000 -- 4,146,000 3,005,850 -- 3,005,850 LBI Media Sr Sub Nts 08/01/17 8.50 5,112,000 1,000,000 6,112,000(d) 1,789,200 355,000 2,144,200 Liberty Media Sr Unsecured 07/15/29 8.50 -- 1,000,000 1,000,000 -- 624,720 624,720 Liberty Media LLC Sr Unsecured 05/15/13 5.70 19,626,000 2,740,000 22,366,000 13,167,966 1,852,089 15,020,055 LIN Television 05/15/13 6.50 2,655,000 1,000,000 3,655,000 1,234,575 470,000 1,704,575 LIN Television Series B 05/15/13 6.50 640,000 -- 640,000 297,600 -- 297,600 Nielsen Finance LLC 08/01/14 10.00 6,230,000 2,000,000 8,230,000 4,485,600 1,450,000 5,935,600 RadioOne 02/15/13 6.38 9,914,000 -- 9,914,000 3,370,760 -- 3,370,760 Rainbow Natl Services LLC 09/01/12 8.75 12,485,000 -- 12,485,000(d) 10,986,800 -- 10,986,800 09/01/14 10.38 3,003,000 -- 3,003,000(d) 2,597,595 -- 2,597,595
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BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED RH Donnelley Sr Unsecured 01/15/13 6.88 $ 1,579,000 $ -- $ 1,579,000 $ 205,270 $ -- $ 205,270 ------------------------------------------ Total 79,779,589 11,954,922 91,734,511 ------------------------------------------ METALS (1.6%) CII Carbon LLC 11/15/15 11.13 3,890,000 -- 3,890,000(d) 3,656,600 -- 3,656,600 Freeport-McMoRan Copper & Gold Sr Unsecured 04/01/15 8.25 7,965,000 -- 7,965,000 5,774,625 -- 5,774,625 04/01/17 8.38 1,350,000 2,000,000 3,350,000 958,500 1,421,888 2,380,388 Noranda Aluminum Acquisition Pay-in-kind 05/15/15 6.60 11,258,000 1,350,000 12,608,000(i,n) 3,658,850 445,500 4,104,350 Peabody Energy Series B 03/15/13 6.88 -- 500,000 500,000 -- 427,500 427,500 ------------------------------------------ Total 14,048,575 2,294,888 16,343,463 ------------------------------------------ NON CAPTIVE CONSUMER (1.8%) Triad Acquisition Sr Unsecured Series B 05/01/13 11.13 23,225,000 -- 23,225,000 18,115,500 -- 18,115,500 ------------------------------------------ NON CAPTIVE DIVERSIFIED (0.5%) Ford Motor Credit LLC Sr Unsecured 01/12/09 5.80 -- 1,600,000 1,600,000 -- 1,425,846 1,425,846 09/15/10 10.25 -- 1,500,000 1,500,000 -- 757,831 757,831 08/10/11 9.88 2,947,000 -- 2,947,000 1,414,560 -- 1,414,560 GMAC LLC Sr Unsecured 08/28/12 6.88 3,105,000 -- 3,105,000 1,086,964 -- 1,086,964 12/01/14 6.75 -- 1,000,000 1,000,000 -- 325,212 325,212 ------------------------------------------ Total 2,501,524 2,508,889 5,010,413 ------------------------------------------ OIL FIELD SERVICES (0.3%) Bristow Group 09/15/17 7.50 -- 1,000,000 1,000,000 -- 695,000 695,000 Helix Energy Solutions Group Sr Unsecured 01/15/16 9.50 3,068,000 950,000 4,018,000(d) 1,610,700 503,500 2,114,200 ------------------------------------------ Total 1,610,700 1,198,500 2,809,200 ------------------------------------------ OTHER FINANCIAL INSTITUTIONS (1.2%) Cardtronics 08/15/13 9.25 8,906,000 1,400,000 10,306,000 6,601,573 1,044,750 7,646,323 Cardtronics Series B 08/15/13 9.25 5,653,000 -- 5,653,000 4,190,286 -- 4,190,286 ------------------------------------------ Total 10,791,859 1,044,750 11,836,609 ------------------------------------------ OTHER INDUSTRY (0.7%) Chart Inds Sr Sub Nts 10/15/15 9.13 9,185,000 -- 9,185,000 6,567,275 -- 6,567,275 ------------------------------------------ PACKAGING (0.6%) Owens-Brockway Glass Container 05/15/13 8.25 -- 2,000,000 2,000,000(c) -- 1,890,000 1,890,000 Vitro 02/01/17 9.13 16,236,000 -- 16,236,000(c) 4,302,540 -- 4,302,540 ------------------------------------------ Total 4,302,540 1,890,000 6,192,540 ------------------------------------------ PAPER (2.5%) Boise Cascade LLC 10/15/14 7.13 6,482,000 -- 6,482,000 3,629,920 -- 3,629,920
14
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED Cascades 02/15/13 7.25 $ 2,985,000 $ 500,000 $ 3,485,000(c) $ 1,671,600 $ 282,500 $ 1,954,100 Domtar 10/15/11 7.88 -- 1,000,000 1,000,000 -- 820,000 820,000 Georgia-Pacific LLC 01/15/17 7.13 4,918,000 -- 4,918,000(d) 3,614,730 -- 3,614,730 Georgia-Pacific LLC Sr Unsecured 05/15/31 8.88 -- 3,000,000 3,000,000 -- 1,890,000 1,890,000 Graham Packaging Intl 08/15/13 9.50 -- 500,000 500,000 -- 347,500 347,500 Jefferson Smurfit US Sr Unsecured 06/01/13 7.50 8,335,000 -- 8,335,000 2,417,150 -- 2,417,150 NewPage Sr Secured 05/01/12 10.00 11,127,000 1,565,000 12,692,000 6,008,580 852,925 6,861,505 Norampac 06/01/13 6.75 4,247,000 -- 4,247,000(c) 2,165,970 -- 2,165,970 Smurfit-Stone Container Enterprises Sr Unsecured 03/15/17 8.00 3,535,000 1,000,000 4,535,000 936,775 270,000 1,206,775 ------------------------------------------ Total 20,444,725 4,462,925 24,907,650 ------------------------------------------ PHARMACEUTICALS (1.0%) Warner Chilcott 02/01/15 8.75 9,902,000 1,000,000 10,902,000 8,738,515 887,500 9,626,015 ------------------------------------------ RETAILERS (0.3%) Neiman Marcus Group Pay-in-kind 10/15/15 9.00 5,605,000 1,000,000 6,605,000(n) 2,382,125 430,000 2,812,125 Toys "R" Us Sr Unsecured 10/15/18 7.38 -- 1,000,000 1,000,000 -- 415,000 415,000 ------------------------------------------ Total 2,382,125 845,000 3,227,125 ------------------------------------------ TECHNOLOGY (2.3%) Communications & Power Inds 02/01/12 8.00 9,130,000 1,700,000 10,830,000 7,486,600 1,402,500 8,889,100 CPI Intl Sr Unsecured 02/01/15 8.88 1,825,000 -- 1,825,000(i) 1,797,625 -- 1,797,625 Flextronics Sr Sub Nts 11/15/14 6.25 -- 2,000,000 2,000,000(c) -- 1,490,000 1,490,000 SS&C Technologies 12/01/13 11.75 3,414,000 -- 3,414,000 3,021,390 -- 3,021,390 SunGard Data Systems 08/15/13 9.13 -- 1,500,000 1,500,000 -- 1,170,000 1,170,000 08/15/15 10.25 10,890,000 -- 10,890,000 6,316,200 -- 6,316,200 ------------------------------------------ Total 18,621,815 4,062,500 22,684,315 ------------------------------------------ TRANSPORTATION SERVICES (0.8%) Hertz 01/01/14 8.88 2,930,000 1,635,000 4,565,000 1,512,613 852,244 2,364,857 01/01/16 10.50 9,479,000 -- 9,479,000 3,791,600 -- 3,791,600 Quality Distribution LLC/Capital 01/15/12 9.25 4,239,000 -- 4,239,000(i) 1,504,845 -- 1,504,845 ------------------------------------------ Total 6,809,058 852,244 7,661,302 ------------------------------------------ WIRELESS (4.7%) Centennial Communications Sr Nts 01/01/13 9.63 12,491,000 675,000 13,166,000(i) 11,679,085 634,500 12,313,585
15
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED Cricket Communications 11/01/14 9.38 $ -- $1,000,000 $ 1,000,000 $ -- $ 798,750 $ 798,750 07/15/15 10.00 5,915,000 -- 5,915,000(d) 4,909,450 -- 4,909,450 MetroPCS Wireless 11/01/14 9.25 9,995,000 1,590,000 11,585,000 8,195,900 1,311,750 9,507,650 Nextel Communications Series D 08/01/15 7.38 22,311,000 1,930,000 24,241,000 8,924,400 772,363 9,696,763 Nextel Communications Series E 10/31/13 6.88 365,000 -- 365,000 153,300 -- 153,300 Sprint Capital 01/30/11 7.63 10,570,000 1,510,000 12,080,000 7,610,400 1,087,686 8,698,086 Sprint Nextel Sr Unsecured 12/01/16 6.00 -- 1,500,000 1,500,000 -- 833,623 833,623 ------------------------------------------ Total 41,472,535 5,438,672 46,911,207 ------------------------------------------ WIRELINES (5.6%) Citizens Communications Sr Unsecured 03/15/15 6.63 -- 650,000 650,000 -- 425,750 425,750 Fairpoint Communications Sr Unsecured 04/01/18 13.13 7,865,000 1,000,000 8,865,000(d) 4,011,150 515,000 4,526,150 Frontier Communications Sr Unsecured 03/15/19 7.13 9,705,000 -- 9,705,000 5,604,638 -- 5,604,638 GCI Sr Unsecured 02/15/14 7.25 4,930,000 -- 4,930,000 3,956,325 -- 3,956,325 Level 3 Communications Sub Nts 09/15/09 6.00 3,050,000 -- 3,050,000 2,806,000 -- 2,806,000 Level 3 Financing 03/15/13 12.25 5,525,000 1,665,000 7,190,000 3,176,875 965,700 4,142,575 Qwest Sr Unsecured 06/15/15 7.63 11,190,000 2,000,000 13,190,000 8,448,450 1,520,000 9,968,450 06/01/17 6.50 11,610,000 800,000 12,410,000 8,127,000 564,000 8,691,000 09/15/33 6.88 -- 500,000 500,000 -- 301,250 301,250 Qwest Communications Intl 02/15/09 5.65 -- 333,000 333,000(i) -- 331,335 331,335 Windstream 08/01/13 8.13 1,875,000 -- 1,875,000 1,546,875 -- 1,546,875 08/01/16 8.63 11,807,000 1,575,000 13,382,000 9,209,459 1,236,375 10,445,834 03/15/19 7.00 4,605,000 1,000,000 5,605,000 3,188,963 697,500 3,886,463 ------------------------------------------ Total 50,075,735 6,556,910 56,632,645 ------------------------------------------ TOTAL BONDS (Cost: $1,164,725,519) $686,849,745 $119,663,374 $806,513,119 - --------------------------------------------------------------------------------------------------------------------------------
16
SENIOR LOANS (13.2%)(H) COUPON PRINCIPAL PRINCIPAL PRINCIPAL BORROWER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED AEROSPACE & DEFENSE (0.3%) Alion Science and Technology Term Loan TBD TBD 4,565,000 -- 4,565,000(g,p) 2,967,250 -- 2,967,250 ------------------------------------------ AUTOMOTIVE (0.8%) Ford Motor Term Loan TBD TBD 3,110,000 -- 3,110,000(g,p) 1,265,770 -- 1,265,770 12/15/13 4.43 8,257,975 -- 8,257,975 3,360,995 -- 3,360,995 Lear Term Loan TBD TBD 1,935,000 -- 1,935,000(g,p) 932,032 -- 932,032 3.59- 06/27/14 6.26 3,075,000 -- 3,075,000 1,481,135 -- 1,481,135 ------------------------------------------ Total 7,039,932 -- 7,039,932 ------------------------------------------ CHEMICALS (0.7%) Hexion Specialty Chemicals Tranche C Term Loan TBD TBD 13,162,520 -- 13,162,520(g,p) 7,019,967 -- 7,019,967 ------------------------------------------ CONSUMER CYCLICAL SERVICES (0.4%) West Corp Tranche B2 Term Loan TBD TBD 2,094,837 -- 2,094,837(g,p) 1,298,799 -- 1,298,799 3.77- 10/24/13 4.73 4,852,215 -- 4,852,215 3,008,373 -- 3,008,373 ------------------------------------------ Total 4,307,172 -- 4,307,172 ------------------------------------------ ENTERTAINMENT (0.3%) AMC Entertainment Pay-in-kind Term Loan 06/13/12 7.82 5,910,940 -- 5,910,940(n) 2,955,470 -- 2,955,470 ------------------------------------------ FOOD AND BEVERAGE (0.3%) Pinnacle Foods Finance LLC Term Loan 5.60- 04/02/14 6.80 3,823,901 -- 3,823,901 2,619,372 -- 2,619,372 ------------------------------------------ GAMING (1.4%) Fontainebleau Las Vegas Delayed Draw Term Loan TBD TBD 5,657,216 -- 5,657,216(g,p,q) 1,923,453 -- 1,923,453 Fontainebleau Las Vegas Tranche B Term Loan 06/06/14 6.07 11,314,432 -- 11,314,432 3,846,907 -- 3,846,907 Great Lakes Gaming of Michigan Term Loan 08/15/12 9.00 8,230,891 -- 8,230,891(k) 8,066,274 -- 8,066,274 ------------------------------------------ Total 13,836,634 -- 13,836,634 ------------------------------------------ HEALTH CARE (1.8%) HCA Tranche B Term Loan 11/17/13 6.01 11,595,783 -- 11,595,783 8,669,819 -- 8,669,819 IASIS Healthcare LLC Pay-in-kind Term Loan 06/13/14 8.76 17,913,812 -- 17,913,812(n) 8,956,906 -- 8,956,906 ------------------------------------------ Total 17,626,725 -- 17,626,725 ------------------------------------------ MEDIA CABLE (0.8%) Charter Communications Term Loan 3.63- 09/06/14 5.63 12,383,461 -- 12,383,461 8,342,118 -- 8,342,118 ------------------------------------------ MEDIA NON CABLE (1.0%) Dex Media West LLC Tranche B Term Loan TBD TBD 3,250,000 -- 3,250,000(g,p) 1,618,500 -- 1,618,500
17
SENIOR LOANS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL BORROWER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED Idearc Tranche B Term Loan 3.44- 11/17/14 5.77 $ 2,458,744 $ -- $ 2,458,744 $ 797,985 $ -- $ 797,985 Nielson Finance Term Loan TBD TBD 3,090,000 -- 3,090,000(c,g,p) 2,056,519 -- 2,056,519 3.77- 08/09/13 4.39 8,232,167 -- 8,232,167(c) 5,478,837 -- 5,478,837 ------------------------------------------ Total 9,951,841 -- 9,951,841 ------------------------------------------ METALS (--%) Noranda Aluminum Tranche B Term Loan TBD TBD 750,000 -- 750,000(g,p) 438,750 -- 438,750 ------------------------------------------ OIL FIELD SERVICES (1.2%) Dresser 2nd Lien Term Loan 05/04/15 7.99 20,560,000 -- 20,560,000 12,473,135 -- 12,473,135 ------------------------------------------ OTHER FINANCIAL INSTITUTIONS (0.5%) ACE Cash Express Tranche B Term Loan 10/05/13 6.77 9,565,855 -- 9,565,855 5,261,220 -- 5,261,220 ------------------------------------------ PAPER (0.4%) Georgia-Pacific Tranche B1 Term Loan TBD TBD 5,804,290 -- 5,804,290(g,p) 4,516,492 -- 4,516,492 ------------------------------------------ RETAILERS (1.2%) Neiman Marcus Group Term Loan 5,191,251(- TBD TBD 5,191,251 -- g,p) 3,263,065 -- 3,263,065 04/06/13 4.57 2,123,950 -- 2,123,950 1,335,051 -- 1,335,051 Toys "R" Us Tranche B Term Loan TBD TBD 1,870,000 -- 1,870,000(g,p) 1,095,502 -- 1,095,502 07/19/12 5.72 11,110,199 -- 11,110,199 6,508,688 -- 6,508,688 ------------------------------------------ Total 12,202,306 -- 12,202,306 ------------------------------------------ TECHNOLOGY (1.4%) Flextronics Intl Term Loan 6.13- 10/01/14 7.07 13,951,055 -- 13,951,055 9,486,718 -- 9,486,718 Flextronics Intl Tranche A1A Delayed Draw Term Loan 10/01/14 7.07 4,008,924 -- 4,008,924 2,726,068 -- 2,726,068 SunGard Data Systems Tranche B Term Loan TBD TBD 3,305,000 -- 3,305,000(g,p) 2,267,527 -- 2,267,527 ------------------------------------------ Total 14,480,313 -- 14,480,313 ------------------------------------------ WIRELINES (0.7%) Fairpoint Communications Tranche B Term Loan 03/08/15 6.56 11,558,000 -- 11,558,000 7,235,309 -- 7,235,309 ------------------------------------------ TOTAL SENIOR LOANS (Cost: $196,922,339) $133,274,006 $ -- $133,274,006 - --------------------------------------------------------------------------------------------------------------------------------
18
COMMON STOCKS (--%) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED OIL, GAS & CONSUMABLE FUELS (--%) Link Energy LLC Unit 1,646,684 -- 1,646,684(b,j) $ 11,527 $ -- $ 11,527 ------------------------------------------ PAPER & FOREST PRODUCTS (--%) Crown Paper Escrow 29,470,000 -- 29,470,000(b,k) 29 -- 29 ------------------------------------------ TEXTILES, APPAREL & LUXURY GOODS (--%) Arena Brands 111,111 -- 111,111(b,k,l) 158,889 -- 158,889 ------------------------------------------ TOTAL COMMON STOCKS (Cost: $18,965,223) $ 170,445 $ -- $ 170,445 - -------------------------------------------------------------------------------------------------------------------------------- OTHER (0.3%) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED OTHER FINANCIAL INSTITUTIONS Varde Fund V LP 25,000,000 -- 25,000,000(e,k,l) $ 2,698,250 $ -- $ 2,698,250 ------------------------------------------ TOTAL OTHER (Cost: $--) $ 2,698,250 $ -- $ 2,698,250 - -------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUNDS (7.3%) SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE HIGH YIELD HIGH YIELD RIVERSOURCE SELIGMAN BOND FUND RIVERSOURCE SELIGMAN BOND FUND HIGH YIELD HIGH-YIELD PRO FORMA HIGH YIELD HIGH-YIELD PRO FORMA BOND FUND FUND COMBINED BOND FUND FUND COMBINED RiverSource Short-Term Cash Fund, 0.69% 66,162,340 66,162,340(r) $ 66,162,340 -- $ 66,162,340 SSgA U.S. Treasury Money Market Fund -- 7,443,087 7,443,087 -- 7,443,087 7,443,087 ------------------------------------------ TOTAL MONEY MARKET FUNDS (Cost: $73,605,427) $ 66,162,340 $ 7,443,087 $ 73,605,427 ------------------------------------------ TOTAL INVESTMENTS IN SECURITIES $1,016,261,- (Cost: $1,454,218,508)(s) $889,154,786 $127,106,461 247 - -------------------------------------------------------------------------------------------------------------------------------- NOTES TO COMBINED PORTFOLIO OF INVESTMENTS
(A) Securities are valued by procedures described in Note 1 to the financial statements in the annual report. (B) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (C) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. At Nov. 30, 2008, the value of foreign securities represented 3.3% of net assets. (D) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been 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 Nov. 30, 2008, the value of these securities amounted to $160,159,644 of 15.9% of net assets. (E) The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (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) At Nov. 30, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $41,979,589. (H) Senior loans have rates of interest that float periodically based primarily on the London Interbank Offered Rate ("LIBOR") and other short-term rates. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. (I) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2008. 19 (J) Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with companies that are or were affiliates during the six months ended Nov. 30, 2008 are as follows:
BEGINNING PURCHASE SALES ENDING DIVIDEND ISSUER COST COST COST COST INCOME VALUE(A) - ------------------------------------------------------------------------------------------------------------------- Link Energy LLC Unit $13,076,335 -- -- $13,076,335 -- $11,527 - -------------------------------------------------------------------------------------------------------------------
(K) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Nov. 30, 2008, is as follows:
VALUE AS A PERCENTAGE OF VALUE AS A VALUE AS A RIVERSOURCE HIGH PERCENTAGE OF PERCENTAGE OF PRO ACQUISITION YIELD BOND FUND SELIGMAN HIGH-YIELD FORMA COMBINED SECURITY DATES COST NET ASSETS FUND NET ASSETS NET ASSETS - ----------------------------------------------------------------------------------------------------------------------------------- Arena Brands Common 09-03-92 $5,888,888 0.02% -- 0.02% Crown Paper Escrow Common 04-16-07 -- 0.00% -- 0.00% Great Lakes Gaming of Michigan Term Loan 9.00% 2012 03-01-07 thru 09-15-07 8,114,567 0.92% -- 0.80% United Artists Theatre Circuit Pass-Through Ctfs Series BB5 9.30% 2015 12-08-95 thru 04-03-02 6,129,317 0.68% -- 0.59% United Artists Theatre Circuit Pass-Through Ctfs Series BC3 9.30% 2015 12-06-01 1,684,496 0.22% -- 0.19% Varde Fund V LP 04-27-00 thru 06-19-00 --* 0.31% -- 0.27%
* The original cost for this position in fiscal year 2004 was $25,000,000. From Sept. 29, 2004 through March 7, 2005, $25,000,000 was returned to the fund in the form of return of capital. (L) Security valued by management at fair value according to procedures approved, in good faith, by the Board. (M) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized effective yield from the date of acquisition to maturity. (N) Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (O) On Sept. 15, 2008, Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. (P) Represents a senior loan purchased on a when-issued or delayed-delivery basis. Certain details associated with this purchase are not known prior to the settlement date of the transaction. In addition, senior loans typically trade without accrued interest and therefore a weighted average coupon rate is not available prior to settlement. At settlement, if still unknown, the borrower or counterparty will provide the Fund with the final weighted average coupon rate and maturity date. (Q) At Nov. 30, 2008, the Fund had unfunded senior loan commitments pursuant to the term of the loan agreement. The Fund receives a stated coupon rate until the borrower draws on the loan commitment, at which time the rate will become the stated rate in the loan agreement.
BORROWER UNFUNDED COMMITMENT - -------------------------------------------------------------------------------------------- Fontainebleau Las Vegas Delayed Draw $5,509,045
(R) Affiliated Money Market Fund -- See Note 5 to the financial statements in the annual report. The rate shown is the seven-day current annualized yield at Nov. 30, 2008. (S) At Nov. 30, 2008, the approximate cost of securities for federal income tax purposes and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was:
RIVERSOURCE HIGH YIELD BOND FUND RIVERSOURCE SELIGMAN PRO FORMA HIGH YIELD BOND FUND HIGH-YIELD FUND COMBINED Cost of securities for federal income tax purposes: $1,290,929,000 $163,289,000 $1,454,218,000 Unrealized appreciation $ 4,239,000 $ 52,000 $ 4,291,000 Unrealized depreciation (406,013,000) (36,235,000) (442,248,000) - ---------------------------------------------------------------------------------------------------------------- Net unrealized depreciation $ (401,774,000) $(36,183,000) $ (437,957,000) - ----------------------------------------------------------------------------------------------------------------
20 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND) SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) INTRODUCTION TO PROPOSED FUND REORGANIZATION Oct. 31, 2008 The accompanying unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Oct. 31, 2008. These statements have been derived from financial statements prepared for the RiverSource Partners International Select Growth Fund and the Seligman International Growth Fund as of Oct. 31, 2008. RiverSource Partners International Select Growth Fund invests primarily in equity securities of foreign issuers, in both developed and emerging markets, that are believed to offer strong growth potential. Seligman International Growth Fund invests primarily in high-quality, large- and mid- capitalization growth companies with a market capitalization of $1 billion or more at the time of purchase and will invest in any country; however, it typically will not invest in the United States. Under the proposed Agreement and Plan of Reorganization, share classes of Seligman International Growth Fund would be exchanged for share classes of RiverSource Partners International Select Growth Fund.
SELLING FUND BUYING FUND - ----------------------------------------------------------------------------------------------------------------------------- Seligman International Growth Fund Class A RiverSource Partners International Select Growth Fund Class A - ----------------------------------------------------------------------------------------------------------------------------- Seligman International Growth Fund Class B RiverSource Partners International Select Growth Fund Class B - ----------------------------------------------------------------------------------------------------------------------------- Seligman International Growth Fund Class C RiverSource Partners International Select Growth Fund Class C - ----------------------------------------------------------------------------------------------------------------------------- Seligman International Growth Fund Class R(1) RiverSource Partners International Select Growth Fund Class R2(2) - ----------------------------------------------------------------------------------------------------------------------------- Seligman International Growth Fund Class I(1) RiverSource Partners International Select Growth Fund Class R5(2) - -----------------------------------------------------------------------------------------------------------------------------
(1) Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman International Growth Fund will be redesignated as Class R2 and Class R5 shares, respectively. (2) The inception date for the RiverSource Partners International Select Growth Fund Class R2 and Class R5 shares is expected to be in the third quarter of 2009. Note: RiverSource Partners International Select Growth Fund also offers Class I and Class R4 shares. The pro forma combining statements have been prepared to give effect to the proposed transaction on the historical operations of the accounting survivor, RiverSource Partners International Select Growth Fund, as if the transaction had occurred at the beginning of the fiscal year ending Oct. 31, 2008. 21 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND) SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS SELIGMAN INTERNATIONAL PARTNERS INTERNATIONAL INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT GROWTH GROWTH PRO FORMA SELECT GROWTH FUND OCT. 31, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS PRO FORMA COMBINED ASSETS Investments in securities, at cost Unaffiliated issuers $ 519,162,871 $ 45,146,953 $ -- $ 564,309,824 Affiliated money market fund $ 11,780,597 $ -- $ -- $ 11,780,597 -------------------------------------------------------------------- Investments in securities, at value Unaffiliated issuers $ 365,979,624 $ 39,362,312 $ -- $ 405,341,936 Affiliated money market fund $ 11,780,597 $ -- $ -- $ 11,780,597 Cash -- 2,688,791 -- 2,688,791 Foreign currency holdings (identified cost $24 for Seligman International Growth Fund) -- 33 -- 33 Capital shares receivable 222,943 61,705 -- 284,648 Dividends and accrued interest receivable 1,232,232 112,553 -- 1,344,785 Receivable for investment securities sold 6,333,407 2,629,866 -- 8,963,273 Investment management services fees receivable (Note 2) -- -- 16,139(a) 16,139 Transfer agency fees receivable (Note 2) -- -- 139,352(b) 139,352 Other receivable (Note 2) -- -- 32,333(e) 32,333 Receivable from RiverSource Investments, LLC (Note 2) 272,508 -- 923,981(f) 1,196,489 Unrealized appreciation on forward foreign currency contracts 92,879 8,960 -- 101,839 Prepaid expenses -- 36,046 -- 36,046 Other assets -- 6,135 -- 6,135 - ---------------------------------------------------------------------------------------------------------------------- Total assets 385,914,190 44,906,401 1,111,805 431,932,396 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES Foreign currency overdraft 408,258 -- -- 408,258 Capital shares payable 337,883 194,926 -- 532,809 Payable for investment securities purchased 6,072,577 4,524,435 -- 10,597,012 Unrealized depreciation on forward foreign currency contracts 49,386 29,204 -- 78,590 Accrued investment management services fees (Note 2) 10,225 52,908 (63,133)(a) -- Accrued distribution fees 2,189 15,679 -- 17,868 Accrued transfer agency fees (Note 2) 1,989 -- (1,989)(b) -- Accrued administrative services fees (Note 2) 825 -- 62,281(c) 63,106 Accrued plan administration services fees (Note 2) 4 -- 1,404(d) 1,408 Other accrued expenses (Note 2) 127,787 108,855 (236,642)(e) -- - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 7,011,123 4,926,007 (238,079) 11,699,051 - ---------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 378,903,067 $ 39,980,394 $1,349,884 $ 420,233,345 - ---------------------------------------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value for RiverSource Partners International Select Growth Fund and $.001 par value for Seligman International Growth Fund (Note 3) $ 808,978 $ 5,287 $ 84,079 $ 898,344 Additional paid-in capital (Note 3) 593,834,837 74,630,032 (84,079) 668,380,790 Undistributed net investment income (Note 2) 393,561 19,115 1,349,884 1,762,560 Accumulated net realized gain (loss) (62,954,767) (28,895,024) -- (91,849,791) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (153,179,542) (5,779,016) -- (158,958,558) - ---------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 378,903,067 $ 39,980,394 $1,349,884 $ 420,233,345 - ---------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares: Class A $ 190,233,626 $ 17,996,886 $ 607,641 $ 208,838,153 Class B $ 29,647,619 $ 2,083,135 $ 70,334 $ 31,801,088 Class C $ 3,212,928 $ 10,403,453 $ 351,259 $ 13,967,640 Class I $ 155,259,864 N/A $ -- $ 155,259,864 Class R2 N/A $ 414,091 $ 13,981 $ 428,072 Class R4 $ 549,030 N/A $ -- $ 549,030 Class R5 N/A $ 9,082,829 $ 306,669 $ 9,389,498 Shares outstanding (Note 3): Class A shares 40,703,983 2,304,203 -- 44,687,822 Class B shares 6,606,389 308,402 -- 7,086,003 Class C shares 717,874 1,537,450 -- 3,118,479 Class I shares 32,753,046 N/A -- 32,753,046 Class R2 shares N/A 53,633 -- 91,664 Class R4 shares 116,504 N/A -- 116,504 Class R5 shares N/A 1,083,471 -- 1,980,907 Net asset value per share of outstanding capital stock: Class A $ 4.67 $ 7.81 $ -- $ 4.67 Class B $ 4.49 $ 6.75 $ -- $ 4.49 Class C $ 4.48 $ 6.77 $ -- $ 4.48 Class I $ 4.74 N/A $ -- $ 4.74 Class R2 N/A $ 7.72 $ -- $ 4.67 Class R4 $ 4.71 N/A $ -- $ 4.71 Class R5 N/A $ 8.38 $ -- $ 4.74 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements. 22 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND) SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF OPERATIONS
RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS PARTNERS PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL SELECT GROWTH FUND SELECT GROWTH FUND SELECT GROWTH GROWTH PRO FORMA PRO FORMA YEAR ENDED OCT. 31, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS COMBINED INVESTMENT INCOME Income: Dividends $ 16,167,508 $ 1,871,755 $ -- $ 18,039,263 Interest 12,456 15,962 -- 28,418 Income distributions from affiliated money market fund 739,119 -- -- 739,119 Fee income from securities lending 385,329 -- -- 385,329 Less foreign taxes withheld (1,602,354) (140,903) -- (1,743,257) - ---------------------------------------------------------------------------------------------------------------------- Total income 15,702,058 1,746,814 -- 17,448,872 - ---------------------------------------------------------------------------------------------------------------------- Expenses: Investment management services fees (Note 2) 5,965,413 813,827 (79,272)(a) 6,699,968 Distribution fees Class A 850,640 99,447 -- 950,087 Class B 586,365 55,984 -- 642,349 Class C 55,865 225,513 -- 281,378 Class R2 -- 2,810 -- 2,810 Transfer agency fees (Note 2) Class A 730,718 180,772 (75,778)(b) 835,712 Class B 133,231 24,550 (8,600)(b) 149,181 Class C 12,429 104,720 (52,298)(b) 64,851 Class R2 -- 2,737 (2,456)(b) 281 Class R4 569 -- -- 569 Class R5 -- 9,064 (2,209)(b) 6,855 Administrative services fees (Note 2) 511,522 -- 62,281(c) 573,803 Plan administration services fees (Note 2) Class R2 -- -- 1,404(d) 1,404 Class R4 2,845 -- -- 2,845 Compensation of board members (Note 2) 14,027 7,896 (6,106)(e) 15,817 Custodian fees (Note 2) 340,490 177,274 (133,818)(e) 383,946 Printing and postage (Note 2) 102,584 30,105 (17,013)(e) 115,676 Registration fees (Note 2) 66,850 64,770 (56,238)(e) 75,382 Professional fees (Note 2) 58,787 56,216 (48,713)(e) 66,290 Other (Note 2) 34,814 11,530 (7,087)(e) 39,257 - ---------------------------------------------------------------------------------------------------------------------- Total expenses 9,467,149 1,867,215 (425,903) 10,908,461 Expenses waived/reimbursed by RiverSource Investments, LLC (Note 2) (277,382) (23,792) (923,981)(f) (1,225,155) Earnings and bank fee credits on cash balances (5,620) -- -- (5,620) - ---------------------------------------------------------------------------------------------------------------------- Total net expenses 9,184,147 1,843,423 (1,349,884) 9,677,686 - ---------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 6,517,911 (96,609) 1,349,884 7,771,186 - ---------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (58,195,406) (30,998,937) -- (89,194,343) Foreign currency transactions (527,664) 1,929,320 -- 1,401,656 Payment from RiverSource Investments, LLC 272,508 -- -- 272,508 - ---------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (58,450,562) (29,069,617) -- (87,520,179) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (346,344,916) (31,217,589) -- (377,562,505) - ---------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (404,795,478) (60,287,206) -- (465,082,684) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(398,277,567) $(60,383,815) $ 1,349,884 $(457,311,498) - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements. 23 RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (BUYING FUND) SELIGMAN INTERNATIONAL GROWTH FUND (SELLING FUND) NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited as to Oct. 31, 2008) 1. BASIS OF COMBINATION The unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Oct. 31, 2008. These statements have been derived from financial statements prepared for the RiverSource Partners International Select Growth Fund and the Seligman International Growth Fund as of Oct. 31, 2008. Each Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The primary investments of each Fund are as follows: RiverSource Partners International Select Growth Fund invests primarily in equity securities of foreign issuers, in both developed and emerging markets, that are believed to offer strong growth potential. Seligman International Growth Fund invests primarily in high-quality, large- and mid-capitalization growth companies with a market capitalization of $1 billion or more at the time of purchase and will invest in any country; however, it typically will not invest in the United States. The pro forma statements give effect to the proposed transfer of the assets and liabilities of Seligman International Growth Fund in exchange for Class A, Class B, Class C, Class R2 and Class R5 shares of RiverSource Partners International Select Growth Fund under U.S. generally accepted accounting principles. The pro forma statements reflect estimates for the combined RiverSource Partners International Select Growth Fund based on the increased asset level of the Reorganization and associated economies of scale, adjusted to reflect current fees. The pro forma combining statements should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statement of Additional Information. The pro forma statement of operations give effect to the proposed transaction on the historical operations of the accounting survivor, RiverSource Partners International Select Growth Fund, as if the transaction had occurred at the beginning of the year presented. 2. PRO FORMA ADJUSTMENTS (a) To reflect the change in investment management services fee due to the Reorganization. In addition, the Performance Incentive Adjustment (PIA) was calculated based on the combined average net assets of the two funds and the RiverSource Partners International Select Growth Fund PIA rate as of Oct. 31, 2008. (b) To reflect the change in transfer agent fees due to the Reorganization including adjusting for closed account fees for each Seligman International Growth Fund shareholder account that will be closed on the system as a result of the Reorganization. (c) To reflect the change in administrative services fees due to the Reorganization. (d) To reflect the change in plan administration services fees due to the Reorganization. (e) To reflect the change in other fees due to the Reorganization. (f) To adjust the expense reimbursement to reflect the net reduction in fees resulting from the Reorganization per the agreement (through Oct. 31, 2009) by RiverSource Investments, LLC and its affiliates to waive certain fees and absorb certain expenses of the combined fund. 24 3. CAPITAL SHARES The pro forma net asset value per share assumes the issuance of additional Class A, Class B, Class C, Class R2 and Class R5 shares of RiverSource Partners International Select Growth Fund as if the Reorganization were to have taken place on Oct. 31, 2008. The following table reflects the number of RiverSource Partners International Select Growth Fund shares assumed to be issued to the shareholders of the Seligman International Growth Fund.
RIVERSOURCE SELIGMAN PARTNERS INTERNATIONAL INTERNATIONAL TOTAL GROWTH FUND SELECT GROWTH FUND PRO FORMA SHARES ISSUED SHARES OUTSTANDING SHARES OUTSTANDING - ---------------------------------------------------------------------------------------------------------------- Class A 3,983,839 40,703,983 44,687,822 - ---------------------------------------------------------------------------------------------------------------- Class B 479,614 6,606,389 7,086,003 - ---------------------------------------------------------------------------------------------------------------- Class C 2,400,605 717,874 3,118,479 - ---------------------------------------------------------------------------------------------------------------- Class I N/A 32,753,046 32,753,046 - ---------------------------------------------------------------------------------------------------------------- Class R2(1),(2) 91,664 N/A 91,664 - ---------------------------------------------------------------------------------------------------------------- Class R4 N/A 116,504 116,504 - ---------------------------------------------------------------------------------------------------------------- Class R5(1),(2) 1,980,907 N/A 1,980,907 - ----------------------------------------------------------------------------------------------------------------
(1) Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman International Growth Fund will be redesignated as Class R2 and Class R5 shares, respectively. (2) The inception date for the RiverSource Partners International Select Growth Fund Class R2 and Class R5 shares is expected to be in the third quarter of 2009. 25 COMBINED PORTFOLIO OF INVESTMENTS RiverSource Partners International Select Growth Fund OCT. 31, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (96.5%)(C) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED AUSTRALIA (4.0%) Australian Stock Exchange 30,000 -- 30,000 $ 602,083 $ -- $ 602,083 BHP Billiton 230,250 -- 230,250 4,421,058 -- 4,421,058 Billabong Intl 155,000 -- 155,000 1,238,434 -- 1,238,434 Centennial Coal 226,795 -- 226,795 533,044 -- 533,044 CSL 76,559 28,623 105,182 1,860,918 697,638 2,558,556 Leighton Holdings 43,763 -- 43,763 727,297 -- 727,297 Mount Gibson Iron 292,336 -- 292,336(b) 73,119 -- 73,119 OneSteel 214,024 -- 214,024 491,444 -- 491,444 Origin Energy 153,032 -- 153,032 1,604,046 -- 1,604,046 Perpetual 35,000 -- 35,000 814,601 -- 814,601 Rio Tinto 38,029 -- 38,029 1,966,312 -- 1,966,312 Sino Gold Mining 323,000 -- 323,000(b) 743,575 -- 743,575 Sonic Healthcare 97,607 -- 97,607 891,528 -- 891,528 ------------------------------------------------------- Total 15,967,459 697,638 16,665,097 ------------------------------------------------------- AUSTRIA (0.4%) OMV 20,288 -- 20,288 649,187 -- 649,187 Verbund Series A 23,257 -- 23,257 1,099,820 -- 1,099,820 ------------------------------------------------------- Total 1,749,007 -- 1,749,007 ------------------------------------------------------- BELGIUM (0.7%) Colruyt 4,203 -- 4,203 944,315 -- 944,315 Eurofins Scientific 8,000 -- 8,000 447,988 -- 447,988 Groupe Bruxelles Lambert 8,156 -- 8,156 598,950 -- 598,950 Hansen Transmis- sions Intl -- 209,064 209,064(b) -- 353,482 353,482 Mobistar 10,571 -- 10,571 701,244 -- 701,244 ------------------------------------------------------- Total 2,692,497 353,482 3,045,979 ------------------------------------------------------- BRAZIL (0.8%) Companhia Vale do Rio Doce ADR -- 20,300 20,300 -- 266,336 266,336 Localiza Rent A Car 117,300 -- 117,300 456,589 -- 456,589 Natura Cosmeticos 70,000 -- 70,000 590,361 -- 590,361 Petroleo Brasileiro ADR -- 10,700 10,700 -- 287,723 287,723 Porto Seguro 150,000 -- 150,000 747,220 -- 747,220 Suzano Papel e Celulose 196,000 -- 196,000 1,167,099 -- 1,167,099 ------------------------------------------------------- Total 2,961,269 554,059 3,515,328 ------------------------------------------------------- CAMBODIA (0.1%) NagaCorp 2,500,000 -- 2,500,000 436,171 -- 436,171 ------------------------------------------------------- CANADA (4.8%) Agrium 19,400 -- 19,400 743,349 -- 743,349 Alimentation Couche-Tard 58,100 -- 58,100 783,539 -- 783,539 Barrick Gold -- 10,100 10,100 -- 229,472 229,472 Brookfield Asset Management Cl A 71,600 -- 71,600 1,253,795 -- 1,253,795 Canadian Natural Resources -- 4,800 4,800 -- 242,210 242,210 Canadian Oil Sands Trust Unit 29,400 -- 29,400 789,075 -- 789,075 CCL Inds Cl B 31,000 -- 31,000 771,816 -- 771,816 CGI Group Cl A 102,218 -- 102,218(b) 816,082 -- 816,082 EnCana 67,600 -- 67,600 3,435,120 -- 3,435,120 Gildan Activewear 24,943 -- 24,943(b) 581,682 -- 581,682
26
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED Horizon North Logistics 114,400 -- 114,400(b) $ 75,004 $ -- $ 75,004 Ivanhoe Mines 39,000 -- 39,000(b) 101,954 -- 101,954 Potash Corp of Saskatchewan 20,400 12,800 33,200 1,737,034 1,091,328 2,828,362 Precision Drilling Trust Unit 36,300 -- 36,300 391,635 -- 391,635 Research in Motion -- 7,600 7,600(b) -- 383,268 383,268 Rogers Communica- tions Cl B -- 13,400 13,400 -- 389,004 389,004 ShawCor Cl A 77,300 -- 77,300 1,170,775 -- 1,170,775 Shoppers Drug Mart 39,400 -- 39,400 1,517,208 -- 1,517,208 Sino-Forest Cl A 91,200 -- 91,200(b) 853,758 -- 853,758 Suncor Energy 13,900 -- 13,900 333,960 -- 333,960 Talisman Energy -- 20,000 20,000 -- 197,627 197,627 Teck Cominco Cl B 53,400 -- 53,400 531,807 -- 531,807 Tesco 16,500 -- 16,500(b) 187,770 -- 187,770 Toronto- Dominion Bank 15,700 -- 15,700 741,644 -- 741,644 Uranium One 138,000 -- 138,000(b) 116,818 -- 116,818 UTS Energy 77,000 -- 77,000(b) 58,791 -- 58,791 Viterra 62,800 -- 62,800(b) 398,705 -- 398,705 Xtreme Coil Drilling 14,600 -- 14,600(b) 46,043 -- 46,043 ------------------------------------------------------- Total 17,437,364 2,532,909 19,970,273 ------------------------------------------------------- CHILE (0.4%) SQM ADR 73,000 -- 73,000 1,671,700 -- 1,671,700 ------------------------------------------------------- CHINA (1.1%) China Communica- tions Construction -- 166,000 166,000 -- 115,961 115,961 China Mass Media Intl Advertising ADR 65,200 -- 65,200(b) 283,620 -- 283,620 China Shipping Development Series H 803,000 -- 803,000 791,361 -- 791,361 Ctrip.com Intl ADR -- 12,300 12,300 -- 376,134 376,134 Jiangsu Expressway Series H 1,572,000 -- 1,572,000 1,099,606 -- 1,099,606 Mindray Medical Intl ADR 16,000 -- 16,000 344,960 -- 344,960 Parkson Retail Group -- 228,500 228,500 -- 209,722 209,722 Sinotrans Series H 2,100,000 -- 2,100,000 471,572 -- 471,572 Sohu.com -- 8,400 8,400(b) -- 461,496 461,496 TravelSky Technology Series H 762,900 -- 762,900 183,572 -- 183,572 VisionChina Media ADR 23,800 -- 23,800(b) 190,400 -- 190,400 ------------------------------------------------------- Total 3,365,091 1,163,313 4,528,404 ------------------------------------------------------- CZECH REPUBLIC (0.2%) Komercni Banka 4,400 -- 4,400 670,981 -- 670,981 ------------------------------------------------------- DENMARK (1.2%) Carlsberg Cl B -- 3,446 3,446 -- 136,434 136,434 Novo Nordisk Series B 51,000 -- 51,000 2,733,692 -- 2,733,692 Novozymes Series B 12,070 -- 12,070 852,072 -- 852,072 Vestas Wind Systems 26,025 9,828 35,853(b) 1,065,958 404,536 1,470,494 ------------------------------------------------------- Total 4,651,722 540,970 5,192,692 ------------------------------------------------------- FINLAND (1.5%) Cargotec Series B 24,000 -- 24,000 332,108 -- 332,108 Fortum 48,994 -- 48,994 1,203,653 -- 1,203,653 Jaakko Poyry Group 81,000 -- 81,000 1,074,895 -- 1,074,895 Nokia 152,209 32,538 184,747 2,330,743 496,303 2,827,046 Ramirent 90,000 -- 90,000 362,740 -- 362,740 Stockmann Series B 49,000 -- 49,000 660,157 -- 660,157 ------------------------------------------------------- Total 5,964,296 496,303 6,460,599 ------------------------------------------------------- FRANCE (5.3%) ALSTOM 31,243 -- 31,243 1,547,971 -- 1,547,971 APRIL Group 16,000 -- 16,000 580,073 -- 580,073
27
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED BNP Paribas -- 9,112 9,112 $ -- $ 661,455 $ 661,455 Carbone Lorraine 16,800 -- 16,800 499,447 -- 499,447 Eutelsat Communica- tions 31,521 -- 31,521 676,304 -- 676,304 France Telecom -- 31,430 31,430 -- 793,124 793,124 GDF Suez 99,746 -- 99,746 4,438,489 -- 4,438,489 Gemalto 25,040 -- 25,040(b) 701,305 -- 701,305 Hermes Intl 10,905 -- 10,905 1,406,993 -- 1,406,993 Hi-Media 50,000 -- 50,000(b) 127,113 -- 127,113 Iliad 11,000 -- 11,000 869,650 -- 869,650 Ingenico 23,377 -- 23,377 364,971 -- 364,971 Meetic 20,000 -- 20,000(b) 281,912 -- 281,912 Neopost 12,000 -- 12,000 1,004,314 -- 1,004,314 Norbert Dentressan- gle 12,500 -- 12,500 689,163 -- 689,163 Pierre & Vacances 11,000 -- 11,000 503,579 -- 503,579 PPR -- 8,227 8,227(b) -- 523,954 523,954 Rubis 13,200 -- 13,200 730,841 -- 730,841 Sanofi- Aventis -- 8,325 8,325 -- 523,995 523,995 Societe Generale -- 5,307 5,307 -- 291,394 291,394 SR Teleperform- ance 28,979 -- 28,979 625,105 -- 625,105 SUEZ 20 -- 20 867 -- 867 Total -- 6,874 6,874 -- 377,553 377,553 Ubisoft Entertain- ment 15,290 -- 15,290(b) 807,931 -- 807,931 Unibail- Rodamco 8,131 -- 8,131 1,219,095 -- 1,219,095 Vallourec 5,210 -- 5,210 582,579 -- 582,579 Vivendi 50,233 -- 50,233 1,312,582 -- 1,312,582 ------------------------------------------------------- Total 18,970,284 3,171,475 22,141,759 ------------------------------------------------------- GERMANY (5.6%) Allianz -- 2,456 2,456 -- 183,927 183,927 Bayer 26,618 -- 26,618 1,488,308 -- 1,488,308 CTS Eventim 38,900 -- 38,900 965,704 -- 965,704 Deutsche Beteiligungs 17,500 -- 17,500 232,702 -- 232,702 Deutsche Telekom -- 58,432 58,432 -- 869,732 869,732 E.ON 137,121 -- 137,121 5,245,880 -- 5,245,880 ElringKlin- ger 54,500 -- 54,500 444,214 -- 444,214 Fresenius Medical -- 13,242 13,242 -- 594,236 594,236 GEA Group 48,989 -- 48,989 705,725 -- 705,725 Hamburger Hafen und Logistik 9,000 -- 9,000 301,349 -- 301,349 Metro -- 3,687 3,687 -- 118,818 118,818 MPC Muenchmeyer Petersen Capital 3,000 -- 3,000 28,225 -- 28,225 Rational 8,200 -- 8,200 843,066 -- 843,066 Rhon- Klinikum 84,100 -- 84,100 1,808,085 -- 1,808,085 RWE 13,685 -- 13,685 1,137,611 -- 1,137,611 SAP 72,747 -- 72,747 2,566,811 -- 2,566,811 SGL Carbon 25,902 -- 25,902(b) 508,291 -- 508,291 Siemens 29,647 -- 29,647 1,780,304 -- 1,780,304 Takkt 40,000 -- 40,000 392,247 -- 392,247 Tognum 26,600 -- 26,600 296,574 -- 296,574 Vossloh 13,900 -- 13,900 1,058,633 -- 1,058,633 Wacker Chemie 6,226 -- 6,226 677,220 -- 677,220 Wincor Nixdorf 28,100 -- 28,100 1,220,124 -- 1,220,124 ZhongDe Waste Technology 12,100 -- 12,100 149,877 -- 149,877 ------------------------------------------------------- Total 21,850,950 1,766,713 23,617,663 -------------------------------------------------------
28
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED GREECE (0.8%) Alpha Bank 87,238 -- 87,238 $ 1,273,218 $ -- $ 1,273,218 Intralot- Integrated Lottery Systems & Services 251,000 -- 251,000 1,291,709 -- 1,291,709 OPAP 45,376 -- 45,376 990,420 -- 990,420 ------------------------------------------------------- Total 3,555,347 -- 3,555,347 ------------------------------------------------------- HONG KONG (2.4%) BOC Hong Kong Holdings 428,500 -- 428,500 490,631 -- 490,631 Cheung Kong Holdings 89,000 -- 89,000 854,585 -- 854,585 China Green Holdings 1,420,000 -- 1,420,000 1,102,535 -- 1,102,535 China Mobile -- 22,500 22,500 -- 197,419 197,419 Esprit Holdings -- 10,500 10,500 -- 58,946 58,946 FU JI Food & Catering Services Holdings 737,000 -- 737,000 390,163 -- 390,163 Global Digital Creations Holdings 1,894,600 -- 1,894,600(b) 21,758 -- 21,758 Hang Seng Bank 64,400 -- 64,400 803,597 -- 803,597 Hong Kong Aircraft Engineering 50,000 -- 50,000 394,136 -- 394,136 Hong Kong Exchanges and Clearing 140,000 -- 140,000 1,419,797 -- 1,419,797 Hopewell Highway Infrastruc- ture 1,100,000 -- 1,100,000 720,217 -- 720,217 Hutchison Whampoa 249,000 -- 249,000 1,345,642 -- 1,345,642 Lenovo Group 1,257,000 -- 1,257,000 381,138 -- 381,138 Lifestyle Intl Holdings 860,000 -- 860,000 574,081 -- 574,081 Noble Group 642,000 -- 642,000 467,559 -- 467,559 REXCAPITAL Financial Holdings 5,000,000 -- 5,000,000(b) 92,400 -- 92,400 TPV Technology 1,495,000 -- 1,495,000 296,835 -- 296,835 Wharf Holdings 172,000 -- 172,000 343,198 -- 343,198 Xinyu Hengdeli Holdings 1,600,000 -- 1,600,000 290,280 -- 290,280 ------------------------------------------------------- Total 9,988,552 256,365 10,244,917 ------------------------------------------------------- INDIA (1.0%) Asian Paints 48,446 -- 48,446 948,029 -- 948,029 Housing Development Finance 33,000 -- 33,000 1,197,876 -- 1,197,876 Jain Irrigation Systems 77,000 -- 77,000 480,755 -- 480,755 Mundra Port and Special Economic Zone 63,500 -- 63,500 468,449 -- 468,449 Shree Cement 8,350 -- 8,350 68,553 -- 68,553 Shriram Transport Finance 80,000 -- 80,000 355,023 -- 355,023 United Phosphorus 380,000 -- 380,000 837,318 -- 837,318 ------------------------------------------------------- Total 4,356,003 -- 4,356,003 ------------------------------------------------------- INDONESIA (0.1%) Perusahaan Gas Negara 3,500,000 -- 3,500,000 438,744 -- 438,744 ------------------------------------------------------- IRELAND (0.5%) Paddy Power 24,500 -- 24,500 417,623 -- 417,623 United Drug 400,000 -- 400,000 1,553,717 -- 1,553,717 ------------------------------------------------------- Total 1,971,340 -- 1,971,340 ------------------------------------------------------- ISRAEL (0.5%) Teva Pharmaceuti- cal Inds ADR -- 43,900 43,900 -- 1,882,432 1,882,432 ------------------------------------------------------- ITALY (1.0%) Amplifon 69,500 -- 69,500 108,379 -- 108,379 Cobra Automotive Technologies 30,000 -- 30,000(b) 80,488 -- 80,488 Compagnie Industriali Riunite 453,100 -- 453,100 486,566 -- 486,566 Enel 177,532 -- 177,532 1,187,314 -- 1,187,314 GranitiFian- dre 62,000 -- 62,000 295,298 -- 295,298 Lottomatica 34,182 -- 34,182 797,798 -- 797,798
29
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED SABAF 15,000 -- 15,000 $ 309,065 $ -- $ 309,065 Terna -- R- ete Elettrica Nationale 253,964 -- 253,964 818,778 -- 818,778 ------------------------------------------------------- Total 4,083,686 -- 4,083,686 ------------------------------------------------------- JAPAN (20.7%) AEON Delight 35,000 -- 35,000 862,450 -- 862,450 AEON Mall 54,000 -- 54,000 1,333,410 -- 1,333,410 Ain Pharmaciez 35,000 -- 35,000 670,836 -- 670,836 AS ONE 28,600 -- 28,600 569,247 -- 569,247 Asahi Breweries 80,900 -- 80,900 1,335,726 -- 1,335,726 Asics 95,100 -- 95,100 596,035 -- 596,035 Astellas Pharma 23,900 10,600 34,500 962,931 433,347 1,396,278 Bank of Kyoto 76,000 -- 76,000 799,648 -- 799,648 Benesse 18,700 -- 18,700 785,636 -- 785,636 Canon 33,400 -- 33,400 1,169,048 -- 1,169,048 Chuo Mitsui Trust Holdings 110,000 -- 110,000 434,114 -- 434,114 Cosel 69,900 -- 69,900 580,877 -- 580,877 CyberAgent 700 -- 700 625,113 -- 625,113 Daihatsu Motor 78,000 -- 78,000 577,668 -- 577,668 Daiichi Sankyo -- 10,300 10,300 -- 210,780 210,780 Daito Trust Construction 19,000 -- 19,000 801,739 -- 801,739 East Japan Railway 369 -- 369 2,626,539 -- 2,626,539 Eisai -- 10,200 10,200 -- 335,299 335,299 FamilyMart 22,900 -- 22,900 907,531 -- 907,531 Fast Retailing 17,163 -- 17,163 1,830,225 -- 1,830,225 FCC 60,000 -- 60,000 748,863 -- 748,863 Fukuoka REIT 120 -- 120 471,728 -- 471,728 Glory 35,000 -- 35,000 501,729 -- 501,729 Hamamatsu Photonics 25,000 -- 25,000 555,031 -- 555,031 Hisamitsu Pharmaceuti- cal 26,200 -- 26,200 1,092,308 -- 1,092,308 Hitachi 434,000 -- 434,000 2,038,222 -- 2,038,222 Hitachi Metals 68,000 -- 68,000 511,442 -- 511,442 Honda Motor 49,900 -- 49,900 1,241,129 -- 1,241,129 Hosiden 58,300 -- 58,300 612,429 -- 612,429 Ibiden 35,000 -- 35,000 654,910 -- 654,910 ITOCHU 189,000 -- 189,000 999,097 -- 999,097 Japan Pure Chemical 46 -- 46 103,495 -- 103,495 Japan Tobacco 621 168 789 2,203,721 596,540 2,800,261 Jupiter Telecommuni- cations 2,100 -- 2,100 1,407,356 -- 1,407,356 Kamigumi 130,000 -- 130,000 1,034,514 -- 1,034,514 Kansai Paint 370,000 -- 370,000 2,065,596 -- 2,065,596 Kansai Urban Banking 10,400 -- 10,400 12,079 -- 12,079 KDDI 247 -- 247 1,480,322 -- 1,480,322 Keyence 4,400 -- 4,400 843,413 -- 843,413 Kintetsu World Express 35,400 -- 35,400 513,934 -- 513,934 Konami 31,000 -- 31,000 560,973 -- 560,973 Kurita Water Inds 30,600 -- 30,600 698,367 -- 698,367 Lawson 20,900 -- 20,900 1,021,801 -- 1,021,801 Makita 26,000 -- 26,000 471,574 -- 471,574 Marubeni 319,000 -- 319,000 1,239,676 -- 1,239,676 Mitsubishi 129,300 -- 129,300 2,167,912 -- 2,167,912 Mitsubishi Electric 272,000 -- 272,000 1,686,687 -- 1,686,687 Mitsubishi UFJ Financial Group 426,000 -- 426,000 2,677,806 -- 2,677,806 Mitsui & Co 109,000 -- 109,000 1,056,451 -- 1,056,451 Mitsui Fudosan 121,000 16,000 137,000 2,111,225 275,464 2,386,689 Mitsui OSK Lines 184,000 -- 184,000 961,100 -- 961,100
30
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED Mitsui Sumitomo Insurance Group Holdings 22,500 -- 22,500 $ 625,413 $ -- $ 625,413 MIURA 27,300 -- 27,300 560,927 -- 560,927 Nakanishi 8,400 -- 8,400 602,146 -- 602,146 NGK Insulators 43,000 -- 43,000 446,751 -- 446,751 Nikon 73,000 -- 73,000 1,029,087 -- 1,029,087 Nintendo 8,900 1,200 10,100 2,860,443 378,477 3,238,920 Nippon Building Fund 90 -- 90 865,051 -- 865,051 Nippon Meat Packers 51,000 -- 51,000 699,714 -- 699,714 Nippon Residential Investment 208 -- 208 111,964 -- 111,964 Nippon Yusen Kabushiki Kaisha 179,000 -- 179,000 865,828 -- 865,828 NTT DoCoMo -- 235 235 -- 372,841 372,841 Olympus 27,000 -- 27,000 520,484 -- 520,484 ORIX JREIT 140 -- 140 641,964 -- 641,964 Osaka Securities Exchange 255 -- 255 838,156 -- 838,156 Panasonic 165,000 -- 165,000 2,657,857 -- 2,657,857 POINT 20,000 -- 20,000 982,553 -- 982,553 Rakuten 2,104 -- 2,104 1,043,324 -- 1,043,324 Ryohin Keikaku 13,000 -- 13,000 622,181 -- 622,181 Seven Bank 421 -- 421 1,212,919 -- 1,212,919 Shimano 23,700 -- 23,700 678,139 -- 678,139 Shin-Etsu Chemical 47,000 -- 47,000 2,499,005 -- 2,499,005 Sony 17,300 -- 17,300 410,131 -- 410,131 Square Enix Holdings 23,000 -- 23,000 579,615 -- 579,615 Suruga Bank 144,000 -- 144,000 1,355,921 -- 1,355,921 Sysmex 16,800 -- 16,800 522,045 -- 522,045 T&D Holdings 18,300 -- 18,300 699,279 -- 699,279 T. Hasegawa 42,500 -- 42,500 606,812 -- 606,812 Tamron 35,000 -- 35,000 376,418 -- 376,418 Tokio Marine Holdings 67,600 -- 67,600 2,085,765 -- 2,085,765 TOPCON 127,800 -- 127,800 719,522 -- 719,522 Uni-Charm -- 5,700 5,700 -- 406,750 406,750 Unicharm PetCare 31,300 -- 31,300 1,104,766 -- 1,104,766 Union Tool 25,600 -- 25,600 567,829 -- 567,829 Ushio 45,000 -- 45,000 608,096 -- 608,096 USS 11,000 -- 11,000 673,940 -- 673,940 Wacom 413 -- 413 364,760 -- 364,760 Yahoo! Japan -- 1,115 1,115 -- 365,023 365,023 Yokohama Rubber 126,000 -- 126,000 618,424 -- 618,424 Yusen Air & Sea Service 52,000 -- 52,000 558,488 -- 558,488 ZENRIN 26,000 -- 26,000 218,561 -- 218,561 ------------------------------------------------------- Total 83,647,941 3,374,521 87,022,462 ------------------------------------------------------- LUXEMBOURG (0.7%) ArcelorMit- tal 39,516 -- 39,516 1,025,534 -- 1,025,534 Millicom Intl Cellular -- 10,600 10,600 -- 424,000 424,000 SES FDR 82,000 -- 82,000 1,474,624 -- 1,474,624 ------------------------------------------------------- Total 2,500,158 424,000 2,924,158 ------------------------------------------------------- MEXICO (0.4%) Financiera Independen- cia 177,654 -- 177,654 122,404 -- 122,404 Grupo Aeropor- tuario del Sureste ADR 24,000 -- 24,000 773,760 -- 773,760 Urbi Desarrollos Urbanos 500,000 -- 500,000(b) 751,283 -- 751,283 ------------------------------------------------------- Total 1,647,447 -- 1,647,447 ------------------------------------------------------- NETHERLANDS (4.6%) Aalberts Inds 91,317 -- 91,317 833,948 -- 833,948 Arcadis 48,900 -- 48,900 578,517 -- 578,517
31
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED Fugro 58,686 -- 58,686 $ 2,096,360 $ -- $ 2,096,360 Imtech 94,000 -- 94,000 1,435,565 -- 1,435,565 Koninklijke (Royal) KPN 177,259 29,240 206,499 2,495,490 411,430 2,906,920 Koninklijke Ahold 159,087 -- 159,087 1,707,254 -- 1,707,254 Koninklijke DSM 17,547 -- 17,547 488,483 -- 488,483 Koninklijke Vopak 39,126 -- 39,126 1,268,153 -- 1,268,153 Qiagen 29,712 -- 29,712(b) 423,313 -- 423,313 Reed Elsevier 122,169 -- 122,169 1,632,340 -- 1,632,340 Royal Boskalis Westminster 18,419 -- 18,419 607,855 -- 607,855 Smit Intl 13,400 -- 13,400 903,800 -- 903,800 Ten Cate 74,320 -- 74,320 1,575,191 -- 1,575,191 Unilever 70,309 -- 70,309 1,693,811 -- 1,693,811 Unit 4 Agresso 64,150 -- 64,150 960,568 -- 960,568 Wavin 66,830 -- 66,830 233,133 -- 233,133 ------------------------------------------------------- Total 18,933,781 411,430 19,345,211 ------------------------------------------------------- NEW ZEALAND (0.1%) Sky City Entertain- ment Group 264,229 -- 264,229 509,677 -- 509,677 ------------------------------------------------------- NORWAY (0.7%) DNB NOR 100 -- 100 580 -- 580 Kongsberg Automotive 63,150 -- 63,150(b) 34,429 -- 34,429 StatoilHydro 84,200 -- 84,200 1,694,523 -- 1,694,523 Tandberg 34,300 -- 34,300 424,614 -- 424,614 Yara Intl 29,770 -- 29,770 622,312 -- 622,312 ------------------------------------------------------- Total 2,776,458 -- 2,776,458 ------------------------------------------------------- POLAND ( -- %) ING Bank Slaski 1,200 -- 1,200 172,178 -- 172,178 ------------------------------------------------------- PORTUGAL (0.2%) Jeronimo Martins 140,138 -- 140,138 714,902 -- 714,902 ------------------------------------------------------- RUSSIA (0.1%) RBC Information Systems ADR 10,450 -- 10,450 56,221 -- 56,221 Vimpelcom ADR -- 20,800 20,800(b) -- 301,600 301,600 ------------------------------------------------------- Total 56,221 301,600 357,821 ------------------------------------------------------- SINGAPORE (1.1%) CDL Hospitality Trusts 1,344,500 -- 1,344,500 613,571 -- 613,571 ComfortDel- Gro 850,000 -- 850,000 697,537 -- 697,537 Mapletree Logistics Trust 1,973,100 -- 1,973,100 560,574 -- 560,574 Mapletree Logistics Trust Series A 1,479,825 -- 1,479,825(e) 406,021 -- 406,021 Olam Intl 800,000 -- 800,000 704,547 -- 704,547 Singapore Exchange 450,000 -- 450,000 1,611,513 -- 1,611,513 ------------------------------------------------------- Total 4,593,763 -- 4,593,763 ------------------------------------------------------- SOUTH AFRICA (0.8%) Impala Platinum Holdings 66,000 -- 66,000 690,389 -- 690,389 Mr Price Group 310,000 -- 310,000 763,339 -- 763,339 Naspers Series N 64,000 -- 64,000 1,067,811 -- 1,067,811 Randgold Resources ADR 29,500 -- 29,500 914,795 -- 914,795 ------------------------------------------------------- Total 3,436,334 -- 3,436,334 ------------------------------------------------------- SOUTH KOREA (0.7%) MegaStudy 6,850 -- 6,850 770,653 -- 770,653 Sung Kwang Bend 41,000 -- 41,000 388,458 -- 388,458 Taewoong 11,372 -- 11,372 554,243 -- 554,243
32
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED Woongjin Coway 50,700 -- 50,700 $ 1,044,103 $ -- $ 1,044,103 ------------------------------------------------------- Total 2,757,457 -- 2,757,457 ------------------------------------------------------- SPAIN (2.0%) Grifols 34,914 -- 34,914 694,571 -- 694,571 Iberdrola 118,651 -- 118,651 858,415 -- 858,415 Mapfre 201,970 -- 201,970 642,548 -- 642,548 Red Electrica de Espana 17,800 -- 17,800 779,920 -- 779,920 Telefonica 293,252 -- 293,252 5,427,624 -- 5,427,624 ------------------------------------------------------- Total 8,403,078 -- 8,403,078 ------------------------------------------------------- SWEDEN (1.3%) Atlas Copco Series A 124,600 -- 124,600 1,045,633 -- 1,045,633 Hexagon Series B 172,710 -- 172,710 1,131,917 -- 1,131,917 HEXPOL 49,196 -- 49,196(b) 197,546 -- 197,546 Modern Times Group Series B 20,475 -- 20,475 439,598 -- 439,598 Nobia 104,170 -- 104,170 227,078 -- 227,078 Nordea Bank 52,309 -- 52,309 419,499 -- 419,499 Oriflame Cosmetics SDR 16,296 -- 16,296 509,397 -- 509,397 Securitas Systems Series B 469,000 -- 469,000 475,887 -- 475,887 Sweco Series B 139,000 -- 139,000 852,467 -- 852,467 Swedish Match -- 18,400 18,400(b) -- 253,657 253,657 ------------------------------------------------------- Total 5,299,022 253,657 5,552,679 ------------------------------------------------------- SWITZERLAND (10.3%) ABB 62,015 -- 62,015(b) 813,600 -- 813,600 Actelion 28,586 6,448 35,034(b) 1,509,942 340,919 1,850,861 Aryzta 44,100 -- 44,100(b) 1,573,258 -- 1,573,258 Burckhardt Compression Holding 4,350 -- 4,350 565,447 -- 565,447 Geberit 11,600 -- 11,600 1,205,020 -- 1,205,020 Givaudan 750 -- 750 510,995 -- 510,995 Julius Baer Holding -- 12,036 12,036 -- 473,788 473,788 Kuehne & Nagel Intl 24,500 -- 24,500 1,483,177 -- 1,483,177 Lonza Group 11,822 -- 11,822 981,014 -- 981,014 Nestle 241,728 38,226 279,954 9,398,860 1,490,029 10,888,889 Novartis 156,762 27,161 183,923 7,955,898 1,374,038 9,329,936 Roche Holding 29,421 11,977 41,398 4,498,679 1,833,269 6,331,948 Sika 1,200 -- 1,200 946,047 -- 946,047 Sonova Holding 18,810 -- 18,810 781,465 -- 781,465 Synthes 11,061 -- 11,061 1,427,153 -- 1,427,153 Temenos Group 29,567 -- 29,567(b) 370,260 -- 370,260 UBS -- 63,775 63,775 -- 1,088,206 1,088,206 Xstrata 93,209 -- 93,209 1,594,128 -- 1,594,128 Zurich Financial Services 5,706 -- 5,706 1,157,470 -- 1,157,470 ------------------------------------------------------- Total 36,772,413 6,600,249 43,372,662 ------------------------------------------------------- TAIWAN (0.6%) Everlight Electronics 282,975 -- 282,975 427,848 -- 427,848 Formosa Intl Hotels 81,800 -- 81,800 561,209 -- 561,209 GeoVision 60,000 -- 60,000 249,087 -- 249,087 President Chain Store 318,000 -- 318,000 738,636 -- 738,636 Wah Lee Industrial 341,755 -- 341,755 321,115 -- 321,115 ------------------------------------------------------- Total 2,297,895 -- 2,297,895 ------------------------------------------------------- UNITED KINGDOM (18.1%) 3i Group -- 49,584 49,584 -- 433,232 433,232 Aggreko 118,017 -- 118,017 825,761 -- 825,761 Anglo American 99,811 29,048 128,859 2,504,152 717,371 3,221,523
33
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED ARM Holdings -- 694,390 694,390 $ -- $ 1,081,961 $ 1,081,961 AstraZeneca -- 28,946 28,946 -- 1,230,642 1,230,642 Autonomy 72,059 67,433 139,492(b) 1,142,437 1,063,202 2,205,639 AVEVA Group 38,097 -- 38,097 485,616 -- 485,616 Babcock Intl Group 117,774 -- 117,774 736,856 -- 736,856 BAE Systems 345,074 -- 345,074 1,939,469 -- 1,939,469 Barclays -- 59,648 59,648(b) -- 175,666 175,666 BG Group 253,614 -- 253,614 3,728,782 -- 3,728,782 BHP Billiton 118,803 49,279 168,082 2,017,153 836,313 2,853,466 British American Tobacco 136,293 13,582 149,875 3,738,076 372,997 4,111,073 Cable & Wireless 530,986 -- 530,986 1,052,310 -- 1,052,310 Cadbury -- 45,342 45,342 -- 416,664 416,664 Capita Group 143,000 85,302 228,302 1,477,480 878,360 2,355,840 Chemring Group 23,376 -- 23,376 599,650 -- 599,650 Cobham 360,988 -- 360,988 1,097,003 -- 1,097,003 Compass Group 273,250 -- 273,250 1,270,518 -- 1,270,518 easyJet -- 289,687 289,687(b) -- 1,437,028 1,437,028 Enterprise Inns 243,374 -- 243,374 383,220 -- 383,220 FirstGroup 129,189 -- 129,189 852,453 -- 852,453 G4S 375,738 -- 375,738 1,137,891 -- 1,137,891 GAME Group 245,627 -- 245,627 515,195 -- 515,195 GlaxoSmithK- line 317,051 -- 317,051 6,094,410 -- 6,094,410 HMV Group 277,241 -- 277,241 444,041 -- 444,041 IG Group Holdings 130,897 -- 130,897 611,496 -- 611,496 Imperial Tobacco Group 104,119 -- 104,119 2,790,289 -- 2,790,289 Informa 128,200 -- 128,200 434,297 -- 434,297 Inmarsat 130,419 -- 130,419 889,114 -- 889,114 Intermediate Capital Group 37,500 -- 37,500 584,550 -- 584,550 Intertek Group 182,176 -- 182,176 2,157,327 -- 2,157,327 Intl Power 316,111 -- 316,111 1,130,783 -- 1,130,783 J Sainsbury -- 109,901 109,901 -- 502,666 502,666 John D Wood & Co 136,926 -- 136,926 529,195 -- 529,195 Keller Group 42,000 -- 42,000 353,238 -- 353,238 Michael Page Intl -- 114,256 114,256 -- 369,305 369,305 Next -- 34,722 34,722 -- 589,613 589,613 Northgate 110,000 -- 110,000 226,328 -- 226,328 Petrofac 83,944 -- 83,944 581,071 -- 581,071 Prudential 274,748 -- 274,748 1,380,024 -- 1,380,024 Reckitt Benckiser Group 71,434 30,132 101,566 3,021,364 1,266,486 4,287,850 Rio Tinto 42,455 14,894 57,349 1,982,980 694,587 2,677,567 Rotork 102,886 -- 102,886 1,232,752 -- 1,232,752 Royal Dutch Shell Cl A -- 24,326 24,326 -- 665,081 665,081 RPS Group 342,400 -- 342,400 814,976 -- 814,976 Serco Group 220,000 -- 220,000 1,311,864 -- 1,311,864 Smith & Nephew 110,000 -- 110,000 1,007,104 -- 1,007,104 Stagecoach Group 288,916 -- 288,916 867,409 -- 867,409 Standard Chartered 139,077 -- 139,077 2,298,317 -- 2,298,317 Tesco 244,681 102,872 347,553 1,340,510 562,318 1,902,828 Tullett Prebon 153,390 -- 153,390 587,789 -- 587,789 Tullow Oil 36,000 -- 36,000 305,704 -- 305,704 Unilever 97,311 -- 97,311 2,185,970 -- 2,185,970 Vodafone Group -- 80,515 80,515 -- 155,085 155,085 Wm Morrison Supermarkets 348,257 109,913 458,170 1,482,720 469,610 1,952,330 ------------------------------------------------------- Total 62,149,644 13,918,187 76,067,831 ------------------------------------------------------- UNITED STATES (1.7%) Atwood Oceanics 58,000 -- 58,000(b) 1,593,840 -- 1,593,840
34
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED BioMarin Pharmaceuti- cal 28,000 -- 28,000(b) $ 512,960 $ -- $ 512,960 Bristow Group 13,500 -- 13,500(b) 334,395 -- 334,395 Central European Distribution 38,000 -- 38,000(b) 1,094,020 -- 1,094,020 FMC Technologies 30,600 -- 30,600(b) 1,070,694 -- 1,070,694 iShares MSCI EAFE Index Fund 39,938 -- 39,938 1,782,033 -- 1,782,033 Oceaneering Intl 5,000 -- 5,000(b) 140,850 -- 140,850 Synthes -- 5,135 5,135 -- 663,009 663,009 ------------------------------------------------------- Total 6,528,792 663,009 7,191,801 ------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $564,309,82- 4) $365,979,624 $39,362,312 $405,341,936 - ------------------------------------------------------------------------------------------------------------------------------ MONEY MARKET FUND (2.8%) SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND GROWTH FUND GROWTH FUND PRO FORMA COMBINED GROWTH FUND GROWTH FUND PRO FORMA COMBINED RiverSource Short-Term Cash Fund, 1.60% 11,780,597 -- 11,780,597(d) $ 11,780,597 $ -- $ 11,780,597 ------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $11,780,597) $ 11,780,597 $ -- $ 11,780,597 ------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $576,090,42- 1)(f) $377,760,221 $39,362,312 $417,122,533 - ------------------------------------------------------------------------------------------------------------------------------
35 SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY The following table represents the portfolio investments of the Fund by industry classifications as a percentage of total net assets at Oct. 31, 2008:
INDUSTRY VALUE VALUE VALUE RIVERSOURCE RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PERCENTAGE OF INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND NET ASSETS GROWTH FUND GROWTH FUND PRO FORMA COMBINED Aerospace & Defense 0.9% $ 3,636,122 $ -- $ 3,636,122 Air Freight & Logistics 0.5 2,233,157 -- 2,233,157 Airlines 0.3 -- 1,437,028 1,437,028 Auto Components 0.5 1,926,418 -- 1,926,418 Automobiles 0.4 1,818,797 -- 1,818,797 Beverages 0.6 2,429,746 136,434 2,566,180 Biotechnology 1.3 4,578,391 1,038,557 5,616,948 Building Products 0.4 1,888,776 -- 1,888,776 Capital Markets 1.0 2,247,867 1,995,226 4,243,093 Chemicals 3.9 15,309,467 1,091,328 16,400,795 Commercial Banks 3.4 13,363,132 1,128,515 14,491,647 Commercial Services & Supplies 1.5 6,240,689 -- 6,240,689 Communications Equipment 0.9 3,004,444 879,571 3,884,015 Computers & Peripherals 0.7 2,964,162 -- 2,964,162 Construction & Engineering 1.2 4,788,072 115,961 4,904,033 Construction Materials -- 68,553 -- 68,553 Consumer Finance 0.1 477,427 -- 477,427 Containers & Packaging 0.2 771,816 -- 771,816 Distributors 0.1 290,280 -- 290,280 Diversified Consumer Services 0.4 1,556,289 -- 1,556,289 Diversified Financial Services 1.8 7,464,028 -- 7,464,028 Diversified Telecommunication Services 3.1 10,734,188 2,375,886 13,110,074 Electric Utilities 2.7 11,193,780 -- 11,193,780 Electrical Equipment 1.9 7,607,501 404,536 8,012,037 Electronic Equipment, Instruments & Components 1.8 7,770,213 -- 7,770,213 Energy Equipment & Services 1.9 8,142,628 -- 8,142,628 Food & Staples Retailing 3.4 12,533,799 1,653,412 14,187,211 Food Products 4.7 18,157,619 1,490,029 19,647,648 Gas Utilities 0.4 1,169,585 416,664 1,586,249 Health Care Equipment & Supplies 1.4 5,205,357 663,009 5,868,366 Health Care Providers & Services 1.3 4,930,956 594,236 5,525,192 Hotels, Restaurants & Leisure 1.9 7,644,487 376,134 8,020,621 Household Durables 1.5 6,487,079 -- 6,487,079 Household Products 1.1 3,021,364 1,673,236 4,694,600 Independent Power Producers & Energy Traders 0.3 1,130,783 -- 1,130,783 Industrial Conglomerates 0.9 3,612,512 -- 3,612,512 Insurance 1.9 7,917,792 183,927 8,101,719 Internet & Catalog Retail 0.3 1,435,571 -- 1,435,571 Internet Software & Services 0.3 281,912 826,519 1,108,431 IT Services 0.2 999,654 -- 999,654 Leisure Equipment & Products 0.5 2,083,644 -- 2,083,644 Life Sciences Tools & Services 0.4 1,852,315 -- 1,852,315 Machinery 2.6 10,414,014 353,482 10,767,496 Marine 1.0 4,101,466 -- 4,101,466 Media 2.7 10,911,644 389,004 11,300,648 Metals & Mining 5.4 19,569,842 2,744,079 22,313,921 Multiline Retail 0.8 1,856,419 1,323,289 3,179,708 Multi-Utilities 1.3 5,576,967 -- 5,576,967 Office Electronics 0.5 2,173,362 -- 2,173,362 Oil, Gas & Consumable Fuels 3.6 13,249,050 1,770,194 15,019,244 Paper & Forest Products 0.5 2,020,857 -- 2,020,857 Personal Products 0.3 1,099,758 -- 1,099,758 Pharmaceuticals 7.8 24,826,226 7,823,802 32,650,028 Professional Services 1.6 5,334,807 1,247,665 6,582,472
36
INDUSTRY VALUE VALUE VALUE RIVERSOURCE RIVERSOURCE PARTNERS PARTNERS SELIGMAN INTERNATIONAL PERCENTAGE OF INTERNATIONAL SELECT INTERNATIONAL SELECT GROWTH FUND NET ASSETS GROWTH FUND GROWTH FUND PRO FORMA COMBINED Real Estate Investment Trusts (REITs) 1.2 $ 4,889,968 $ -- $ 4,889,968 Real Estate Management & Development 1.7 6,697,952 275,464 6,973,416 Road & Rail 1.4 5,726,855 -- 5,726,855 Semiconductors & Semiconductor Equipment 0.3 -- 1,081,961 1,081,961 Software 2.8 10,356,412 1,441,679 11,798,091 Specialty Retail 1.3 5,436,371 58,946 5,495,317 Textiles, Apparel & Luxury Goods 1.3 5,398,335 -- 5,398,335 Thrifts & Mortgage Finance 0.3 1,197,876 -- 1,197,876 Tobacco 2.4 8,732,086 1,223,194 9,955,280 Trading Companies & Distributors 1.5 6,293,435 -- 6,293,435 Transportation Infrastructure 1.7 6,963,984 -- 6,963,984 Wireless Telecommunication Services 0.8 2,181,566 1,149,345 3,330,911 Other(1) 2.8 11,780,597 -- 11,780,597 - ------------------------------------------------------------------------------------------- Total $377,760,221 $39,362,312 $417,122,533 - -------------------------------------------------------------------------------------------
(1) Cash & Cash Equivalents. 37 INVESTMENTS IN DERIVATIVES FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008 RiverSource Partners International Select Growth Fund
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION Nov. 3, 2008 474,700 775,375 $11,488 $ -- British Pound U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 422,254 344,627 -- (5,806) Canadian Dollar U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 1,348,178 1,741,044 23,331 -- European Monetary Unit U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 502,030 335,375 -- (3,308) Singapore Dollar U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 1,781,042 1,570,695 35,114 -- Swiss Franc U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 240,088 369,764 5,509 -- U.S. Dollar Australian Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 637,866 390,517 -- (9,446) U.S. Dollar British Pound - ------------------------------------------------------------------------------------------ Nov. 3, 2008 83,940 102,848 1,414 -- U.S. Dollar Canadian Dollar - ------------------------------------------------------------------------------------------ Nov. 3, 2008 13,378 37,111 71 -- U.S. Dollar Polish Zloty - ------------------------------------------------------------------------------------------ Nov. 3, 2008 68,224 102,139 681 -- U.S. Dollar Singapore Dollar - ------------------------------------------------------------------------------------------ Nov. 4, 2008 80,423 103,842 1,375 -- European Monetary Unit U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 4, 2008 56,034,950 577,510 8,526 -- Japanese Yen U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 4, 2008 12,936 1,026 19 -- Mexican Peso U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 4, 2008 630,413 383,230 -- (13,719) U.S. Dollar British Pound - ------------------------------------------------------------------------------------------ Nov. 4, 2008 788,546 952,106 1,616 -- U.S. Dollar Canadian Dollar - ------------------------------------------------------------------------------------------ Nov. 4, 2008 649,617 63,023,713 -- (9,669) U.S. Dollar Japanese Yen - ------------------------------------------------------------------------------------------ Nov. 4, 2008 7,075 10,388 -- (67) U.S. Dollar Singapore Dollar - ------------------------------------------------------------------------------------------ Nov. 5, 2008 7,693 6,377 -- (7) Canadian Dollar U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 5, 2008 11,837 15,090 9 -- European Monetary Unit U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 5, 2008 4,791,733 48,563 -- (94) Japanese Yen U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 5, 2008 23,817 1,848 -- (6) Mexican Peso U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 5, 2008 361,456 533,869 -- (6,896) U.S. Dollar Australian Dollar - ------------------------------------------------------------------------------------------ Nov. 5, 2008 216,067 134,215 -- (87) U.S. Dollar British Pound - ------------------------------------------------------------------------------------------ Nov. 5, 2008 12,534 18,588 6 -- U.S. Dollar Singapore Dollar - ------------------------------------------------------------------------------------------ Nov. 6, 2008 4,978,267 50,773 731 -- Japanese Yen U.S. Dollar - ------------------------------------------------------------------------------------------ Nov. 6, 2008 285,028 433,630 2,989 -- U.S. Dollar Australian Dollar - ------------------------------------------------------------------------------------------ Nov. 6, 2008 19,491 1,911,046 -- (281) U.S. Dollar Japanese Yen - ------------------------------------------------------------------------------------------ Total $92,879 $(49,386) - ------------------------------------------------------------------------------------------
38 Seligman International Growth Fund
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION Nov. 3, 2008 285,706 364,275 $ 129 $ -- European Monetary Unit U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 814,944 122,718 1,722 -- Norwegian Krone U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 408,669 353,430 1,038 -- Swiss Franc U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 410,796 251,043 -- (6,780) U.S. Dollar British Pound - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 146,556 178,804 1,792 -- U.S. Dollar Canadian Dollar - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 21,428 16,563 -- (318) U.S. Dollar European Monetary Unit - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 246,263 190,223 -- (3,814) U.S. Dollar European Monetary Unit - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 275,962 2,139,260 69 -- U.S. Dollar Hong Kong Dollar - ----------------------------------------------------------------------------------------------- Nov. 3, 2008 50,554 57,181 -- (1,248) U.S. Dollar Swiss Franc - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 90,605 117,297 1,817 -- European Monetary Unit U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 382,889 232,558 -- (8,621) U.S. Dollar British Pound - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 135,523 162,758 -- (488) U.S. Dollar Canadian Dollar - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 123,256 709,686 -- (1,782) U.S. Dollar Danish Krone - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 67,063 52,598 -- (24) U.S. Dollar European Monetary Unit - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 177,164 17,150,315 -- (3,066) U.S. Dollar Japanese Yen - ----------------------------------------------------------------------------------------------- Nov. 4, 2008 163,559 186,227 -- (2,977) U.S. Dollar Swiss Franc - ----------------------------------------------------------------------------------------------- Nov. 5, 2008 102,169 130,143 -- (76) European Monetary Unit U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 5, 2008 90,812 115,777 32 -- European Monetary Unit U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 5, 2008 307,104 265,587 774 -- Swiss Franc U.S. Dollar - ----------------------------------------------------------------------------------------------- Nov. 5, 2008 57,241 35,561 -- (10) U.S. Dollar British Pound - ----------------------------------------------------------------------------------------------- Nov. 5, 2008 147,177 178,518 934 -- U.S. Dollar Canadian Dollar - ----------------------------------------------------------------------------------------------- Nov. 5, 2008 303,224 29,900,636 305 -- U.S. Dollar Japanese Yen - ----------------------------------------------------------------------------------------------- Nov. 6, 2008 2,979,628 30,595 348 -- Japanese Yen U.S. Dollar - ----------------------------------------------------------------------------------------------- Total $ 8,960 $(29,204) - ----------------------------------------------------------------------------------------------- PRO FORMA COMBINED TOTAL $101,839 $(78,590) - ----------------------------------------------------------------------------------------------- NOTES TO COMBINED PORTFOLIO OF INVESTMENTS
(A) Securities are valued by procedures described in Note 1 to the financial statements in the annual report. (B) Non-income producing. (C) Foreign security values are stated in U.S. dollars. (D) Affiliated Money Market Fund -- See Note 5 to the financial statements in the annual report. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (E) Security valued by management at fair value according to procedures approved, in good faith, by the Board. 39 (F) At Oct. 31, 2008, the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost was:
RIVERSOURCE PARTNERS RIVERSOURCE PARTNERS SELIGMAN INTERNATIONAL INTERNATIONAL INTERNATIONAL SELECT GROWTH FUND SELECT GROWTH FUND GROWTH FUND PRO FORMA COMBINED Cost of securities for federal income tax purposes: $ 537,108,889 $47,322,896 $ 584,431,785 Unrealized appreciation 14,274,295 535,060 14,809,355 Unrealized depreciation (173,622,963) (8,495,644) (182,118,607) - --------------------------------------------------------------------------------------------------------------- Net unrealized depreciation $(159,348,668) $(7,960,584) $(167,309,252) - ---------------------------------------------------------------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. 40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) INTRODUCTION TO PROPOSED FUND REORGANIZATION Nov. 30, 2008 The accompanying unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Nov. 30, 2008. These statements have been derived from financial statements prepared for the RiverSource Short Duration U.S. Government Fund and the Seligman U.S. Government Securities Fund as of Nov. 30, 2008. RiverSource Short Duration U.S. Government Fund invests primarily in debt securities issued or guaranteed as to principal and interest by the U.S. government, or its agencies or instrumentalities. Seligman U.S. Government Securities Fund invests primarily in U.S. government securities which are debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or government sponsored enterprises. Under the proposed Agreement and Plan of Reorganization, share classes of Seligman U.S. Government Securities Fund would be exchanged for share classes of RiverSource Short Duration U.S. Government Fund.
SELLING FUND BUYING FUND - --------------------------------------------------------------------------------------------------------------- Seligman U.S. Government Securities Fund Class A RiverSource Short Duration U.S. Government Fund Class A - --------------------------------------------------------------------------------------------------------------- Seligman U.S. Government Securities Fund Class B RiverSource Short Duration U.S. Government Fund Class B - --------------------------------------------------------------------------------------------------------------- Seligman U.S. Government Securities Fund Class C RiverSource Short Duration U.S. Government Fund Class C - --------------------------------------------------------------------------------------------------------------- Seligman U.S. Government Securities Fund Class R(1) RiverSource Short Duration U.S. Government Fund Class R2(2) - ---------------------------------------------------------------------------------------------------------------
(1) Effective on or about June 13, 2009, the Class R shares of the Seligman U.S. Government Securities Fund will be redesignated as Class R2 shares. (2) The inception date for the RiverSource Short Duration U.S. Government Fund Class R2 shares is expected to be in the third quarter of 2009. Note: RiverSource Short Duration U.S. Government Fund also offers Class I, Class R4 and Class W shares. The pro forma combining statements have been prepared to give effect to the proposed transaction on the historical operations of the accounting survivor, RiverSource Short Duration U.S. Government Fund, as if the transaction had occurred at the beginning of the fiscal year ending Nov. 30, 2008. 41 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION RIVERSOURCE SELIGMAN U.S. GOVERNMENT U.S. GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND FUND U.S. GOVERNMENT SECURITIES PRO FORMA PRO FORMA NOV. 30, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS COMBINED ASSETS Investments in securities, at cost Unaffiliated issuers $ 856,828,651 $92,254,153 $ -- $ 949,082,804 Affiliated money market fund $ 23,204,156 $ -- $ -- $ 23,204,156 ---------------------------------------------------------------------------- Investments in securities, at value Unaffiliated issuers $ 821,536,813 $94,412,985 $ -- $ 915,949,798 Affiliated money market fund $ 23,204,156 $ -- $ -- $ 23,204,156 Cash -- 64,844 -- 64,844 Capital shares receivable 1,158,621 12,185 -- 1,170,806 Dividends and accrued interest receivable 3,717,190 497,874 -- 4,215,064 Receivable for investment securities sold 9,632,333 -- -- 9,632,333 Transfer agency fees receivable (Note 2) -- -- 39,986(b) 39,986 Receivable from RiverSource Investments, LLC (Note 2) -- -- 139,531(f) 139,531 Prepaid expenses -- 42,812 -- 42,812 Other assets -- 14,178 -- 14,178 - ------------------------------------------------------------------------------------------------------------------------------ Total assets 859,249,113 95,044,878 179,517 954,473,508 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Forward sale commitments, at value (proceeds receivable $9,347,823 for RiverSource Short Duration U.S. Government Fund) 9,434,419 -- -- 9,434,419 Dividends payable to shareholders 211,503 57,967 -- 269,470 Capital shares payable 829,806 303,871 -- 1,133,677 Payable for reorganization costs (Note 2) -- -- 80,918(g) 80,918 Payable for investment securities purchased 39,811,910 13,056,559 -- 52,868,469 Variation margin payable 271,205 -- -- 271,205 Accrued investment management services fees (Note 2) 21,210 32,327 (3,286)(a) 50,251 Accrued distribution fees 151,076 32,583 -- 183,659 Accrued transfer agency fees (Note 2) 6,779 61,509 (68,288)(b) -- Accrued administrative services fees (Note 2) 3,009 -- 47,747(c) 50,756 Accrued plan administration services fees (Note 2) 901 -- 7,363(d) 8,264 Other accrued expenses (Note 2) 536,061 69,553 (166,217)(e) 439,397 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities 51,277,879 13,614,369 (101,763) 64,790,485 - ------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to outstanding capital stock $ 807,971,234 $81,430,509 $ 281,280 $ 889,683,023 - ------------------------------------------------------------------------------------------------------------------------------ REPRESENTED BY Capital stock -- $.01 par value for RiverSource Short Duration U.S. Government Fund and $.001 par value for Seligman U.S. Government Securities Fund (Notes 2 and 3) $ 1,776,823 $ 11,369 $ 168,218(g) $ 1,956,410 Additional paid-in capital (Notes 2 and 3) 1,040,002,565 86,549,235 (249,136)(g) 1,126,302,664 Excess of distributions over net investment income (Note 2) (405,936) (24,156) 362,198 (67,894) Accumulated net realized gain (loss) (196,133,845) (7,264,771) -- (203,398,616) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (37,268,373) 2,158,832 -- (35,109,541) - ------------------------------------------------------------------------------------------------------------------------------ Total -- representing net assets applicable to outstanding capital stock $ 807,971,234 $81,430,509 $ 281,280 $ 889,683,023 - ------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to outstanding shares: Class A $ 586,444,617 $47,195,472 $ 163,025 $ 633,803,114 Class B $ 129,748,319 $ 8,916,698 $ 30,800 $ 138,695,817 Class C $ 11,782,382 $21,042,387 $ 72,685 $ 32,897,454 Class I $ 75,499,402 N/A $ -- $ 75,499,402 Class R2 N/A $ 4,275,952 $ 14,770 $ 4,290,722 Class R4 $ 4,491,730 N/A $ -- $ 4,491,730 Class W $ 4,784 N/A $ -- $ 4,784 Shares outstanding (Note 3): Class A shares 128,981,199 6,593,371 -- 139,389,660 Class B shares 28,536,267 1,242,979 -- 30,502,750 Class C shares 2,591,394 2,935,262 -- 7,232,069 Class I shares 16,585,126 N/A -- 16,585,126 Class R2 shares N/A 597,126 -- 943,016 Class R4 shares 987,307 N/A -- 987,307 Class W shares 1,053 N/A -- 1,053 Net asset value per share of outstanding capital stock: Class A $ 4.55 $ 7.16 $ -- $ 4.55 Class B $ 4.55 $ 7.17 $ -- $ 4.55 Class C $ 4.55 $ 7.17 $ -- $ 4.55 Class I $ 4.55 N/A $ -- $ 4.55 Class R2 N/A $ 7.16 $ -- $ 4.55 Class R4 $ 4.55 N/A $ -- $ 4.55 Class W $ 4.54 N/A $ -- $ 4.54 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements. 42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF OPERATIONS
RIVERSOURCE RIVERSOURCE RIVERSOURCE SELIGMAN SHORT DURATION SHORT DURATION SHORT DURATION U.S. GOVERNMENT U.S. GOVERNMENT U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES FUND PRO FORMA PRO FORMA YEAR ENDED NOV. 30, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS COMBINED INVESTMENT INCOME Income: Interest $ 35,106,555 $3,122,790 $ -- $ 38,229,345 Income distributions from affiliated money market fund 255,080 -- -- 255,080 - --------------------------------------------------------------------------------------------------------------------------- Total income 35,361,635 3,122,790 -- 38,484,425 - --------------------------------------------------------------------------------------------------------------------------- Expenses: Investment management services fees (Note 2) 3,825,944 343,471 (3,286)(a) 4,166,129 Distribution fees Class A 1,372,442 101,543 -- 1,473,985 Class B 1,516,358 72,321 -- 1,588,679 Class C 98,304 169,925 -- 268,229 Class R2 -- 14,623 -- 14,623 Class W 12 -- -- 12 Transfer agency fees (Note 2) Class A 970,169 196,588 (48,046)(b) 1,118,711 Class B 284,318 34,161 (2,286)(b) 316,193 Class C 17,982 81,021 (45,373)(b) 53,630 Class R2 -- 14,042 (12,569)(b) 1,473 Class R4 2,263 -- -- 2,263 Class W 10 -- -- 10 Administrative services fees (Note 2) 542,966 -- 47,747(c) 590,713 Plan administration services fees (Note 2) Class R2 -- -- 7,363(d) 7,363 Class R4 11,316 -- -- 11,316 Compensation of board members (Note 2) 19,075 6,440 (4,796)(e) 20,719 Custodian fees (Note 2) 91,875 28,334 (20,415)(e) 99,794 Printing and postage (Note 2) 135,880 28,998 (17,286)(e) 147,592 Registration fees (Note 2) 95,354 88,736 (80,517)(e) 103,573 Professional fees (Note 2) 44,307 39,313 (35,494)(e) 48,126 Other (Note 2) 32,326 10,495 (7,709)(e) 35,112 - --------------------------------------------------------------------------------------------------------------------------- Total expenses 9,060,901 1,230,011 (222,667) 10,068,245 Expenses waived/reimbursed by RiverSource Investments, LLC (Note 2) (1,071,144) -- (139,531)(f) (1,210,675) Earnings and bank fee credits on cash balances (28,530) -- -- (28,530) - --------------------------------------------------------------------------------------------------------------------------- Total net expenses 7,961,227 1,230,011 (362,198) 8,829,040 - --------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 27,400,408 1,892,779 362,198 29,655,385 - --------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions 2,946,255 1,078,111 -- 4,024,366 Futures contracts (9,675,202) -- -- (9,675,202) - --------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (6,728,947) 1,078,111 -- (5,650,836) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (35,338,940) 901,867 -- (34,437,073) - --------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (42,067,887) 1,979,978 -- (40,087,909) - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(14,667,479) $3,872,757 $ 362,198 $(10,432,524) - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements. 43 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (BUYING FUND) SELIGMAN U.S. GOVERNMENT SECURITIES FUND (SELLING FUND) NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited as to Nov. 30, 2008) 1. BASIS OF COMBINATION The unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Nov. 30, 2008. These statements have been derived from financial statements prepared for the RiverSource Short Duration U.S. Government Fund and the Seligman U.S. Government Securities Fund as of Nov. 30, 2008. Each Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The primary investments of each Fund are as follows: RiverSource Short Duration U.S. Government Fund invests primarily in debt securities issued or guaranteed as to principal and interest by the U.S. government, or its agencies or instrumentalities. Seligman U.S. Government Securities Fund invests primarily in U.S. government securities which are debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or government sponsored enterprises. The pro forma statements give effect to the proposed transfer of the assets and liabilities of Seligman U.S. Government Securities Fund in exchange for Class A, Class B, Class C and Class R2 shares of RiverSource Short Duration U.S. Government Fund under U.S. generally accepted accounting principles. The pro forma statements reflect estimates for the combined RiverSource Short Duration U.S. Government Fund based on the increased asset level of the Reorganization and associated economies of scale, adjusted to reflect current fees. The pro forma combining statements should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statement of Additional Information. The pro forma statement of operations give effect to the proposed transaction on the historical operations of the accounting survivor, RiverSource Short Duration U.S. Government Fund, as if the transaction had occurred at the beginning of the year presented. 2. PRO FORMA ADJUSTMENTS (a) To reflect the change in investment management services fee due to the Reorganization. (b) To reflect the change in transfer agent fees due to the Reorganization including adjusting for closed account fees for each Seligman U.S. Government Securities Fund shareholder account that will be closed on the system as a result of the Reorganization. (c) To reflect the change in administrative services fees due to the Reorganization. (d) To reflect the change in plan administration services fees due to the Reorganization. (e) To reflect the change in other fees due to the Reorganization. (f) To adjust the expense reimbursement to reflect the net reduction in fees resulting from the Reorganization per the agreement (through May 31, 2009) by RiverSource Investments, LLC and its affiliates to waive certain fees and absorb certain expenses of the combined fund. (g) Includes the impact of estimated Reorganization costs of $80,918, none of which are recurring expenses. 44 3. CAPITAL SHARES The pro forma net asset value per share assumes the issuance of additional Class A, Class B, Class C and Class R2 shares of RiverSource Short Duration U.S. Government Fund as if the Reorganization were to have taken place on Nov. 30, 2008. The following table reflects the number of RiverSource Short Duration U.S. Government Fund shares assumed to be issued to the shareholders of the Seligman U.S. Government Securities Fund.
SELIGMAN RIVERSOURCE U.S. GOVERNMENT SHORT DURATION TOTAL SECURITIES FUND U.S. GOVERNMENT FUND PRO FORMA SHARES ISSUED SHARES OUTSTANDING SHARES OUTSTANDING - ----------------------------------------------------------------------------------------------------------------- Class A 10,408,461 128,981,199 139,389,660 - ----------------------------------------------------------------------------------------------------------------- Class B 1,966,483 28,536,267 30,502,750 - ----------------------------------------------------------------------------------------------------------------- Class C 4,640,675 2,591,394 7,232,069 - ----------------------------------------------------------------------------------------------------------------- Class I N/A 16,585,126 16,585,126 - ----------------------------------------------------------------------------------------------------------------- Class R2(1),(2) 943,016 N/A 943,016 - ----------------------------------------------------------------------------------------------------------------- Class R4 N/A 987,307 987,307 - ----------------------------------------------------------------------------------------------------------------- Class W N/A 1,053 1,053 - -----------------------------------------------------------------------------------------------------------------
(1) Effective on or about June 13, 2009, the Class R shares of the Seligman U.S. Government Securities Fund will be redesignated as Class R2 shares. (2) The inception date for the RiverSource Short Duration U.S. Government Fund Class R2 shares is expected to be in the third quarter of 2009. 45 COMBINED PORTFOLIO OF INVESTMENTS RiverSource Short Duration U.S. Government Fund NOV. 30, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (83.7%) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED U.S. GOVERNMENT OBLIGATIONS & AGENCIES (28.1%) Federal Home Loan Bank 12/29/08 5.13% $24,390,000 $ -- $24,390,000 $ 24,441,614 $ -- $ 24,441,614 04/09/09 2.32 225,000 -- 225,000 226,138 -- 226,138 05/20/11 2.63 -- 2,565,000 2,565,000 -- 2,551,554 2,551,554 10/18/13 3.63 -- 2,000,000 2,000,000 -- 2,045,786 2,045,786 11/17/17 5.00 -- 500,000 500,000 -- 529,080 529,080 Federal Home Loan Mtge Corp 06/15/11 6.00 -- 500,000 500,000 -- 542,810 542,810 08/20/12 5.50 -- 2,610,000 2,610,000 -- 2,835,708 2,835,708 07/15/14 5.00 -- 900,000 900,000 -- 974,572 974,572 06/13/18 4.88 5,405,000 -- 5,405,000 5,736,449 -- 5,736,449 Federal Natl Mtge Assn 06/09/10 3.26 -- 580,000 580,000 -- 590,299 590,299 08/12/10 3.25 -- 870,000 870,000 -- 885,905 885,905 11/19/12 4.75 -- 730,000 730,000 -- 775,014 775,014 04/09/13 3.25 18,880,000 -- 18,880,000 19,000,908 -- 19,000,908 01/02/14 5.13 16,915,000 -- 16,915,000 17,386,759 -- 17,386,759 02/13/17 5.00 -- 2,500,000 2,500,000 -- 2,646,788 2,646,788 07/09/18 5.00 -- 500,000 500,000 -- 500,335 500,335 11/15/30 6.63 1,945,000 -- 1,945,000 2,438,911 -- 2,438,911 U.S. Treasury 08/15/09 3.50 -- 1,500,000 1,500,000 -- 1,528,127 1,528,127 10/22/09 1.27 -- 2,000,000 2,000,000 -- 1,983,244 1,983,244 04/30/10 2.13 -- 260,000 260,000 -- 265,484 265,484 06/30/10 2.88 5,730,000 -- 5,730,000 5,910,850 -- 5,910,850 10/31/10 1.50 57,750,000 -- 57,750,000 58,336,509 -- 58,336,509 12/15/10 4.38 10,550,000 -- 10,550,000(i) 11,295,094 -- 11,295,094 02/28/11 4.50 -- 175,000 175,000 -- 188,740 188,740 06/30/12 4.88 -- 735,000 735,000 -- 827,392 827,392 08/31/12 4.13 -- 2,830,000 2,830,000 -- 3,124,940 3,124,940 09/30/13 0.01 -- 7,425,000 7,425,000 -- 7,860,640 7,860,640 02/15/14 4.00 -- 405,000 405,000 -- 447,652 447,652 11/15/16 4.63 -- 1,000,000 1,000,000 -- 1,131,954 1,131,954 11/15/17 4.25 -- 3,315,000 3,315,000 -- 3,662,299 3,662,299 11/15/18 3.75 25,300,000 2,672,000 27,972,000 27,003,803 2,852,780 29,856,583 11/15/26 6.50 -- 2,400,000 2,400,000 -- 1,211,436 1,211,436 02/15/31 5.38 -- 375,000 375,000 -- 466,319 466,319 02/15/36 4.50 -- 585,000 585,000 -- 678,326 678,326 U.S. Treasury Inflation- Indexed Bond 01/15/14 2.00 17,769,221 367,074 18,136,295(j) 15,998,571 330,625 16,329,196 01/15/15 1.63 22,919,000 -- 22,919,000(j) 20,085,473 -- 20,085,473 01/15/16 2.00 -- 286,614 286,614(j) -- 255,333 255,333 07/15/18 1.38 -- 253,655 253,655(j) -- 227,239 227,239 01/15/28 1.75 -- 522,190 522,190(j) -- 430,644 430,644 ------------------------------------------------ Total 207,861,079 42,351,025 250,212,104 ------------------------------------------------ ASSET-BACKED (1.3%) Capital Auto Receivables Asset Trust Series 2006-SN1A Cl A4B 03/20/10 1.56 3,250,000 -- 3,250,000(d,h) 3,204,317 -- 3,204,317 Countrywide Asset- backed Ctfs Series 2007-7 Cl 2A2 10/25/37 1.56 2,600,000 -- 2,600,000(h) 2,036,939 -- 2,036,939 Residential Asset Securities Series 2007-KS3 Cl AI2 04/25/37 1.58 4,050,000 -- 4,050,000(h) 3,555,310 -- 3,555,310 Soundview Home Equity Loan Trust Series 2006-EQ1 Cl A2 10/25/36 1.51 3,900,000 -- 3,900,000(h) 3,177,283 -- 3,177,283 ------------------------------------------------ Total 11,973,849 -- 11,973,849 ------------------------------------------------
46
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED COMMERCIAL MORTGAGE-BACKED (1.1%)(F) Federal Home Loan Mtge Corp Multifamily Structured Pass- Through Ctfs Series K001 Cl A2 04/25/16 5.65 $ 5,879,459 $ -- $ 5,879,459 $ 5,718,829 $ -- $ 5,718,829 Federal Natl Mtge Assn #381990 10/01/09 7.11 4,059,446 -- 4,059,446 4,077,332 -- 4,077,332 ------------------------------------------------ Total 9,796,161 -- 9,796,161 ------------------------------------------------ MORTGAGE-BACKED (53.2%)(F,K) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 03/25/37 6.18 1,782,292 -- 1,782,292(g) 910,858 -- 910,858 American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03/25/47 1.56 3,232,332 -- 3,232,332(g) 707,095 -- 707,095 American Home Mtge Investment Trust Collateralized Mtge Obligation Series 2007-1 Cl GA1C 05/25/47 1.59 4,168,407 -- 4,168,407(g) 1,397,706 -- 1,397,706 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01/25/37 6.00 3,236,559 -- 3,236,559 1,565,559 -- 1,565,559 Barclays Capital LLC Trust Collateralized Mtge Obligation Series 2007-AA4 Cl 11A1 06/25/47 6.20 1,288,492 -- 1,288,492(g) 953,577 -- 953,577 Bear Stearns Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-5 Cl 3A1 08/25/47 5.98 2,050,079 -- 2,050,079(g) 1,175,883 -- 1,175,883 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04/25/35 7.50 1,407,266 -- 1,407,266 1,167,355 -- 1,167,355 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03/25/36 6.00 5,506,983 -- 5,506,983 2,765,541 -- 2,765,541 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-OA11 Cl A3B1 09/25/46 1.58 3,491,021 -- 3,491,021(h) 2,083,813 -- 2,083,813 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-22 Cl 2A16 09/25/37 6.50 4,480,708 -- 4,480,708 2,006,519 -- 2,006,519 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11/25/37 6.50 4,486,403 -- 4,486,403 2,143,659 -- 2,143,659 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06/25/47 1.75 5,484,812 -- 5,484,812(h) 1,381,370 -- 1,381,370 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09/25/47 1.90 3,706,134 -- 3,706,134(h) 865,782 -- 865,782
47
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Countrywide Home Loans Collateralized Mtge Obligation Series 2005-HYB8 Cl 4A1 12/20/35 5.56 $ 3,069,596 $ -- $ 3,069,596(g) $ 1,404,402 $ -- $ 1,404,402 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06/25/35 7.00 4,093,993 -- 4,093,993(d) 3,357,259 -- 3,357,259 Federal Home Loan Mtge Corp 12/01/38 4.50 -- 3,000,000 3,000,000 -- 2,990,625 2,990,625 12/01/38 5.50 -- 6,050,000 6,050,000 -- 6,138,930 6,138,930 12/01/38 6.00 2,000,000(e) 1,000,000 3,000,000 2,043,124 1,021,719 3,064,843 12/01/38 6.50 12,000,000(e) -- 12,000,000 12,344,999 -- 12,344,999 Federal Home Loan Mtge Corp #1G0847 07/01/35 4.71 7,007,898 -- 7,007,898(g) 7,022,871 -- 7,022,871 Federal Home Loan Mtge Corp #1G2264 10/01/37 6.01 5,943,966 -- 5,943,966(g) 6,066,472 -- 6,066,472 Federal Home Loan Mtge Corp #1G2547 12/01/36 6.12 -- 1,547,921 1,547,921(g) -- 1,559,084 1,559,084 Federal Home Loan Mtge Corp #1G2598 01/01/37 6.10 2,234,343 -- 2,234,343(g) 2,288,004 -- 2,288,004 Federal Home Loan Mtge Corp #1J0614 09/01/37 5.70 3,110,668 -- 3,110,668(g) 3,145,227 -- 3,145,227 Federal Home Loan Mtge Corp #1Q0140 08/01/36 6.17 -- 792,969 792,969(g) -- 805,890 805,890 Federal Home Loan Mtge Corp #783049 03/01/35 4.85 5,637,612 -- 5,637,612(g) 5,596,536 -- 5,596,536 Federal Home Loan Mtge Corp #A18107 01/01/34 5.50 2,972,429 -- 2,972,429 3,020,698 -- 3,020,698 Federal Home Loan Mtge Corp #A75929 04/01/38 7.00 -- 401,580 401,580 -- 413,945 413,945 Federal Home Loan Mtge Corp #B10459 10/01/18 5.50 -- 1,206,621 1,206,621 -- 1,230,888 1,230,888 Federal Home Loan Mtge Corp #C00351 07/01/24 8.00 225,992 -- 225,992 239,170 -- 239,170 Federal Home Loan Mtge Corp #C00385 01/01/25 9.00 372,290 -- 372,290 409,359 -- 409,359 Federal Home Loan Mtge Corp #C80329 08/01/25 8.00 65,120 -- 65,120 69,022 -- 69,022 Federal Home Loan Mtge Corp #E00398 10/01/10 7.00 199,635 -- 199,635 204,515 -- 204,515 Federal Home Loan Mtge Corp #E81240 06/01/15 7.50 2,902,216 -- 2,902,216 3,046,587 -- 3,046,587 Federal Home Loan Mtge Corp #E90650 07/01/12 5.50 102,663 -- 102,663 105,330 -- 105,330 Federal Home Loan Mtge Corp #E92454 11/01/17 5.00 2,474,442 -- 2,474,442 2,521,832 -- 2,521,832 Federal Home Loan Mtge Corp #E96624 05/01/18 5.00 -- 1,401,787 1,401,787 -- 1,426,224 1,426,224
48
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Federal Home Loan Mtge Corp #G00363 06/01/25 8.00 $ 291,984 $ -- $ 291,984 $ 309,477 $ -- $ 309,477 Federal Home Loan Mtge Corp #G00501 05/01/26 9.00 494,258 -- 494,258 543,982 -- 543,982 Federal Home Loan Mtge Corp #G10669 03/01/12 7.50 1,058,163 -- 1,058,163 1,107,991 -- 1,107,991 Federal Home Loan Mtge Corp #G11243 04/01/07 6.50 11,195,847 -- 11,195,847 11,585,737 -- 11,585,737 Federal Home Loan Mtge Corp #G12100 11/01/13 5.00 2,613,148 -- 2,613,148 2,645,386 -- 2,645,386 Federal Home Loan Mtge Corp #M30074 09/01/09 6.50 27,440 -- 27,440 27,780 -- 27,780 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 11 Cl B 01/01/20 15.05 6,687 -- 6,687(b) 1,622 -- 1,622 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 237 Cl I0 05/15/36 14.70 1,060,392 -- 1,060,392(b) 171,982 -- 171,982 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2471 Cl SI 03/15/32 44.63 1,268,415 -- 1,268,415(b) 148,654 -- 148,654 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2783 Cl MI 03/15/25 78.62 2,222,458 -- 2,222,458(b) 39,513 -- 39,513 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2617 Cl HD 06/15/16 7.00 5,515,532 -- 5,515,532 5,781,864 -- 5,781,864 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 3346 Cl FA 02/15/19 1.65 8,677,977 -- 8,677,977(h) 8,305,051 -- 8,305,051 Federal Natl Mtge Assn 12/01/38 5.00 2,500,000(e) -- 2,500,000 2,516,405 -- 2,516,405 12/01/38 5.50 8,000,000(e) -- 8,000,000 8,132,496 -- 8,132,496 12/01/38 6.00 10,000,000(e) -- 10,000,000 10,221,880 -- 10,221,880 12/01/38 6.50 -- 3,000,000 3,000,000 -- 3,083,907 3,083,907 Federal Natl Mtge Assn #125032 11/01/21 8.00 122,323 -- 122,323 129,456 -- 129,456 Federal Natl Mtge Assn #190129 11/01/23 6.00 890,053 -- 890,053 916,033 -- 916,033 Federal Natl Mtge Assn #190353 08/01/34 5.00 6,382,017 -- 6,382,017 6,435,011 -- 6,435,011 Federal Natl Mtge Assn #190785 05/01/09 7.50 32,237 -- 32,237 32,668 -- 32,668 Federal Natl Mtge Assn #190988 06/01/24 9.00 195,601 -- 195,601 211,378 -- 211,378 Federal Natl Mtge Assn #254384 06/01/17 7.00 279,842 -- 279,842(i) 294,129 -- 294,129 Federal Natl Mtge Assn #254454 08/01/17 7.00 496,026 -- 496,026 521,351 -- 521,351 Federal Natl Mtge Assn #254723 05/01/23 5.50 8,198,373 -- 8,198,373 8,367,873 -- 8,367,873
49
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Federal Natl Mtge Assn #254748 04/01/13 5.50 $ 4,473,645 $ -- $ 4,473,645 $ 4,588,283 $ -- $ 4,588,283 Federal Natl Mtge Assn #254757 05/01/13 5.00 6,057,250 -- 6,057,250 6,110,765 -- 6,110,765 Federal Natl Mtge Assn #254774 05/01/13 5.50 1,389,294 -- 1,389,294 1,416,125 -- 1,416,125 Federal Natl Mtge Assn #255501 09/01/14 6.00 560,227 -- 560,227 586,506 -- 586,506 Federal Natl Mtge Assn #256901 09/01/37 6.50 -- 2,035,299 2,035,299 -- 2,068,332 2,068,332 Federal Natl Mtge Assn #303885 05/01/26 7.50 427,007 -- 427,007 451,048 -- 451,048 Federal Natl Mtge Assn #313007 07/01/11 7.50 129,461 -- 129,461 133,613 -- 133,613 Federal Natl Mtge Assn #336512 02/01/26 6.00 62,122 -- 62,122 64,005 -- 64,005 Federal Natl Mtge Assn #357485 02/01/34 5.50 12,314,086 -- 12,314,086 12,544,836 -- 12,544,836 Federal Natl Mtge Assn #407327 01/01/14 5.50 355,442 -- 355,442 364,978 -- 364,978 Federal Natl Mtge Assn #456374 12/01/13 5.50 604,883 -- 604,883 621,112 -- 621,112 Federal Natl Mtge Assn #508402 08/01/14 6.50 242,175 -- 242,175(i) 249,358 -- 249,358 Federal Natl Mtge Assn #545818 07/01/17 6.00 11,673,144 -- 11,673,144 11,978,221 -- 11,978,221 Federal Natl Mtge Assn #545864 08/01/17 5.50 9,747,354 -- 9,747,354 9,989,792 -- 9,989,792 Federal Natl Mtge Assn #545910 08/01/17 6.00 1,804,974 -- 1,804,974 1,852,049 -- 1,852,049 Federal Natl Mtge Assn #555063 11/01/17 5.50 6,915,094 -- 6,915,094 7,091,373 -- 7,091,373 Federal Natl Mtge Assn #555367 03/01/33 6.00 8,978,406 -- 8,978,406 9,205,572 -- 9,205,572 Federal Natl Mtge Assn #579485 04/01/31 6.50 2,151,518 -- 2,151,518(i) 2,235,226 -- 2,235,226 Federal Natl Mtge Assn #593829 12/01/28 7.00 1,463,747 -- 1,463,747 1,536,028 -- 1,536,028 Federal Natl Mtge Assn #601416 11/01/31 6.50 757,578 -- 757,578 787,062 -- 787,062 Federal Natl Mtge Assn #630993 09/01/31 7.50 2,104,990 -- 2,104,990 2,220,562 -- 2,220,562 Federal Natl Mtge Assn #648040 06/01/32 6.50 2,067,362 -- 2,067,362 2,138,773 -- 2,138,773 Federal Natl Mtge Assn #648349 06/01/17 6.00 6,186,610 -- 6,186,610 6,347,947 -- 6,347,947 Federal Natl Mtge Assn #651284 07/01/17 6.00 1,212,490 -- 1,212,490 1,244,295 -- 1,244,295 Federal Natl Mtge Assn #662866 11/01/17 6.00 1,062,928 -- 1,062,928 1,094,739 -- 1,094,739 Federal Natl Mtge Assn #665752 09/01/32 6.50 1,174,133 -- 1,174,133 1,214,691 -- 1,214,691 Federal Natl Mtge Assn #670782 11/01/12 5.00 237,174 -- 237,174 238,999 -- 238,999 Federal Natl Mtge Assn #670830 12/01/12 5.00 330,824 -- 330,824 338,122 -- 338,122 Federal Natl Mtge Assn #671415 01/01/10 5.00 351,675 -- 351,675 351,902 -- 351,902 Federal Natl Mtge Assn #678940 02/01/18 5.50 1,856,424 -- 1,856,424 1,904,564 -- 1,904,564 Federal Natl Mtge Assn #686227 02/01/18 5.50 2,528,653 -- 2,528,653 2,594,469 -- 2,594,469 Federal Natl Mtge Assn #696837 04/01/18 5.50 2,739,943 -- 2,739,943 2,810,300 -- 2,810,300
50
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Federal Natl Mtge Assn #704610 06/01/33 5.50 $ 9,936,371 $ -- $ 9,936,371(i) $ 10,122,567 $ -- $ 10,122,567 Federal Natl Mtge Assn #712602 06/01/13 5.00 714,348 -- 714,348 721,090 -- 721,090 Federal Natl Mtge Assn #722325 07/01/33 4.96 4,476,063 -- 4,476,063(g) 4,500,854 -- 4,500,854 Federal Natl Mtge Assn #725232 03/01/34 5.00 9,441,311 -- 9,441,311(i) 9,525,608 -- 9,525,608 Federal Natl Mtge Assn #725425 04/01/34 5.50 8,731,157 -- 8,731,157 8,904,273 -- 8,904,273 Federal Natl Mtge Assn #725431 08/01/15 5.50 6,492,835 -- 6,492,835 6,667,040 -- 6,667,040 Federal Natl Mtge Assn #725773 09/01/34 5.50 7,400,391 -- 7,400,391 7,534,440 -- 7,534,440 Federal Natl Mtge Assn #730632 08/01/33 4.02 1,532,183 -- 1,532,183(g) 1,510,787 -- 1,510,787 Federal Natl Mtge Assn #735212 12/01/34 5.00 5,669,459 -- 5,669,459 5,716,536 -- 5,716,536 Federal Natl Mtge Assn #735578 06/01/35 5.00 4,331,665 -- 4,331,665 4,364,926 -- 4,364,926 Federal Natl Mtge Assn #739243 09/01/33 6.00 2,706,417 -- 2,706,417 2,782,363 -- 2,782,363 Federal Natl Mtge Assn #739331 09/01/33 6.00 1,409,724 -- 1,409,724 1,444,511 -- 1,444,511 Federal Natl Mtge Assn #743524 11/01/33 5.00 2,841,728 -- 2,841,728 2,867,101 -- 2,867,101 Federal Natl Mtge Assn #745275 02/01/36 5.00 995,350 -- 995,350 1,002,993 -- 1,002,993 Federal Natl Mtge Assn #745392 12/01/20 4.50 -- 994,790 994,790 -- 1,000,474 1,000,474 Federal Natl Mtge Assn #753508 11/01/33 5.00 2,866,414 -- 2,866,414 2,892,007 -- 2,892,007 Federal Natl Mtge Assn #791447 10/01/34 6.00 4,334,878 -- 4,334,878(i) 4,439,138 -- 4,439,138 Federal Natl Mtge Assn #797046 07/01/34 5.50 2,692,051 -- 2,692,051 2,740,815 -- 2,740,815 Federal Natl Mtge Assn #799769 11/01/34 5.05 3,566,443 -- 3,566,443(g) 3,569,581 -- 3,569,581 Federal Natl Mtge Assn #799843 11/01/34 4.84 -- 1,075,341 1,075,341(g) -- 1,084,286 1,084,286 Federal Natl Mtge Assn #801344 10/01/34 5.03 3,843,481 -- 3,843,481(g) 3,851,667 -- 3,851,667 Federal Natl Mtge Assn #815463 02/01/35 5.50 1,750,823 -- 1,750,823 1,782,537 -- 1,782,537 Federal Natl Mtge Assn #829597 08/01/35 4.74 -- 1,313,289 1,313,289(g) -- 1,307,055 1,307,055 Federal Natl Mtge Assn #832641 09/01/35 6.00 6,022,126 -- 6,022,126 6,161,321 -- 6,161,321 Federal Natl Mtge Assn #849082 01/01/36 5.82 2,559,620 -- 2,559,620(g) 2,583,889 -- 2,583,889 Federal Natl Mtge Assn #849170 01/01/36 5.95 3,017,448 -- 3,017,448(g) 3,052,241 -- 3,052,241 Federal Natl Mtge Assn #867549 02/01/36 5.50 -- 1,986,295 1,986,295 -- 2,021,965 2,021,965 Federal Natl Mtge Assn #878661 02/01/36 5.50 7,268,229 -- 7,268,229 7,348,861 -- 7,348,861 Federal Natl Mtge Assn #881886 04/01/36 5.36 -- 816,232 816,232(g) -- 824,062 824,062 Federal Natl Mtge Assn #883267 07/01/36 6.50 4,209,791 -- 4,209,791 4,349,120 -- 4,349,120 Federal Natl Mtge Assn #886764 08/01/36 5.60 -- 671,832 671,832(g) -- 686,628 686,628 Federal Natl Mtge Assn #887403 07/01/36 7.00 2,515,995 -- 2,515,995 2,635,569 -- 2,635,569
51
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Federal Natl Mtge Assn #888989 06/01/37 6.05 $ 5,696,176 $ -- $ 5,696,176(g) $ 5,851,509 $ -- $ 5,851,509 Federal Natl Mtge Assn #895834 04/01/36 6.05 -- 1,312,595 1,312,595(g) -- 1,349,458 1,349,458 Federal Natl Mtge Assn #902818 11/01/36 5.91 2,014,549 -- 2,014,549(g) 2,044,223 -- 2,044,223 Federal Natl Mtge Assn #919341 05/01/37 6.50 3,310,688 -- 3,310,688 3,406,756 -- 3,406,756 Federal Natl Mtge Assn #928771 10/01/37 8.00 5,776,833 -- 5,776,833(i) 6,083,937 -- 6,083,937 Federal Natl Mtge Assn #946609 09/01/37 5.82 -- 984,920 984,920(g) -- 1,004,445 1,004,445 Federal Natl Mtge Assn #967656 12/01/37 6.50 -- 3,572,990 3,572,990 -- 3,677,227 3,677,227 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 163 Cl 2 07/25/22 34.02 493,783 -- 493,783(b) 72,472 -- 72,472 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-18 Cl SE 02/25/32 46.58 2,642,309 -- 2,642,309(b) 287,233 -- 287,233 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-26 Cl MI 03/25/23 13.70 1,529,182 -- 1,529,182(b) 209,004 -- 209,004 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07/25/33 25.88 3,553,978 -- 3,553,978(b) 408,092 -- 408,092 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12/25/31 9.86 1,835,688 -- 1,835,688(b) 225,112 -- 225,112 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-81 Cl LI 11/25/13 59.80 1,251,315 -- 1,251,315(b) 11,045 -- 11,045 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 36 Cl 2 08/01/18 15.66 3,987 -- 3,987(b) 876 -- 876 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 367 C l2 01/01/36 12.99 2,652,947 -- 2,652,947(b) 434,371 -- 434,371 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 379 Cl 2 05/01/37 13.46 5,139,714 -- 5,139,714(b) 814,725 -- 814,725 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 70 Cl 2 01/15/20 27.28 177,082 -- 177,082(b) 32,598 -- 32,598 Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series G-15 Cl A 06/25/21 2.49 23,502 -- 23,502(c) 21,765 -- 21,765
52
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2002-52 Cl FG 09/25/32 1.90 $ 7,459,317 $ -- $ 7,459,317(h) $ 7,323,500 $ -- $ 7,323,500 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12/25/26 8.00 1,741,536 -- 1,741,536 1,859,467 -- 1,859,467 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-94 Cl QB 07/25/23 5.50 1,451,559 -- 1,451,559 1,450,382 -- 1,450,382 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-W11 Cl A1 06/25/33 6.29 107,620 -- 107,620(g) 105,377 -- 105,377 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2004-60 Cl PA 04/25/34 5.50 3,031,541 -- 3,031,541 3,097,939 -- 3,097,939 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2005-50 Cl AH 06/25/25 5.00 -- 2,000,000 2,000,000 -- 1,911,199 1,911,199 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-60 Cl JF 10/25/35 1.83 5,258,851 -- 5,258,851(h) 5,092,865 -- 5,092,865 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-90 Cl FE 09/25/36 1.85 6,697,825 -- 6,697,825(h) 6,554,519 -- 6,554,519 Govt Natl Mtge Assn 12/01/38 5.50 5,000,000 -- 5,000,000(e) 5,068,750 -- 5,068,750 Govt Natl Mtge Assn #615740 08/15/13 6.00 618,862 -- 618,862 642,152 -- 642,152 Govt Natl Mtge Assn #648339 10/15/35 5.50 -- 1,600,202 1,600,202 -- 1,632,128 1,632,128 Govt Natl Mtge Assn #781507 09/15/14 6.00 2,980,624 -- 2,980,624 3,070,300 -- 3,070,300 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-62 Cl IC 03/20/29 76.25 970,053 -- 970,053(b) 13,505 -- 13,505 Govt Natl Mtge Assn Collateralized Mtge Obligation Series 2004-3 Cl JB 05/20/29 5.00 -- 457,035 457,035 -- 457,176 457,176 Govt Natl Mtge Assn Collateralized Mtge Obligation Series 2006-32 Cl A 01/16/30 5.08 8,548,708 -- 8,548,708 8,626,292 -- 8,626,292 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2004-4 Cl 3A 06/19/34 3.97 390,964 -- 390,964(g) 176,121 -- 176,121 Lehman XS Trust Series 2006-16N Cl A1B 11/25/46 1.52 1,998,462 -- 1,998,462(h) 1,800,303 -- 1,800,303 Merrill Lynch Alternative Note Asset Collateralized Mtge Obligation Series 2007-OAR1 Cl A1 02/25/37 1.57 5,139,861 -- 5,139,861(h) 1,948,002 -- 1,948,002 Morgan Stanley Mtge Loan Trust Series 2006-13AX Cl A1 10/25/36 1.49 2,770,542 -- 2,770,542(h) 2,529,017 -- 2,529,017
53
BONDS (CONTINUED) COUPON PRINCIPAL PRINCIPAL PRINCIPAL ISSUER RATE AMOUNT AMOUNT AMOUNT VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Small Business Administration Series 2002-P10B Cl 1 08/01/12 5.20 $ -- $ 493,280 $ 493,280 $ -- $ 496,813 $ 496,813 Washington Mutual Mtge Pass- Through Ctfs Collateralized Mtge Obligation Series 2006-AR3 Cl A1A 02/25/46 3.48 1,800,546 -- 1,800,546(g) 758,151 -- 758,151 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10/25/35 5.00 5,316,554 -- 5,316,554 4,719,754 -- 4,719,754 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-14 Cl 2A1 12/25/35 5.50 2,849,488 -- 2,849,488 2,019,909 -- 2,019,909 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05/25/35 5.50 3,819,619 -- 3,819,619 3,500,922 -- 3,500,922 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03/25/36 5.11 3,408,850 -- 3,408,850(g) 2,288,186 -- 2,288,186 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-11 Cl A68 08/25/37 6.00 4,573,963 -- 4,573,963 2,275,918 -- 2,275,918 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-15 Cl A1 11/25/37 6.00 3,136,295 -- 3,136,295 1,956,141 -- 1,956,141 ------------------------------------------------ Total 434,616,183 38,192,460 472,808,643 ------------------------------------------------ TOTAL BONDS (Cost: $774,463,338) $664,247,272 $80,543,485 $744,790,757 - ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (3.9%)(R) SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED RiverSource Short- Term Cash Fund, 0.69% 23,204,156 -- 23,204,156(l) $23,204,156 $ -- $23,204,156 SSgA U.S. Treasury Money Market Fund -- 11,375,635 11,375,635 -- 11,375,635 $11,375,635 ------------------------------------------------ TOTAL MONEY MARKET FUNDS (Cost: $34,579,791) $23,204,156 $11,375,635 $34,579,791 - -------------------------------------------------------------------------------------------------------------------------
54
SHORT-TERM SECURITIES (18.0%) EFFEC- TIVE AMOUNT PAYABLE AMOUNT PAYABLE AMOUNT PAYABLE ISSUER YIELD AT MATURITY AT MATURITY AT MATURITY VALUE(A) VALUE(A) VALUE(A) RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION U.S. U.S. RIVERSOURCE SELIGMAN GOVERNMENT RIVERSOURCE SELIGMAN GOVERNMENT SHORT DURATION U.S. GOVERNMENT FUND SHORT DURATION U.S. GOVERNMENT FUND U.S. GOVERNMENT SECURITIES PRO FORMA U.S. GOVERNMENT SECURITIES PRO FORMA FUND FUND COMBINED FUND FUND COMBINED U.S. GOVERNMENT AGENCIES Federal Home Loan Bank Disc Nts 12/01/08 0.10% $23,100,000 $ -- $23,100,000 $ 23,099,808 $ -- $ 23,099,808 12/04/08 0.22 45,000,000 -- 45,000,000 44,998,374 -- 44,998,374 12/05/08 0.35 16,000,000 -- 16,000,000 15,998,911 -- 15,998,911 12/09/08 0.35 21,300,000 -- 21,300,000 21,297,722 -- 21,297,722 12/12/08 0.18 12,000,000 -- 12,000,000 11,999,160 -- 11,999,160 12/15/08 0.20 24,900,000 -- 24,900,000 24,897,649 -- 24,897,649 12/23/08 0.20 15,000,000 -- 15,000,000 14,997,917 -- 14,997,917 03/25/09 2.91 -- 2,500,000 2,500,000 -- 2,493,865 2,493,865 ------------------------------------------------ TOTAL SHORT-TERM SECURITIES (Cost: $163,243,831) $157,289,541 $ 2,493,865 $159,783,406 ------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $972,286,960)(m) $844,740,969 $94,412,985 $939,153,954 - ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2008 RiverSource Short Duration U.S. Government Fund
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) U.S. Long Bond, 20-year 30 $ 3,824,531 March 2009 $ 70,963 U.S. Treasury Note, 2-year 696 150,901,500 April 2009 1,150,951 U.S. Treasury Note, 5-year (806) (94,069,017) April 2009 (1,151,720) U.S. Treasury Note, 10-year (585) (70,766,719) March 2009 (1,960,133) - ---------------------------------------------------------------------------------------------------------------- Total $(1,889,939) - ---------------------------------------------------------------------------------------------------------------- NOTES TO COMBINED PORTFOLIO OF INVESTMENTS
(A) Securities are valued by using procedures described in Note 1 to the financial statements. (B) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Nov. 30, 2008. (C) 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 Nov. 30, 2008. (D) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been 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 Nov. 30, 2008, the value of these securities amounted to $6,561,576 or 0.7% of net assets. (E) At Nov. 30, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $39,811,910. (F) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (G) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2008. (H) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2008. (I) At Nov. 30, 2008, investments in securities included securities valued at $3,974,282 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (J) 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. 55 (K) Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitments at Nov. 30, 2008:
PRINCIPAL PRINCIPAL SETTLEMENT PROCEEDS PROCEEDS SECURITY AMOUNT AMOUNT DATE RECEIVABLE RECEIVABLE RIVERSOURCE RIVERSOURCE SHORT DURATION SHORT DURATION RIVERSOURCE U.S. GOVERNMENT RIVERSOURCE U.S. GOVERNMENT SHORT DURATION SELIGMAN FUND SHORT DURATION SELIGMAN FUND U.S. GOVERNMENT U.S. GOVERNMENT PRO FORMA U.S. GOVERNMENT U.S. GOVERNMENT PRO FORMA FUND FUND COMBINED FUND FUND COMBINED Federal Natl Mtge Assn 12/01/23 5.50% $9,275,000 $-- $9,275,000 12/16/08 $9,347,823 $-- $9,347,823 SECURITY VALUE VALUE RIVERSOURCE SHORT DURATION RIVERSOURCE U.S. GOVERNMENT SHORT DURATION SELIGMAN FUND U.S. GOVERNMENT U.S. GOVERNMENT PRO FORMA FUND FUND COMBINED Federal Natl Mtge Assn 12/01/23 5.50% $9,434,419 $-- $9,434,419
(L) Affiliated Money Market Fund -- See Note 6 to the financial statements in the annual report. The rate shown is the seven-day current annualized yield at Nov. 30, 2008. (M) At Nov. 30, 2008, the approximate cost of securities for federal income tax purposes and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was:
RIVERSOURCE SHORT DURATION RIVERSOURCE U.S. GOVERNMENT SHORT DURATION SELIGMAN FUND U.S. GOVERNMENT U.S. GOVERNMENT PRO FORMA FUND FUND COMBINED Cost of securities for federal income tax purposes: $880,033,000 $92,254,000 $972,287,000 Unrealized appreciation $ 10,781,000 $ 2,366,000 $ 13,147,000 Unrealized depreciation (46,073,000) (207,000) (46,280,000) - ----------------------------------------------------------------------------------------------------------- Net unrealized appreciation/depreciation $(35,292,000) 2,159,000 $(33,133,000) - -----------------------------------------------------------------------------------------------------------
56 THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) SELIGMAN EMERGING MARKETS FUND (SELLING FUND) INTRODUCTION TO PROPOSED FUND REORGANIZATION Oct. 31, 2008 The accompanying unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Oct. 31, 2008. These statements have been derived from financial statements prepared for the Threadneedle Emerging Markets Fund and the Seligman Emerging Markets Fund as of Oct. 31, 2008. Threadneedle Emerging Markets Fund invests primarily in equity securities of emerging markets companies or in companies that earn 50% or more of their total revenues from goods or services produced in emerging market countries or from sales made in emerging market countries. Seligman Emerging Markets Fund invests primarily in equity securities of companies that conduct their principal business activities in emerging markets, are organized under the laws of, or maintain their principal place of business in emerging markets, or whose securities are traded principally on exchanges in emerging markets. Under the proposed Agreement and Plan of Reorganization, share classes of Seligman Emerging Markets Fund would be exchanged for share classes of Threadneedle Emerging Markets Fund.
SELLING FUND BUYING FUND - --------------------------------------------------------------------------------------------------------- Seligman Emerging Markets Fund Class A Threadneedle Emerging Markets Fund Class A - --------------------------------------------------------------------------------------------------------- Seligman Emerging Markets Fund Class B Threadneedle Emerging Markets Fund Class B - --------------------------------------------------------------------------------------------------------- Seligman Emerging Markets Fund Class C Threadneedle Emerging Markets Fund Class C - --------------------------------------------------------------------------------------------------------- Seligman Emerging Markets Fund Class R(1) Threadneedle Emerging Markets Fund Class R2(2) - --------------------------------------------------------------------------------------------------------- Seligman Emerging Markets Fund Class I(1) Threadneedle Emerging Markets Fund Class R5 - ---------------------------------------------------------------------------------------------------------
(1) Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman Emerging Markets Fund will be redesignated as Class R2 and Class R5 shares, respectively. (2) The inception date for the Threadneedle Emerging Markets Fund Class R2 shares is expected to be in the third quarter of 2009. Note: Threadneedle Emerging Markets Fund also offers Class I and Class R4 shares. The pro forma combining statements have been prepared to give effect to the proposed transaction on the historical operations of the accounting survivor, Threadneedle Emerging Markets Fund, as if the transaction had occurred at the beginning of the fiscal year ending Oct. 31, 2008. 57 THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) SELIGMAN EMERGING MARKETS FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
THREADNEEDLE THREADNEEDLE THREADNEEDLE SELIGMAN EMERGING EMERGING EMERGING EMERGING MARKETS FUND MARKETS FUND MARKETS MARKETS PRO FORMA PRO FORMA OCT. 31, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS COMBINED ASSETS Investments in securities, at cost Unaffiliated issuers $ 424,358,342 $ 95,091,922 $ -- $ 519,450,264 Affiliated money market fund $ 13,521,361 $ -- $ -- $ 13,521,361 ------------------------------------------------------------------ Investments in securities, at value Unaffiliated issuers $ 270,514,080 $ 63,721,034 $ -- $ 334,235,114 Affiliated money market fund $ 13,521,361 $ -- $ -- $ 13,521,361 Cash 667,406 748,010 -- 1,415,416 Foreign currency holdings (identified cost $1,911,096 for Threadneedle Emerging Markets Fund and $47,117 for Seligman Emerging Markets Fund) 1,906,201 47,117 -- 1,953,318 Capital shares receivable 202,353 125,371 -- 327,724 Dividends and accrued interest receivable 435,788 125,347 -- 561,135 Receivable for investment securities sold 12,802,608 43,743 -- 12,846,351 Investment management services fees receivable (Note 2) -- -- 55,609(a) 55,609 Transfer agency fees receivable (Note 2) -- -- 235,755(b) 235,755 Unrealized appreciation on forward foreign currency contracts -- 1,157,113 -- 1,157,113 Prepaid expenses -- 75,329 -- 75,329 Other assets -- 7,603 -- 7,603 - --------------------------------------------------------------------------------------------------------------------------- Total assets 300,049,797 66,050,667 291,364 366,391,828 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Capital shares payable 278,847 353,783 -- 632,630 Payable for investment securities purchased 17,212,931 -- -- 17,212,931 Unrealized depreciation on forward foreign currency contracts -- 397,517 -- 397,517 Payable to RiverSource Investments, LLC (Note 2) -- -- 230,433(f) 230,433 Accrued investment management services fees (Note 2) 8,332 81,475 (89,807)(a) -- Accrued distribution fees 2,524 27,957 -- 30,481 Accrued transfer agency fees (Note 2) 2,573 -- (2,573)(b) -- Accrued administrative services fees (Note 2) 607 -- 95,843(c) 96,450 Accrued plan administration services fees (Note 2) 5 -- 25,082(d) 25,087 Other accrued expenses (Note 2) 320,472 166,237 (439,842)(e) 46,867 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities 17,826,291 1,026,969 (180,864) 18,672,396 - --------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 282,223,506 $ 65,023,698 $ 472,228 $ 347,719,432 - --------------------------------------------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value for Threadneedle Emerging Markets Fund and $.001 par value for Seligman Emerging Markets Fund (Note 3) $ 576,740 $ 9,089 $ 127,194 $ 713,023 Additional paid-in capital (Note 3) 456,206,763 88,980,080 (127,194) 545,059,649 Undistributed (excess of distributions over) net investment income (Note 2) (5,170) (1,486) 472,228 465,572 Accumulated net realized gain (loss) (20,707,820) 6,647,955 -- (14,059,865) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (153,847,007) (30,611,940) -- (184,458,947) - --------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 282,223,506 $ 65,023,698 $ 472,228 $ 347,719,432 - --------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares: Class A $ 250,088,197 $ 33,557,713 $ 243,709 $ 283,889,619 Class B $ 28,179,486 $ 2,060,989 $ 14,968 $ 30,255,443 Class C $ 3,162,935 $ 17,208,595 $ 124,976 $ 20,496,506 Class I $ 7,972 N/A $ -- $ 7,972 Class R2 N/A $ 6,861,199 $ 49,829 $ 6,911,028 Class R4 $ 782,170 N/A $ -- $ 782,170 Class R5 $ 2,746 $ 5,335,202 $ 38,746 $ 5,376,694 Shares outstanding (Note 3): Class A shares 50,453,378 4,533,207 -- 57,268,181 Class B shares 6,354,512 317,272 -- 6,823,125 Class C shares 711,847 2,638,190 -- 4,615,804 Class I shares 1,558 N/A -- 1,558 Class R2 shares N/A 932,562 -- 1,393,352 Class R4 shares 152,215 N/A -- 152,215 Class R5 shares 535 668,107 -- 1,048,088 Net asset value per share of outstanding capital stock: Class A $ 4.96 $ 7.40 $ -- $ 4.96 Class B $ 4.43 $ 6.50 $ -- $ 4.43 Class C $ 4.44 $ 6.52 $ -- $ 4.44 Class I $ 5.12 N/A $ -- $ 5.12 Class R2 N/A $ 7.36 $ -- $ 4.96 Class R4 $ 5.14 N/A $ -- $ 5.14 Class R5 $ 5.13 $ 7.99 $ -- $ 5.13 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements 58 THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) SELIGMAN EMERGING MARKETS FUND (SELLING FUND) PRO FORMA COMBINING STATEMENT OF OPERATIONS
THREADNEEDLE THREADNEEDLE THREADNEEDLE SELIGMAN EMERGING EMERGING EMERGING EMERGING MARKETS FUND MARKETS FUND MARKETS MARKETS PRO FORMA PRO FORMA YEAR ENDED OCT. 31, 2008 (UNAUDITED) FUND FUND ADJUSTMENTS COMBINED INVESTMENT INCOME Income: Dividends $ 17,185,342 $ 3,512,330 $ -- $ 20,697,672 Interest 64,517 15,571 -- 80,088 Income distributions from affiliated money market fund 412,142 -- -- 412,142 Less foreign taxes withheld (1,058,784) (164,834) -- (1,223,618) - --------------------------------------------------------------------------------------------------------------------- Total income 16,603,217 3,363,067 -- 19,966,284 - --------------------------------------------------------------------------------------------------------------------- Expenses: Investment management services fees (Note 2) 7,352,591 1,587,834 (145,416)(a) 8,795,009 Distribution fees Class A 1,283,814 165,246 -- 1,449,060 Class B 701,567 55,576 -- 757,143 Class C 62,513 349,606 -- 412,119 Class R2 -- 50,182 -- 50,182 Transfer agency fees (Note 2) Class A 972,852 348,849 (82,692)(b) 1,239,009 Class B 139,042 27,231 -- 166,273 Class C 12,334 182,647 (101,605)(b) 93,376 Class R2 -- 58,236 (53,220)(b) 5,016 Class R4 868 -- -- 868 Class R5 1 5,592 (811)(b) 4,782 Administrative services fees (Note 2) 498,019 -- 95,843(c) 593,862 Plan administration services fees (Note 2) Class R2 -- -- 25,082(d) 25,082 Class R4 4,342 -- -- 4,342 Compensation of board members (Note 2) 13,359 11,189 (8,508)(e) 16,040 Custodian fees (Note 2) 693,125 357,788 (218,706)(e) 832,207 Printing and postage (Note 2) 117,050 31,315 (7,828)(e) 140,537 Registration fees (Note 2) 86,716 74,595 (57,195)(e) 104,116 Professional fees (Note 2) 79,151 163,487 (147,605)(e) 95,033 Other (Note 2) 168,800 13,879 -- 182,679 - --------------------------------------------------------------------------------------------------------------------- Total expenses 12,186,144 3,483,252 (702,661) 14,966,735 Expenses waived/reimbursed by RiverSource Investments, LLC (Note 2) (4,460) (225,973) 230,433(f) -- Earnings and bank fee credits on cash balances (14,844) -- -- (14,844) - --------------------------------------------------------------------------------------------------------------------- Total net expenses 12,166,840 3,257,279 (472,228) 14,951,891 - --------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 4,436,377 105,788 472,228 5,014,393 - --------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (18,203,439) 8,831,686 -- (9,371,753) Foreign currency transactions (1,454,385) 1,052,938 -- (401,447) - --------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (19,657,824) 9,884,624 -- (9,773,200) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (421,981,869) (93,108,293) -- (515,090,162) - --------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (441,639,693) (83,223,669) -- (524,863,362) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(437,203,316) $(83,117,881) $ 472,228 $(519,848,969) - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma financial statements 59 THREADNEEDLE EMERGING MARKETS FUND (BUYING FUND) SELIGMAN EMERGING MARKETS FUND (SELLING FUND) NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited as to Oct. 31, 2008) 1. BASIS OF COMBINATION The unaudited pro forma combining statement of assets and liabilities and the statement of operations reflect the accounts of the two Funds at, and for, the 12-month period ended Oct. 31, 2008. These statements have been derived from financial statements prepared for the Threadneedle Emerging Markets Fund and the Seligman Emerging Markets Fund as of Oct. 31, 2008. Each Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The primary investments of each Fund are as follows: Threadneedle Emerging Markets Fund invests primarily in equity securities of emerging markets companies or in companies that earn 50% or more of their total revenues from goods or services produced in emerging market countries or from sales made in emerging market countries. Seligman Emerging Markets Fund invests primarily in equity securities of companies that conduct their principal business activities in emerging markets, are organized under the laws of, or maintain their principal place of business in emerging markets, or whose securities are traded principally on exchanges in emerging markets. The pro forma statements give effect to the proposed transfer of the assets and liabilities of Seligman Emerging Markets Fund in exchange for Class A, Class B, Class C, Class R2 and Class R5 shares of Threadneedle Emerging Markets Fund under U.S. generally accepted accounting principles. The pro forma statements reflect estimates for the combined Threadneedle Emerging Markets Fund based on the increased asset level of the Reorganization and associated economies of scale, adjusted to reflect current fees. The pro forma combining statements should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statement of Additional Information. The pro forma statement of operations give effect to the proposed transaction on the historical operations of the accounting survivor, Threadneedle Emerging Markets Fund, as if the transaction had occurred at the beginning of the year presented. 2. PRO FORMA ADJUSTMENTS (a) To reflect the change in investment management services fee due to the Reorganization. In addition, the Performance Incentive Adjustment (PIA) was calculated based on the combined average net assets of the two funds and the Threadneedle Emerging Markets Fund PIA rate as of Oct. 31, 2008. (b) To reflect the change in transfer agent fees due to the Reorganization including adjusting for closed account fees for each Seligman Emerging Markets Fund shareholder account that will be closed on the system as a result of the Reorganization. (c) To reflect the change in administrative services fees due to the Reorganization. (d) To reflect the change in plan administration services fees due to the Reorganization. (e) To reflect the change in other fees due to the Reorganization. (f) To adjust the expense reimbursement to reflect no reduction in fees resulting from the Reorganization per the agreement (through Oct. 31, 2009) by RiverSource Investments, LLC and its affiliates to waive certain fees and absorb certain expenses of the combined fund. 60 3. CAPITAL SHARES The pro forma net asset value per share assumes the issuance of additional Class A, Class B, Class C, Class R2 and Class R5 shares of Threadneedle Emerging Markets Fund as if the Reorganization were to have taken place on Oct. 31, 2008. The following table reflects the number of Threadneedle Emerging Markets Fund shares assumed to be issued to the shareholders of the Seligman Emerging Markets Fund.
SELIGMAN THREADNEEDLE EMERGING EMERGING MARKETS FUND MARKETS FUND TOTAL PRO FORMA SHARES ISSUED SHARES OUTSTANDING SHARES OUTSTANDING - ---------------------------------------------------------------------------------------------------------------- Class A 6,814,803 50,453,378 57,268,181 - ---------------------------------------------------------------------------------------------------------------- Class B 468,613 6,354,512 6,823,125 - ---------------------------------------------------------------------------------------------------------------- Class C 3,903,957 711,847 4,615,804 - ---------------------------------------------------------------------------------------------------------------- Class I N/A 1,558 1,558 - ---------------------------------------------------------------------------------------------------------------- Class R2(1),(2) 1,393,352 N/A 1,393,352 - ---------------------------------------------------------------------------------------------------------------- Class R4 N/A 152,215 152,215 - ---------------------------------------------------------------------------------------------------------------- Class R5(1) 1,047,553 535 1,048,088 - ----------------------------------------------------------------------------------------------------------------
(1) Effective on or about June 13, 2009, the Class R and Class I shares of the Seligman Emerging Markets Fund will be redesignated as Class R2 and Class R5 shares, respectively. (2) The inception date for the Threadneedle Emerging Markets Fund Class R2 shares is expected to be in the third quarter of 2009. 61 COMBINED PORTFOLIO OF INVESTMENTS Threadneedle Emerging Markets Fund OCT. 31, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (95.8%)(C) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) THREADNEEDLE THREADNEEDLE EMERGING EMERGING THREADNEEDLE SELIGMAN MARKETS FUND THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED MARKETS FUND MARKETS FUND COMBINED BERMUDA (0.8%) Credicorp 72,761 -- 72,761 $ 2,857,324 $ $-- $ 2,857,324 BRAZIL (12.9%) AmBev ADR 54,439 -- 54,439 2,313,658 -- 2,313,658 Amil Participacoes -- 72,200 72,200(b) -- 333,256 333,256 Banco Bradesco 255,100 -- 255,100 2,937,551 -- 2,937,551 Banco Itau Holding ADR -- 71,700 71,700 -- 793,002 793,002 BM&F Bovespa -- 223,300 223,300(b) -- 596,772 596,772 Companhia Brasileira de Distribuicao Grupo Pao de Acucar ADR -- 23,700 23,700 -- 709,341 709,341 Companhia Energetica de Minas Gerais ADR -- 63,800 63,800 -- 970,398 970,398 Companhia Siderurgica Nasional ADR -- 35,500 35,500 -- 482,800 482,800 Companhia Vale do Rio Doce ADR 211,011 124,216 335,227 2,768,464 1,629,714 4,398,178 MRV Engenharia e Participacoes 160,400 -- 160,400 833,218 -- 833,218 Multiplan Empreendimentos Imobiliarios 399,849 -- 399,849(b) 2,017,774 -- 2,017,774 OdontoPrev -- 25,800 25,800(b) -- 332,250 332,250 PDG Realty 269,800 -- 269,800 1,381,506 -- 1,381,506 Petroleo Brasileiro ADR 327,760 105,200 432,960 8,813,466 2,828,828 11,642,294 Redecard 955,100 -- 955,100 10,405,191 -- 10,405,191 UNIBANCO -- Uniao de Bancos Brasileiros GDR 52,661 -- 52,661 3,321,857 -- 3,321,857 Usinas Siderurgicas de Minas Gerais -- 85,925 85,925 -- 1,009,366 1,009,366 Weg -- 52,300 52,300 -- 296,926 296,926 ------------------------------------------- Total 34,792,685 9,982,653 44,775,338 ------------------------------------------- CANADA (0.6%) Yamana Gold 460,420 -- 460,420 2,131,745 -- 2,131,745 ------------------------------------------- CHILE (0.5%) Enersis ADR -- 67,400 67,400 -- 970,560 970,560 Sociedad Quimica y Minera de Chile ADR -- 35,700 35,700 -- 817,530 817,530 ------------------------------------------- Total -- 1,788,090 1,788,090 ------------------------------------------- CHINA (15.6%) Angang Steel Series H -- 594,000 594,000 -- 368,527 368,527 China Construction Bank Series H 9,620,000 -- 9,620,000 4,772,560 -- 4,772,560 China Life Insurance Series H 2,005,000 509,000 2,514,000 5,358,462 1,360,306 6,718,768 China Medical Tehnologies ADR 77,736 -- 77,736 1,894,426 -- 1,894,426 China Merchants Bank Series H 2,439,000 -- 2,439,000 3,736,882 -- 3,736,882 China Mobile ADR -- 17,400 17,400 -- 763,686 763,686 China Overseas Land & Investment -- 326,000 326,000 -- 363,121 363,121 China Resources Enterprise -- 480,000 480,000 -- 942,084 942,084 China Shenhua Energy Series H -- 518,000 518,000(b) -- 959,592 959,592 CNOOC ADR 71,752 20,700 92,452 5,861,421 1,690,983 7,552,404 First Pacific -- 784,000 784,000(b) -- 316,808 316,808 Golden Meditech -- 1,768,000 1,768,000 -- 253,408 253,408 Hong Kong Exchange and Clearing -- 78,400 78,400 -- 801,458 801,458 Hopson Development Holdings -- 710,000 710,000 -- 233,245 233,245 Industrial & Commercial Bank of China Series H 18,359,000 2,709,000 21,068,000 8,638,789 1,260,360 9,899,149 Li Ning 1,691,500 -- 1,691,500 2,093,436 -- 2,093,436 Minth Group 2,484,000 -- 2,484,000 868,102 -- 868,102 Ping An Insurance Group of China Series H 1,825,000 -- 1,825,000 7,805,478 -- 7,805,478
62
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) THREADNEEDLE THREADNEEDLE EMERGING EMERGING THREADNEEDLE SELIGMAN MARKETS FUND THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED MARKETS FUND MARKETS FUND COMBINED Shanghai Electric Group -- 3,370,000 3,370,000 $ -- $ 994,274 $ 994,274 Shangri-La Asia -- 858,000 858,000 -- 1,200,072 1,200,072 Simcere Pharmaceutical Group ADR -- 65,173 65,173(b) -- 366,924 366,924 Weiqiao Textile -- 530,500 530,500 -- 108,495 108,495 WSP Holdings ADR -- 131,400 131,400(b) -- 622,836 622,836 Wumart Stores -- 712,178 712,178 -- 579,738 579,738 ------------------------------------------- Total 41,029,556 13,185,917 54,215,473 ------------------------------------------- CZECH REPUBLIC (0.9%) CEZ 70,000 -- 70,000 3,033,756 -- 3,033,756 ------------------------------------------- EGYPT (0.3%) Orascom Construction Inds -- 23,657 23,657 -- 796,470 796,470 Talaat Moustafa Group -- 598,801 598,801(b) -- 386,706 386,706 ------------------------------------------- Total -- 1,183,176 1,183,176 ------------------------------------------- HONG KONG (6.1%) China Mobile 2,084,000 -- 2,084,000 18,347,176 -- 18,347,176 China Overseas Land & Investment 2,566,000 -- 2,566,000 2,897,869 -- 2,897,869 ------------------------------------------- Total 21,245,045 -- 21,245,045 ------------------------------------------- HUNGARY (0.1%) Richter Gedeon -- 3,543 3,543 -- 486,721 486,721 ------------------------------------------- INDIA (7.7%) Bajaj Holdings and Investment -- 38,655 38,655 -- 270,688 270,688 Bharat Heavy Electricals 91,662 38,576 130,238 2,435,150 1,045,815 3,480,965 Bharti Airtel 412,765 25,465 438,230(b) 5,573,659 347,974 5,921,633 Educomp Solutions -- 10,663 10,663 -- 495,118 495,118 Firstsource Solutions -- 650,211 650,211(b) -- 199,576 199,576 HDFC Bank ADR -- 2,400 2,400 -- 157,440 157,440 Housing Development Finance 87,154 -- 87,154 3,163,627 -- 3,163,627 Infosys Technologies 191,779 -- 191,779 5,574,974 -- 5,574,974 Lanco Infratech -- 108,795 108,795(b) -- 251,704 251,704 Nicholas Piramal India -- 160,497 160,497 -- 728,710 728,710 Piramal Life Sciences -- 54,885 54,885(b) -- 76,176 76,176 Punjab Natl Bank -- 11,114 11,114 -- 98,828 98,828 Reliance Inds 145,110 50,927 196,037 4,113,500 1,423,750 5,537,250 Tata Chemicals -- 217,516 217,516 -- 712,688 712,688 ------------------------------------------- Total 20,860,910 5,808,467 26,669,377 ------------------------------------------- INDONESIA (1.1%) Bank Rakyat Indonesia 8,962,000 -- 8,962,000 2,729,545 -- 2,729,545 Bumi Resources 7,288,500 -- 7,288,500(f) 1,136,986 -- 1,136,986 ------------------------------------------- Total 3,866,531 -- 3,866,531 ------------------------------------------- ISRAEL (6.4%) Bezek Israeli Telecommunication -- 429,592 429,592 -- 637,484 637,484 Check Point Software Technologies 297,210 -- 297,210(b) 6,009,586 -- 6,009,586 Israel Chemicals 491,565 46,862 538,427 4,979,313 466,575 5,445,888 Teva Pharmaceutical Inds ADR 190,786 48,300 239,086 8,180,903 2,071,104 10,252,007 ------------------------------------------- Total 19,169,802 3,175,163 22,344,965 ------------------------------------------- JORDAN (0.2%) Hikma Pharmaceuticals -- 122,439 122,439 -- 638,503 638,503 ------------------------------------------- MALAYSIA (1.5%) Digi.com -- 86,900 86,900 -- 452,061 452,061 IOI 2,647,300 -- 2,647,300 2,101,445 -- 2,101,445
63
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) THREADNEEDLE THREADNEEDLE EMERGING EMERGING THREADNEEDLE SELIGMAN MARKETS FUND THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED MARKETS FUND MARKETS FUND COMBINED KNM Group 9,350,150 -- 9,350,150 $ 1,587,707 $ -- $ 1,587,707 Kulim -- 329,400 329,400 -- 362,572 362,572 Resorts World -- 891,500 891,500 -- 627,023 627,023 ------------------------------------------- Total 3,689,152 1,441,656 5,130,808 ------------------------------------------- MEXICO (7.1%) America Movil ADR Series L 207,252 61,300 268,552 6,412,377 1,896,622 8,308,999 Fomento Economico Mexicano ADR -- 19,800 19,800 -- 500,742 500,742 Genomma Lab Internacional -- 232,200 232,200(b) -- 248,125 248,125 Grupo Financiero Banorte Series O 1,930,900 -- 1,930,900 3,543,198 -- 3,543,198 Grupo Televisa ADR 252,920 64,900 317,820 4,466,567 1,146,134 5,612,701 Impulsora del Dessarrollo y el Empleo an America Latina Series B-1 -- 347,900 347,900(b) -- 297,408 297,408 Wal-Mart de Mexico Series V 1,747,500 496,000 2,243,500 4,707,272 1,324,080 6,031,352 ------------------------------------------- Total 19,129,414 5,413,111 24,542,525 ------------------------------------------- NORWAY (0.1%) Copeinca 110,800 -- 110,800(b) 181,059 -- 181,059 ------------------------------------------- PAPUA NEW GUINEA (0.1%) New Britain Palm Oil -- 79,663 79,663 -- 252,759 252,759 ------------------------------------------- PERU (0.2%) Compania de Minas Buenaventura Cl B ADR -- 67,500 67,500 -- 853,200 853,200 ------------------------------------------- PHILIPPINES (0.2%) Philippine Long Distance Telephone ADR -- 13,000 13,000 -- 531,700 531,700 ------------------------------------------- QATAR (0.1%) Commercial Bank of Qatar GDR -- 102,600 102,600(b,e) -- 307,800 307,800 ------------------------------------------- RUSSIA (7.1%) Cherkizovo Group -- 26,343 26,343(b) -- 67,175 67,175 Eurasia Drilling GDR 243,662 -- 243,662(b,e,g) 1,339,747 -- 1,339,747 Gazprom ADR 617,321 10,081 627,402 12,577,916 200,309 12,778,225 Gazprom ADR -- 106,687 106,687(e) -- 2,152,943 2,152,943 MMC Norilsk Nickel ADR 201,865 -- 201,865 2,025,853 -- 2,025,853 Mobile Telesystems ADR -- 19,600 19,600 -- 767,340 767,340 Pharmstandard 72,811 -- 72,811(b) 1,830,430 -- 1,830,430 Sibirskiy Cement 24,589 -- 24,589 1,475,340 -- 1,475,340 Vimpel- Communications ADR 163,588 -- 163,588 2,372,026 -- 2,372,026 ------------------------------------------- Total 21,621,312 3,187,767 24,809,079 ------------------------------------------- SOUTH AFRICA (8.2%) ABSA Group 335,510 -- 335,510 3,517,898 -- 3,517,898 Adcock Ingram Holdings -- 142,128 142,128(b) -- 498,403 498,403 African Bank Investments -- 287,996 287,996 -- 795,072 795,072 Aspen Pharmacare -- 181,064 181,064(b) -- 635,741 635,741 Aveng 720,771 -- 720,771 3,571,281 -- 3,571,281 Gold Fields 485,399 -- 485,399 3,386,473 -- 3,386,473 Gold Fields ADR 218,148 -- 218,148 1,450,684 -- 1,450,684 Impala Platinum Holdings 258,879 77,515 336,394 2,707,989 813,547 3,521,536 MTN Group 350,937 94,813 445,750 3,949,297 1,069,973 5,019,270 Murray & Roberts Holdings 272,391 -- 272,391 1,848,111 -- 1,848,111 Sasol 109,036 -- 109,036 3,225,527 -- 3,225,527 Truworths Intl -- 339,884 339,884 -- 1,157,506 1,157,506 ------------------------------------------- Total 23,657,260 4,970,242 28,627,502 ------------------------------------------- SOUTH KOREA (7.9%) Hyundai Motor 68,408 -- 68,408 3,163,629 -- 3,163,629
64
COMMON STOCKS (CONTINUED) ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) THREADNEEDLE THREADNEEDLE EMERGING EMERGING THREADNEEDLE SELIGMAN MARKETS FUND THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED MARKETS FUND MARKETS FUND COMBINED Infopia 65,450 -- 65,450 $ 488,514 $ -- $ 488,514 KT 34,150 -- 34,150 870,018 -- 870,018 LG Electronics 45,653 19,346 64,999 3,411,257 1,430,742 4,841,999 NHN 33,539 -- 33,539(b) 3,572,276 -- 3,572,276 Samsung Electronics 27,090 -- 27,090 11,430,540 -- 11,430,540 Yuhan 20,363 -- 20,363 2,964,512 -- 2,964,512 ------------------------------------------- Total 25,900,746 1,430,742 27,331,488 ------------------------------------------- SWITZERLAND (0.1%) Orascom Development Holding -- 9,309 9,309(b) -- 269,666 269,666 ------------------------------------------- TAIWAN (7.6%) Asustek Computer 2,037,062 -- 2,037,062 2,919,344 -- 2,919,344 Chunghwa Telecom 1,286,460 -- 1,286,460 2,129,621 -- 2,129,621 Chunghwa Telecom ADR -- 34,600 34,600 -- 569,516 569,516 First Financial Holding 4,196,764 -- 4,196,764 1,980,311 -- 1,980,311 Hon Hai Precision Industry 1,098,250 382,910 1,481,160 2,652,248 926,982 3,579,230 MediaTek -- 89,000 89,000 -- 794,255 794,255 President Chain Store -- 203,000 203,000 -- 476,343 476,343 Taiwan Mobile -- 576,000 576,000(b) -- 801,575 801,575 Taiwan Semiconductor Mfg ADR 1,119,988 843,000 1,962,988 9,251,101 1,247,355 10,498,456 Tripod Technology 1,008,155 -- 1,008,155 1,232,753 -- 1,232,753 U-Ming Marine Transport 635,000 -- 635,000 741,724 -- 741,724 Yuanta Financial Holding -- 1,761,000 1,761,000 -- 701,035 701,035 ------------------------------------------- Total 20,907,102 5,517,061 26,424,163 ------------------------------------------- THAILAND (1.1%) Bangkok Bank -- 310,700 310,700 -- 632,382 632,382 Kasikornbank 2,094,800 -- 2,094,800 3,066,297 -- 3,066,297 Land and House -- 1,502,300 1,502,300 -- 165,389 165,389 ------------------------------------------- Total 3,066,297 797,771 3,864,068 ------------------------------------------- TURKEY (1.3%) Akcansa Cimento -- 77,071 77,071 -- 128,337 128,337 Aksigorta -- 130,725 130,725 -- 268,434 268,434 Cimsa Cimento Sanayi ve Ticaret -- 81,322 81,322 -- 153,435 153,435 Haci Omer Sabanci Holding -- 141,547 141,547 -- 344,308 344,308 Koc Holding -- 182,184 182,184 -- 340,601 340,601 Turkiye Garanti Bankasi 2,008,865 -- 2,008,865(b) 3,374,384 -- 3,374,384 ------------------------------------------- Total 3,374,384 1,235,115 4,609,499 ------------------------------------------- TOTAL COMMON STOCKS (Cost: $518,063,882) $270,514,080 $62,457,280 $332,971,360 - ----------------------------------------------------------------------------------------------------------- PREFERRED STOCKS (0.4%) SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) THREADNEEDLE THREADNEEDLE EMERGING EMERGING THREADNEEDLE SELIGMAN MARKETS FUND THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED MARKETS FUND MARKETS FUND COMBINED BRAZIL Companhia de Bedidas das Americas -- 22,300 22,300 $ -- $ 936,672 $ 936,672 Petroleo Brasileiro -- 30,400 30,400 -- 327,082 327,082 ------------------------------------------- -- 1,263,754 1,263,754 TOTAL PREFERRED STOCKS (Cost: $1,386,382) $ -- $ 1,263,754 $ 1,263,754 - -----------------------------------------------------------------------------------------------------------
65
MONEY MARKET FUND (3.9%) SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A) THREADNEEDLE THREADNEEDLE EMERGING EMERGING THREADNEEDLE SELIGMAN MARKETS FUND THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED MARKETS FUND MARKETS FUND COMBINED RIVERSOURCE SHORT- TERM CASH FUND, 1.60% 13,521,361 -- 13,521,361(d) $ 13,521,361 $ -- $ 13,521,361 TOTAL MONEY MARKET FUND (Cost: $13,521,361) $ 13,521,361 $ -- $ 13,521,361 ------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $532,971,625)(h) $284,035,441 $63,721,034 $347,756,475 - -----------------------------------------------------------------------------------------------------------
66 SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY The following table represents the portfolio investments of the Fund by industry classifications as a percentage of total net assets at Oct. 31, 2008:
INDUSTRY VALUE VALUE VALUE THREADNEEDLE EMERGING THREADNEEDLE SELIGMAN MARKETS FUND PERCENTAGE OF EMERGING EMERGING PRO FORMA NET ASSETS MARKETS FUND MARKETS FUND COMBINED Auto Components 0.2% $ 868,102 $ -- $ 868,102 Automobiles 0.9 3,163,629 -- 3,163,629 Beverages 1.1 2,313,658 1,437,414 3,751,072 Biotechnology -- -- 76,176 76,176 Chemicals 2.0 4,979,313 1,996,793 6,976,106 Commercial Banks 13.7 44,476,596 3,249,812 47,726,408 Computers & Peripherals 0.8 2,919,344 -- 2,919,344 Construction & Engineering 1.5 3,571,281 1,627,354 5,198,635 Distributors 0.3 -- 942,084 942,084 Diversified Consumer Services 0.1 -- 495,118 495,118 Diversified Financial Services 1.0 -- 3,509,333 3,509,333 Diversified Telecommunication Services 2.1 5,371,665 1,738,700 7,110,365 Electric Utilities 1.4 3,033,756 1,940,958 4,974,714 Electrical Equipment 1.3 2,435,150 2,040,089 4,475,239 Electronic Equipment, Instruments & Components 1.4 3,885,001 926,982 4,811,983 Energy Equipment & Services 1.7 2,927,454 2,976,088 5,903,542 Food & Staples Retailing 2.2 4,707,272 3,089,502 7,796,774 Food Products 1.0 2,282,504 999,314 3,281,818 Health Care Equipment & Supplies 0.9 2,382,940 585,658 2,968,598 Household Durables 2.0 5,625,981 1,430,742 7,056,723 Industrial Conglomerate 0.6 1,848,111 340,601 2,188,712 Insurance 4.4 13,163,940 1,961,996 15,125,936 Internet Software & Services 1.0 3,572,276 -- 3,572,276 IT Services 4.7 15,980,165 199,576 16,179,741 Leisure Equipment & Products 1.2 2,093,436 2,205,256 4,298,692 Machinery 0.1 -- 296,926 296,926 Marine 0.2 741,724 -- 741,724 Media 1.6 4,466,567 1,146,134 5,612,701 Metals & Mining 5.7 14,471,208 5,157,154 19,628,362 Multi-Utilities 0.4 1,475,340 -- 1,475,340 Oil, Gas & Consumable Fuels 12.4 35,728,816 7,230,235 42,959,051 Pharmaceuticals 5.4 12,975,845 5,674,231 18,650,076 Real Estate Management & Development 1.8 4,915,643 1,148,461 6,064,104 Semiconductors & Semiconductor Equipment 6.5 20,681,641 2,041,610 22,723,251 Software 1.7 6,009,586 -- 6,009,586 Specialty Retail 0.3 -- 1,157,506 1,157,506 Thrifts & Mortgage Finance 0.9 3,163,627 -- 3,163,627 Wireless Telecommunication Services 11.6 34,282,510 6,099,231 40,381,741 Other(1) 3.9 13,521,361 -- 13,521,361 - ---------------------------------------------------------------------------- Total $284,035,442 $63,721,034 $347,756,476 - ----------------------------------------------------------------------------
(1) Cash & Cash Equivalents. 67 INVESTMENTS IN DERIVATIVES FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008 Seligman Emerging Markets Fund
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION Nov. 3, 2008 21,594 13,990 $ 1 $ -- Turkish Lira U.S. Dollar - --------------------------------------------------------------------------------------- Nov. 4, 2008 382,864 30,314 560 -- Mexican Peso U.S. Dollar - --------------------------------------------------------------------------------------- Nov. 21, 2008 2,689,000 2,007,166 276,908 -- Turkish Lira U.S. Dollar - --------------------------------------------------------------------------------------- Nov. 21, 2008 143,608 205,000 -- (11,699) U.S. Dollar Turkish Lira - --------------------------------------------------------------------------------------- Nov. 21, 2008 1,075,623 1,502,000 -- (109,150) U.S. Dollar Turkish Lira - --------------------------------------------------------------------------------------- Jan. 22, 2009 2,158,287,000 2,122,627 432,372 -- South Korean Won U.S. Dollar - --------------------------------------------------------------------------------------- Jan. 22, 2009 1,035,398 1,312,885,000 -- (7,217) U.S. Dollar South Korean Won - --------------------------------------------------------------------------------------- Jan. 22, 2009 539,048 549,560,000 -- (108,662) U.S. Dollar South Korean Won - --------------------------------------------------------------------------------------- Jan. 22, 2009 291,183 295,842,000 -- (59,495) U.S. Dollar South Korean Won - --------------------------------------------------------------------------------------- Feb. 19, 2009 94,682,000 502,185 45,664 -- Hungarian Forint U.S. Dollar - --------------------------------------------------------------------------------------- Feb. 19, 2009 80,830 14,648,000 -- (10,203) U.S. Dollar Hungarian Forint - --------------------------------------------------------------------------------------- Sept. 29, 2009 20,663,000 2,304,723 356,083 -- South African Rand U.S. Dollar - --------------------------------------------------------------------------------------- Sept. 29, 2009 2,570,000 287,891 45,525 -- South African Rand U.S. Dollar - --------------------------------------------------------------------------------------- Sept. 29, 2009 1,077,058 10,455,000 -- (91,091) U.S. Dollar South African Rand - --------------------------------------------------------------------------------------- Total $1,157,113 $(397,517) - --------------------------------------------------------------------------------------- NOTES TO COMBINED PORTFOLIO OF INVESTMENTS
(A) Securities are valued by procedures described in Note 1 to the financial statements in the annual report. (B) Non-income producing. (C) Foreign security values are stated in U.S. dollars. (D) Affiliated Money Market Fund -- See Note 5 to the financial statements in the annual report. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (E) 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 Oct. 31, 2008, the value of these securities amounted to $3,800,490 or 1.1% of net assets. (F) Security valued by management at fair value according to procedures approved, in good faith, by the Board. (G) Identifies issues considered to be illiquid as to their marketability. 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 Oct. 31, 2008, is as follows:
VALUE AS A VALUE AS A VALUE AS A PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF THREADNEEDLE SELIGMAN PRO FORMA ACQUISITION EMERGING MARKETS EMERGING MARKETS COMBINED SECURITY DATES COST FUND NET ASSETS FUND NET ASSETS NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------- Eurasia Drilling GDR* 11-02-07 thru 04-15-08 $5,741,380 0.47% -- 0.39%
* Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. 68 (H) At Oct. 31, 2008, the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost was:
THREADNEEDLE EMERGING THREADNEEDLE SELIGMAN MARKETS FUND EMERGING EMERGING PRO FORMA MARKETS FUND MARKETS FUND COMBINED Cost of securities for federal income tax purposes: $ 449,749,120 $ 95,827,053 $ 545,576,173 Unrealized appreciation $ 2,377,852 $ 2,878,916 $ 5,256,768 Unrealized depreciation (168,091,531) (34,984,935) (203,076,466) - -------------------------------------------------------------------------------------------------------------- Net unrealized depreciation $(165,713,679) $(32,106,019) $(197,819,698) - --------------------------------------------------------------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. 69 PART C. OTHER INFORMATION Item 15. 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. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the trustees, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940. Item 16. Exhibits (1)(a) 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. (1)(b) 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. (1)(c) 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. (1)(d) 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. (1)(e) Certificate of Designation, dated Oct. 5, 2006, filed electronically on or about Feb. 20, 2009 as Exhibit (a)(5) to Registrant's Post-Effective Amendment No. 46 to Registration Statement No. 2-96512 is incorporated by reference.
(1)(f) Certificate of Designation reflecting the addition of Class R2 shares of RiverSource Short Duration U.S. Government Fund is filed electronically herewith as Exhibit (1)(f). (2) By-laws, as amended April 13, 2006 filed electronically filed electronically as Exhibit (b) to Registrant's Post-Effective Amendment No. 45 to Registration Statement No. 2-96512 are incorporated by reference. (3) Not applicable. (4) Form of Agreement and Plan of Reorganization is included herein as Exhibit A to Part A of this Registration Statement. (5) Not applicable. (6) 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. (7)(a) 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 Diversified Income Series, Inc. Post-Effective Amendment No. 63 to Registration Statement No. 2-51586 is incorporated by reference. (7)(b) Distribution Agreement, effective Nov. 7, 2008, between Registrant and Seligman Advisors, Inc. filed electronically on or about Nov. 25, 2008 as Exhibit (e)(2) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 121 to Registration Statement No. 2-11328 is incorporated by reference. (7)(c) 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. (7)(d) 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. (8) Deferred Compensation Plan, amended and restated Jan. 1, 2009, filed electronically on or about Jan. 27, 2009 as Exhibit (f) to RiverSource Equity Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-13188 is incorporated by reference. (9) Form of Master Global Custody Agreement with JP Morgan Chase Bank, N.A. filed electronically on or about Dec. 23, 2008 as Exhibit (g) to RiverSource International Mangers, Inc. Post-Effective Amendment No. 18 to Registration Statement No. 333-64010 is incorporated by reference. (10)(a) Plan of Distribution and Agreement of Distribution, dated Aug. 1, 2006, amended and restated Nov. 12, 2008, between Registrant and RiverSource Distributors, Inc. filed electronically on or about March 27, 2009 as Exhibit (m)(1) to RiverSource Income Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-10700 is incorporated by reference. (10)(b) Plan of Distribution and Agreement of Distribution, effective Nov. 7, 2008, amended and restated Nov. 12, 2008, between Registrant and Seligman Advisors, Inc. filed electronically on or about
March 27, 2009 as Exhibit (m)(2) to RiverSource Income Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-10700 is incorporated by reference. (10)(c) Rule 18f - 3(d) Plan, amended and restated as of Nov. 12, 2008, filed electronically on or about March 27, 2009 as Exhibit (n) to RiverSource Income Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-10700 is incorporated by reference. (11) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith as Exhibit (11). (12) Tax opinion to be filed by Amendment. (13)(a) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated Nov. 12, 2008, between Registrant and Ameriprise Financial, Inc. filed electronically on or about Feb. 27, 2009 as Exhibit (h)(1) to RiverSource Variable Series Trust Post-Effective Amendment No. 4 to Registration Statement No. 333-146374 is incorporated by reference. (13)(b) Plan Administration Services Agreement, dated Dec. 1, 2006, amended and restated Nov. 12, 2008, between Registrant and RiverSource Service Corporation filed electronically on or about March 27, 2009 as Exhibit (h)(3) to RiverSource Income Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-10700 is incorporated by reference. (13)(c) Transfer Agency Agreement, dated Oct. 1, 2005, amended and restated Nov. 12, 2008, between Registrant and RiverSource Service Corporation filed electronically on or about March 27, 2009 as Exhibit (h)(2) to RiverSource Income Series, Inc. Post-Effective Amendment No. 105 to Registration Statement No. 2-10700 is incorporated by reference. (13)(d) License Agreement, effective May 1, 2006, amended and restated as of Nov. 12, 2008, between Ameriprise Financial, Inc. and RiverSource Group of Funds filed electronically on or about Feb. 27, 2009 as Exhibit (h)(4) to RiverSource Variable Series Trust Post-Effective Amendment No. 4 to Registration Statement No. 333-146374 is incorporated by reference. (13)(e) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated Nov. 12, 2008, between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Distributors, Inc., Seligman Advisors, Inc. (now known as RiverSource Fund Distributors, Inc.) and the Registrant filed electronically on or about Feb. 27, 2009 as Exhibit (h)(3) to RiverSource Variable Series Trust Post-Effective Amendment No. 4 to Registration Statement No. 333-146374 is incorporated by reference. (14)(a) Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP), dated April 13, 2009 is filed electronically herewith as Exhibit (14)(a). (14)(b) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP), dated April 13, 2009 is filed electronically herewith as Exhibit (14)(b). (15) Financial Statements: Not applicable. (16) Directors/Trustees Power of Attorney to sign this Registration Statement and its amendments, dated Jan. 8, 2009, filed electronically on or about Feb. 27, 2009 as Exhibit (16) to Registration Statement No. 333-157592 is incorporated by reference. (17)(a) 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.
(17)(b) Code of Ethics adopted under Rule 17j-1 for Registrant's principal underwriter, dated April 2008, filed electronically on or about April 25, 2008 as Exhibit (p)(2) to RiverSource Variable Series Trust Post-Effective Amendment No. 3 to Registration Statement No. 333-146374 is incorporated by reference. (17)(c) Code of Ethics adopted under Rule 17j-1 for Registrant's investment adviser, dated Nov. 15, 2008, filed electronically on or about Nov. 25, 2008 as Exhibit (p)(3) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 121 to Registration Statement No. 2-11328 is incorporated by reference. (17)(d) Prospectus, dated May 1, 2008, for Seligman High Income Fund Series, Inc. (on behalf of its series Seligman U.S. Government Securities Fund) is filed electronically herewith as Exhibit (17)(d). (17)(e) Statement of Additional Information, dated April 1, 2009, for RiverSource Short Duration U.S. Government Fund is filed electronically herewith as Exhibit (17)(e). (17)(f) Statement of Additional Information, dated May 1, 2008, for Seligman U.S. Government Securities Fund is filed electronically herewith as Exhibit (17)(f). (17)(g) Prospectus, dated July 30, 2008, for RiverSource Short Duration U.S. Government Fund is filed electronically herewith as Exhibit (17)(g). (17)(h) Annual Report for the period ended December 31, 2008 for Seligman U.S. Government Securities Fund is filed electronically herewith as Exhibit (17)(h). (17)(i) Annual Report for the period ended May 31, 2008 for RiverSource Short Duration U.S. Government Fund is filed electronically herewith as Exhibit (17)(i). (17)(j) Semiannual Report for the period ended Nov. 30, 2008 for RiverSource Short Duration U.S. Government Fund is filed electronically herewith as Exhibit (17)(j). (17)(k) Supplement dated April 3, 2009 to the prospectus dated May 1, 2008 of Seligman U.S. Government Securities Fund is filed electronically herewith as Exhibit (17)(k).
Item 17. Undertakings. (1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The Registrant undertakes to file by Post-Effective Amendment an Opinion of Counsel supporting the tax consequences of the proposed reorganization within a reasonable time following the reorganization. SIGNATURES As required by the Securities Act of 1933, as amended, this Amendment to the Registration Statement has been signed on behalf of the Registrant, in the City of Minneapolis, and State of Minnesota on the 14th day of April 2009. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President By /s/ Jeffrey P. Fox ---------------------------------- Jeffrey P. Fox Treasurer As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on the 14th day of April, 2009.
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/ Arne P. Jones* Director - ------------------------------ Arne P. Jones /s/ Jeffrey Laikind* Director - ------------------------------ Jeffrey Laikind /s/ John F. Maher* Director - ------------------------------ John F. Maher /s/ Catherine James Paglia* Director - ------------------------------ Catherine James Paglia /s/ Leroy C. Richie* Director - ------------------------------ Leroy C. Richie /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 Jan. 8, 2009, filed electronically on or about Feb. 27, 2009 as Exhibit (16) to Registration Statement No. 333-157592, by: /s/ Scott R. Plummer - ------------------------------ Scott R. Plummer EXHIBIT INDEX (1)(f) Certificate of Designation reflecting the addition of Class R2 shares of RiverSource Short Duration U.S. Government Fund. (11) Opinion and consent of counsel as to the legality of the securities being registered. (14)(a) Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP). (14)(b) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP). (17)(d) Prospectus, dated May 1, 2008, for Seligman High Income Fund Series, Inc. (on behalf of its series Seligman U.S. Government Securities Fund). (17)(e) Statement of Additional Information, dated April 1, 2009, for RiverSource Short Duration U.S. Government Fund. (17)(f) Statement of Additional Information, dated May 1, 2008, for Seligman U.S. Government Securities Fund. (17)(g) Prospectus, dated July 30, 2008, for RiverSource Short Duration U.S. Government Fund. (17)(h) Annual Report for the period ended December 31, 2008 for Seligman U.S. Government Securities Fund. (17)(i) Annual Report for the period ended May 31, 2008 for RiverSource Short Duration U.S. Government Fund. (17)(j) Semiannual Report for the period ended Nov. 30, 2008 for RiverSource Short Duration U.S. Government Fund. (17)(k) Supplement dated April 3, 2009 to the prospectus dated May 1, 2008 of Seligman U.S. Government Securities Fund.
EX-99.1.F 2 n49430cexv99w1wf.txt CERTIFICATE OF DESIGNATION Exhibit 99(1)(f) RIVERSOURCE GOVERNMENT INCOME SERIES, INC. CERTIFICATE OF DESIGNATION PURSUANT TO MINNESOTA STATUTES, SECTION 302A.401, SUBD. 3 The undersigned, being the duly elected Secretary of RiverSource Government Income Series, Inc., a Minnesota corporation (the Company), hereby certifies that the following is a true, complete and correct copy of resolutions duly adopted by a majority of the directors of the Company on January 8, 2009: APPROVAL OF DESIGNATION OF NEW CLASS WITHIN AN EXISTING SERIES WHEREAS, the articles of incorporation of the Company permit the board of directors (the Board), by resolution, to authorize the issuance of shares of the Company in separate series and classes and to establish the rights and preferences of each such series and class; and WHEREAS, the Board previously has adopted resolutions, which have been filed with the Minnesota Secretary of State pursuant to Minn. Stat. Section 302A.401, Subd. 3, authorizing the issuance of shares of the Company in the following series and classes and establishing the rights and preferences of such series and classes:
Series Classes Within Series - ------ --------------------- RiverSource Short Duration U.S. Government Fund A, B, C, I, R4 and W RiverSource U.S. Government Mortgage Fund A, B, C, I and R4; and
WHEREAS, the Board wishes to establish a new class of shares within an existing series, RiverSource Short Duration U.S. Government Fund; now, therefore, be it RESOLVED, That the Board hereby establishes the following new class (the New Class) within an existing series, RiverSource Short Duration U.S. Government Fund (the Existing Series):
Existing Series New Class Within Existing Series - --------------- -------------------------------- RiverSource Short Duration U.S. Government Fund R2; And further
RESOLVED, That the Board may from time to time, by resolution duly adopted, change the names of the New Class, with such change to be effective when it is set forth in the prospectus or prospectuses pursuant to which it is offered to the public; and further RESOLVED, That the New Class shall be subject to those differences in the amount of distribution costs, shareholder service fees, transfer agent fees, exchange privileges and other aspects as are set out in the registration statement pertaining thereto filed with the Securities and Exchange Commission and effective on the date the stock was purchased or exchanged, or as subsequently changed as permitted by law, and in all other manner the New Class shall be the same as any other class; and further RESOLVED, That assets identified as relating to the New Class shall belong solely to the shareholders of that class and liabilities, costs and expenses applicable to the New Class shall be obligations solely of that class, it being understood that dividends and distributions may vary between and among classes of the Existing Series to reflect different allocations of liabilities, costs and expenses and the resultant differences in net asset values of the classes; and further RESOLVED, That the Existing Series may convert the New Class designation on any share to another class designation automatically in accordance with the terms set forth in the registration statement pertaining thereto filed with the Securities and Exchange Commission and effective on the date the stock was purchased or exchanged or as subsequently changed as permitted by law; and further RESOLVED, That each share of capital stock of the New Class shall be voted by class (a) as required by the provisions of the Investment Company Act of 1940, as amended, and all rules and regulations promulgated thereunder; (b) when the Board determines that a matter affects the New Class in a materially different way; or (c) when the Board determines a matter affects only one or some of the series or classes of the Company's capital stock, including the New Class; and further RESOLVED, That all provisions pertaining to capital stock as set forth in Article III of the Company's articles of incorporation apply to the New Class. IN WITNESS WHEREOF, the undersigned has signed this Certificate of Designation on February 23, 2009. RIVERSOURCE GOVERNMENT INCOME SERIES, INC. /s/ Scott R. Plummer ------------------------------------------ Scott R. Plummer Secretary STATE OF MINNESOTA DEPARTMENT OF STATE FILED March 2, 2009 /s/ Mark Ritchie Secretary of State EX-99.11 3 n49430cexv99w11.txt OPINION AND CONSENT OF COUNSEL AS TO THE LEGALITY OF THE SECURITIES BEING REGISTERED Exhibit 99(11) April 14, 2009 RiverSource Government Income Series, Inc. 50606 Ameriprise Financial Center Minneapolis, MN 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 this Amendment to the Registration Statement. Sincerely, /s/ Scott R. Plummer - ------------------------------------ Scott R. Plummer General Counsel RiverSource Government Income Series, Inc. EX-99.14.A 4 n49430cexv99w14wa.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (DELOITTE & TOUCHE) Exhibit 99(14)(a) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Registration Statement on Form N-14 (the "Registration Statement") of our report dated February 27, 2009, relating to the financial statements and financial highlights of Seligman High Income Fund Series appearing in the Annual Report on Form N-CSR of Seligman High Income Fund Series for the year ended December 31, 2008. DELOITTE & TOUCHE LLP New York, New York April 13, 2009 EX-99.14.B 5 n49430cexv99w14wb.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ERNST & YOUNG LLP) Exhibit 99(14)(b) Consent of Independent Registered Public Accounting Firm We consent to the reference to our firm under the caption "Financial Highlights" in the Proxy Statement and to the incorporation by reference of our report dated July 22, 2008 with respect to the financial statements and financial highlights of RiverSource Short Duration U.S. Government Fund included in the Annual Report for the year ended May 31, 2008 in the Registration Statement (Form N-14) of the RiverSource Government Income Series, Inc. filed with the Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933 (Registration No. 333-157592). /s/ Ernst & Young LLP Minneapolis, Minnesota April 13, 2009 EX-99.17.E 6 n49430cexv99w17we.txt STATEMENT OF ADDITIONAL INFORMATION, DATED APRIL 1, 2009, FOR THREADNEEDLE EMERGING MARKETS FUND AND THREADNEEDLE GLOBAL EQUITY FUND Exhibit 99(17)(e) STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 2009 RIVERSOURCE BOND SERIES, INC. RiverSource Floating Rate Fund RiverSource Income Opportunities Fund RiverSource Inflation Protected Securities Fund RiverSource Limited Duration Bond Fund RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RiverSource California Tax-Exempt Fund RIVERSOURCE DIMENSIONS SERIES, INC. RiverSource Disciplined Small and Mid Cap Equity Fund RiverSource Disciplined Small Cap Value Fund RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RiverSource Diversified Bond Fund RIVERSOURCE EQUITY SERIES, INC. RiverSource Mid Cap Growth Fund RIVERSOURCE GLOBAL SERIES, INC. RiverSource Absolute Return Currency and Income Fund RiverSource Emerging Markets Bond Fund RiverSource Global Bond Fund RiverSource Global Technology Fund Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund Threadneedle Global Equity Income Fund Threadneedle Global Extended Alpha Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RiverSource Short Duration U.S. Government Fund RiverSource U.S. Government Mortgage Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RiverSource High Yield Bond Fund RIVERSOURCE INCOME SERIES, INC. RiverSource Income Builder Basic Income Fund RiverSource Income Builder Enhanced Income Fund RiverSource Income Builder Moderate Income Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RiverSource Partners International Select Growth Fund RiverSource Partners International Select Value Fund RiverSource Partners International Small Cap Fund RIVERSOURCE INTERNATIONAL SERIES, INC. RiverSource Disciplined International Equity Fund Threadneedle European Equity Fund Threadneedle International Opportunity Fund RIVERSOURCE INVESTMENT SERIES, INC. RiverSource Balanced Fund RiverSource Disciplined Large Cap Growth Fund RiverSource Disciplined Large Cap Value Fund RiverSource Diversified Equity Income Fund RiverSource Mid Cap Value Fund RIVERSOURCE LARGE CAP SERIES, INC. RiverSource Disciplined Equity Fund RiverSource Growth Fund RiverSource Large Cap Equity Fund RiverSource Large Cap Value Fund RIVERSOURCE MANAGERS SERIES, INC. RiverSource Partners Aggressive Growth Fund RiverSource Partners Fundamental Value Fund RiverSource Partners Select Value Fund RiverSource Partners Small Cap Equity Fund RiverSource Partners Small Cap Value Fund RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RiverSource Portfolio Builder Aggressive Fund RiverSource Portfolio Builder Conservative Fund RiverSource Portfolio Builder Moderate Aggressive Fund RiverSource Portfolio Builder Moderate Conservative Fund RiverSource Portfolio Builder Moderate Fund RiverSource Portfolio Builder Total Equity Fund RiverSource S&P 500 Index Fund RiverSource Small Company Index Fund RIVERSOURCE MONEY MARKET SERIES, INC. RiverSource Cash Management Fund RIVERSOURCE SECTOR SERIES, INC. RiverSource Dividend Opportunity Fund RiverSource Real Estate Fund RIVERSOURCE SELECTED SERIES, INC. RiverSource Precious Metals and Mining Fund RIVERSOURCE SERIES TRUST RiverSource 120/20 Contrarian Equity Fund RiverSource 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 Family of 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. 51 Valuing Fund Shares............................................................. p. 55 Portfolio Holdings Disclosure................................................... p. 66 Proxy Voting.................................................................... p. 67 Investing in a Fund............................................................. p. 70 Selling Shares.................................................................. p. 74 Pay-out Plans................................................................... p. 75 Capital Loss Carryover.......................................................... p. 76 Taxes........................................................................... p. 79 Service Providers............................................................... p. 84 Investment Management Services................................................ p. 84 Administrative Services....................................................... p. 135 Transfer Agency Services...................................................... p. 139 Plan Administration Services.................................................. p. 140 Distribution Services......................................................... p. 140 Plan and Agreement of Distribution............................................ p. 143 Payments to Financial Intermediaries.......................................... p. 148 Custodian Services............................................................ p. 149 Board Services Corporation.................................................... p. 150 Organizational Information...................................................... p. 150 Board Members and Officers...................................................... p. 155 Control Persons and Principal Holders of Securities............................. p. 169 Information Regarding Pending and Settled Legal Proceedings..................... p. 184 Independent Registered Public Accounting Firm................................... p. 185 Appendix A: Description of Ratings.............................................. p. A-1 Appendix B: State Risk Factors.................................................. p. B-1 Appendix C: Additional Information about the S&P 500 Index...................... p. C-1 Appendix D: Seligman Funds...................................................... p. D-1
Statement of Additional Information - April 1, 2009 Page 2 LIST OF TABLES 1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories........... p. 4 2. Fundamental Policies....................................................... p. 7 3. Investment Strategies and Types of Investments............................. p. 11 4. Total Brokerage Commissions................................................ p. 39 5. Brokerage Directed for Research and Turnover Rates......................... p. 42 6. Securities of Regular Brokers or Dealers................................... p. 45 7. Brokerage Commissions Paid to Investment Manager or Affiliates............. p. 51 8. Valuing Fund Shares........................................................ p. 55 9. Class A Sales Charge....................................................... p. 70 10. Public Offering Price...................................................... p. 71 11. Capital Loss Carryover..................................................... p. 76 12. Corporate Deduction and Qualified Dividend Income.......................... p. 81 13. Investment Management Services Agreement Fee Schedule...................... p. 84 14. PIA Indexes................................................................ p. 92 15A. Performance Incentive Adjustment Calculation............................... p. 94 15B. Performance Incentive Adjustment Calculation............................... p. 95 16. Management Fees and Nonadvisory Expenses................................... p. 96 17. Subadvisers and Subadvisory Agreement Fee Schedules........................ p. 99 18. Subadvisory Fees........................................................... p. 101 19. Portfolio Managers......................................................... p. 104 20. Administrative Services Agreement Fee Schedule............................. p. 135 21. Administrative Fees........................................................ p. 137 22. Sales Charges Paid to Distributor.......................................... p. 140 23. 12b-1 Fees................................................................. p. 144 24. Unreimbursed Distribution Expenses......................................... p. 147 25. Fund History Table......................................................... p. 151 26. Board Members.............................................................. p. 155 27. Fund Officers.............................................................. p. 156 28. Committee Meetings......................................................... p. 158 29. Board Member Holdings...................................................... p. 159 30. Board Member Compensation -- All Funds..................................... p. 165 31. Board Member Compensation -- Individual Funds.............................. p. 166 32. Control Persons and Principal Holders of Securities........................ p. 169
The RiverSource Family of Funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource family. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please reference Appendix D for a complete list of Seligman funds. Statement of Additional Information - April 1, 2009 Page 3 TABLE 1. FUND FISCAL YEAR ENDS, PROSPECTUS DATE AND INVESTMENT CATEGORIES
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY - --------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity April 30 June 27, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income October 31 Dec. 30, 2008 Taxable fixed income* - --------------------------------------------------------------------------------------------------------------- Balanced September 30 Nov. 28, 2008 Balanced - --------------------------------------------------------------------------------------------------------------- California Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Cash Management July 31 Sept. 29, 2008 Taxable money market - --------------------------------------------------------------------------------------------------------------- Disciplined Equity July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined International Equity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Diversified Bond August 31 Oct. 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Diversified Equity Income September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Dividend Opportunity June 30 Aug. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Emerging Markets Bond October 31 Dec. 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Equity Value March 31 May 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Floating Rate July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Bond October 31 Dec. 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Technology October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Growth July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- High Yield Bond May 31 July 30, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Basic Income January 31*** April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income January 31*** April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income January 31*** April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Opportunities July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Inflation Protected Securities July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt November 30 Jan. 29, 2009 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Large Cap Equity July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Large Cap Value July 31 Sept. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Limited Duration Bond July 31 Sept. 29, 2008 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Mid Cap Growth November 30 Jan. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Mid Cap Value September 30 Nov. 28, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- New York Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Fundamental Value May 31 July 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Select Growth October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Select Value October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners International Small Cap October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Partners Select Value May 31 July 30, 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 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative January 31 April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative January 31 April 1, 2009 Fund-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity January 31 April 1, 2009 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Precious Metals and Mining March 31 May 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Real Estate June 30 Aug. 29, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 April 30 June 27, 2008 Fund-of-funds - equity - ---------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 4
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 April 30 June 27, 2008 Fund-of-funds - equity - --------------------------------------------------------------------------------------------------------------- S&P 500 Index January 31 April 1, 2009 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 April 1, 2009 Equity - --------------------------------------------------------------------------------------------------------------- Strategic Allocation September 30 Nov. 28, 2008 Balanced - --------------------------------------------------------------------------------------------------------------- Strategic Income Allocation September 30 Nov. 28, 2008 Taxable fixed income* - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond November 30 Jan. 29, 2009 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income November 30 Jan. 29, 2009 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market December 31 Feb. 27, 2009 Tax-exempt money market - --------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle European Equity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income Fund October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha Fund October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity October 31 Dec. 30, 2008 Equity - --------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage May 31 July 30, 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 - April 1, 2009 Page 5 FUNDAMENTAL AND NONFUNDAMENTAL INVESTMENT POLICIES Fundamental investment policies adopted by a fund cannot be changed without the approval of a majority of the outstanding voting securities of the fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Nonfundamental investment policies may be changed by the Board at any time. Notwithstanding any of a fund's other investment policies, each fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the fund for the purpose of having those assets managed as part of a combined pool. FUNDS-OF-FUNDS Funds-of-funds invest in a combination of underlying funds. These underlying funds have their own investment policies that may be more or less restrictive than the policies of the funds-of-funds. The policies of the underlying funds may permit funds-of-funds to engage in investment strategies indirectly that would otherwise be prohibited under the investment restrictions of the funds-of- funds. FUNDAMENTAL POLICIES Fundamental policies are policies that can be changed only with shareholder approval. FOR EACH FUND, THE FUND WILL NOT: - Act as an underwriter (sell securities for others). However, under the securities laws, the fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. - Lend securities or participate in an interfund lending program if the total of all such loans would exceed 33 1/3% of the fund's total assets except this fundamental investment policy shall not prohibit the fund from purchasing money market securities, loans, loan participation or other debt securities, or from entering into repurchase agreements. For funds- of-funds - equity, under current Board policy, the fund has no current intention to lend to a material extent. - Borrow money, except for temporary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings) immediately after the borrowings. For funds-of-funds - equity, under current Board policy, the fund has no current intention to borrow to a material extent. - Issue senior securities, except as permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. ADDITIONALLY FOR CASH MANAGEMENT, THE FUND WILL NOT: - Buy on margin or sell short or deal in options to buy or sell securities. - Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds or debentures, state bonds, municipal bonds, or industrial revenue bonds. ADDITIONALLY FOR TAX-EXEMPT MONEY MARKET, THE FUND WILL NOT: - Buy on margin or sell short. ADDITIONALLY FOR DISCIPLINED LARGE CAP VALUE, INCOME BUILDER FUNDS, PORTFOLIO BUILDER FUNDS, THREADNEEDLE GLOBAL EQUITY INCOME AND THREADNEEDLE GLOBAL EXTENDED ALPHA, THE FUNDS WILL NOT: - Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Statement of Additional Information - April 1, 2009 Page 6 In addition to the policies described above and any fundamental policy described in the prospectus, the chart below shows fund-specific policies that may be changed only with shareholder approval. The chart indicates whether or not the fund has a policy on a particular topic. A dash indicates that the fund does not have a policy on a particular topic. The specific policy is stated in the paragraphs that follow the table. TABLE 2. FUNDAMENTAL POLICIES The fund will not:
C D E BUY MORE INVEST MORE CONCENTRATE A B THAN THAN IN F BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80% - -------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity A1 B5 C1 D1 E8 -- - -------------------------------------------------------------------------------------------------------------- Absolute Return Currency and A1 B1 -- -- E7 -- Income - -------------------------------------------------------------------------------------------------------------- Balanced A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- California Tax-Exempt A1 B1 -- -- -- F1 - -------------------------------------------------------------------------------------------------------------- Cash Management A3 A3 C1 D1 -- -- - -------------------------------------------------------------------------------------------------------------- Disciplined Equity A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined International Equity A1 B4 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value A1 B3 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap A1 B4 C1 D1 E1 -- Equity - -------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value A1 B4 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Diversified Bond A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Diversified Equity Income A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Dividend Opportunity A1 B1 C1 D1 -- -- - -------------------------------------------------------------------------------------------------------------- Emerging Markets Bond A1 B4 -- -- E5 -- - -------------------------------------------------------------------------------------------------------------- Equity Value A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Floating Rate A1 B4 C1 D1 E6 -- - -------------------------------------------------------------------------------------------------------------- Global Bond A1 B1 C1 -- E1 -- - -------------------------------------------------------------------------------------------------------------- Global Technology A1 B1 -- -- -- -- - -------------------------------------------------------------------------------------------------------------- Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- High Yield Bond A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Income Builder Basic Income* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Income Opportunities A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Inflation Protected Securities A1 B1 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt A1 B1 C1 D1 -- F3(i) - -------------------------------------------------------------------------------------------------------------- Large Cap Equity A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Large Cap Value A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Limited Duration Bond A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Mid Cap Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Mid Cap Value A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt A1 B1 -- -- -- F1 - -------------------------------------------------------------------------------------------------------------- New York Tax-Exempt A1 B1 -- -- -- F1 - -------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Fundamental Value A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners International Select A1 B3 C1 D1 E1 -- Growth - -------------------------------------------------------------------------------------------------------------- Partners International Select A1 B3 C1 D1 E1 -- Value - -------------------------------------------------------------------------------------------------------------- Partners International Small Cap A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Select Value A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity A1 B3 C1 D1 E1 -- - --------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 7
C D E BUY MORE INVEST MORE CONCENTRATE A B THAN THAN IN F BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80% - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Partners Small Cap Value A1 B3 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 -- -- E2 -- Aggressive* - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 -- -- E2 -- Conservative* - -------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity* A1 B1 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Precious Metals and Mining A1 B1(ii) -- -- E3 -- - -------------------------------------------------------------------------------------------------------------- Real Estate A1 B1 -- -- -- -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2010* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2015* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2020* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2025* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2030* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2035* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2040* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- Retirement Plus 2045* A1 B4 -- -- E2 -- - -------------------------------------------------------------------------------------------------------------- S&P 500 Index A1 B1 -- -- E4 -- - -------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Small Cap Advantage A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Small Company Index A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Strategic Allocation A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Strategic Income Allocation A1 B3 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond A1 B1 C1 D1 -- F3(iii) - -------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income A1 B1 C1 D1 -- F2 - -------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market A2 B2 C1 D1 -- F3 - -------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Threadneedle European Equity A1 B1 -- -- E1 -- - -------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity A1 B1 C1 D1 E1 -- - -------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity A1 B3 -- -- E1 -- Income - -------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended A1 B3 -- -- E1 -- Alpha - -------------------------------------------------------------------------------------------------------------- Threadneedle International A1 B1 C1 D1 E1 -- Opportunity - -------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage A1 B1 C1 D1 E1 -- - --------------------------------------------------------------------------------------------------------------
* The fund invests in a combination of underlying funds. These underlying funds have adopted their own investment policies that may be more or less restrictive than those of the fund. The policies of the underlying funds may permit a fund to engage in investment strategies indirectly that would otherwise be prohibited under the fund's investment restrictions. (i) For purposes of this policy, the fund will not include any investments subject to the alternative minimum tax. (ii) Additionally, the fund may purchase gold, silver, or other precious metals, strategic metals or other metals occurring naturally with such metals. (iii) The fund does not intend to purchase bonds or other debt securities the interest from which is subject to the alternative minimum tax. A. BUY OR SELL REAL ESTATE A1 - The fund will not buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. 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. Statement of Additional Information - April 1, 2009 Page 8 A3 - The fund will not buy or sell real estate, commodities or commodity contracts. For purposes of this policy, real estate includes real estate limited partnerships. B. BUY OR SELL PHYSICAL COMMODITIES B1 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B2 - The fund will not invest in commodities or commodity contracts. B3 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B4 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from entering into forward currency contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B5 - The fund will not buy or sell commodities, except that the fund may to the extent consistent with its investment objective(s), invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This restriction does not apply to foreign currency transactions including without limitation forward currency contracts. C. BUY MORE THAN 10% OF AN ISSUER C1 - The fund will not purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. For tax-exempt funds, for purposes of this policy, the terms of a municipal security determine the issuer. D. INVEST MORE THAN 5% IN AN ISSUER D1 - The fund will not invest more than 5% of its total assets in securities of any company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or other investment companies, and except that up to 25% of the fund's total assets may be invested without regard to this 5% limitation. For tax-exempt funds, for purposes of this policy, the terms of a municipal security determine the issuer. E. CONCENTRATE E1 - The fund will not concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. E2 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. The fund itself does not intend to concentrate, however, the aggregation of holdings of the underlying funds may result in the fund indirectly investing more than 25% of its assets in a particular industry. The fund does not control the investments of the underlying funds and any indirect concentration will occur only as a result of the fund following its investment objectives by investing in the underlying funds. E3 - The fund will not invest less than 25% of its total assets in the precious metals industry, based on current market value at the time of purchase, unless market conditions temporarily require a defensive investment strategy. E4 - The fund will not concentrate in any one industry unless that industry represents more than 25% of the index tracked by the fund. For all other industries, in accordance with the current interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. E5 - While the fund may invest 25% or more of its total assets in the securities of foreign governmental and corporate entities located in the same country, it will not invest 25% or more of its total assets in any single foreign governmental issuer. 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 Statement of Additional Information - April 1, 2009 Page 9 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. F. INVEST LESS THAN 80% F1 - The fund will not under normal market conditions, invest less than 80% of its net assets in municipal obligations that are generally exempt from federal income tax as well as respective state and local income tax. F2 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and notes issued by or on behalf of state and local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax and is not subject to the alternative minimum tax. F3 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and other debt securities issued by or on behalf of state or local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax. NONFUNDAMENTAL POLICIES Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The following nonfundamental policies are in addition to those described in the prospectus. FOR FUNDS OTHER THAN MONEY MARKET FUNDS: - No more than 15% of the fund's net assets will be held in securities and other instruments that are illiquid. FOR MONEY MARKET FUNDS: - No more than 10% of the fund's net assets will be held in securities and other instruments that are illiquid. ADDITIONALLY, REGARDING LIMITING INVESTMENTS IN FOREIGN SECURITIES: FOR 120/20 CONTRARIAN EQUITY, BALANCED, DISCIPLINED EQUITY, DISCIPLINED LARGE CAP GROWTH, DISCIPLINED LARGE CAP VALUE DISCIPLINED SMALL AND MID CAP EQUITY, DISCIPLINED SMALL CAP VALUE, DIVERSIFIED BOND, DIVERSIFIED EQUITY INCOME, DIVIDEND OPPORTUNITY, EQUITY VALUE, FLOATING RATE, GROWTH, HIGH YIELD BOND, INCOME OPPORTUNITIES, INFLATION PROTECTED SECURITIES, LARGE CAP EQUITY, LARGE CAP VALUE, LIMITED DURATION BOND, MID CAP GROWTH, MID CAP VALUE, PARTNERS AGGRESSIVE GROWTH, PARTNERS FUNDAMENTAL VALUE, PARTNERS SELECT VALUE, PARTNERS SMALL CAP EQUITY, PARTNERS SMALL CAP GROWTH, PARTNERS SMALL CAP VALUE, REAL ESTATE, 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 - April 1, 2009 Page 10 INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS This table shows many of the various investment strategies and investments the funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager or subadviser (individually and collectively, the "investment manager") may make on behalf of a fund. For a description of principal risks for an individual fund, please see the applicable prospectus for that fund. Notwithstanding a fund's ability to utilize these strategies and techniques, the investment manager is not obligated to use them at any particular time. For example, even though the investment manager is authorized to adopt temporary defensive positions and is authorized to attempt to hedge against certain types of risk, these practices are left to the investment manager's sole discretion. Fund-of-funds invest in a combination of underlying funds, although they may invest directly in stocks, bonds and other securities. These underlying funds have their own investment strategies and types of investments they are allowed to engage in and purchase. Fund-of-funds currently only invest in underlying funds, which may invest directly in securities and engage in investment strategies, indicated in the table below. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS: A black circle indicates that the investment strategy or type of investment generally is authorized for a category of funds. Exceptions are noted in the footnotes to the table. See Table 1 for fund categories. TABLE 3. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME - --------------------------------------------------------------------------------------------------------------------------------- Agency and government securities - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Borrowing - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Cash/money market instruments - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Collateralized bond obligations - - A - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Commercial paper - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Common stock - - - - B -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Convertible securities - - - - C -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Corporate bonds - - - - D -- - - - --------------------------------------------------------------------------------------------------------------------------------- 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 - E - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Investment companies - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Lending of portfolio securities - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Loan participations - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Mortgage- and asset-backed securities - - F - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Mortgage dollar rolls - G - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Municipal obligations - - - - -- - - - - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 11
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME - --------------------------------------------------------------------------------------------------------------------------------- Pay-in-kind securities - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Preferred stock - - - - H -- -- - H - - --------------------------------------------------------------------------------------------------------------------------------- Real estate investment trusts - - - - -- -- - - - --------------------------------------------------------------------------------------------------------------------------------- Repurchase agreements - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Reverse repurchase agreements - - - - - -- - - - --------------------------------------------------------------------------------------------------------------------------------- Short sales I I - I -- -- I I - --------------------------------------------------------------------------------------------------------------------------------- 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. While the fund is prohibited from investing in corporate bonds, it may invest in securities classified as corporate bonds if they meet the requirements of Rule 2a-7 of the 1940 Act. E. The following funds are authorized to invest in inverse floaters: Real Estate. F. The following funds are not authorized to invest in mortgage- and asset- backed securities: Partners Small Cap Growth, S&P 500 Index, Small Cap Advantage, Small Company Index. G. The following funds are authorized to invest in mortgage dollar rolls: Real Estate. H. The following funds are not authorized to invest in preferred stock: Tax- Exempt High Income, Intermediate Tax-Exempt, Tax-Exempt Bond, Short Duration U.S. Government, U.S. Government Mortgage. I. The funds are not prohibited from engaging in short sales, however, each fund will seek Board approval prior to utilizing short sales as an active part of its investment strategy. Statement of Additional Information - April 1, 2009 Page 12 INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES RISKS The following is a summary of common risk characteristics. Following this summary is a description of certain investments and investment strategies and the risks most commonly associated with them (including certain risks not described below and, in some cases, a more comprehensive discussion of how the risks apply to a particular investment or investment strategy). A mutual fund's risk profile is largely defined by the fund's primary securities and investment strategies. However, most mutual funds are allowed to use certain other strategies and investments that may have different risk characteristics. Accordingly, one or more of the following types of risk may be associated with a fund at any time (for a description of principal risks for an individual fund, please see that fund's prospectus): ACTIVE MANAGEMENT RISK. For a fund that is actively managed, its performance will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, a fund could underperform other mutual funds with similar investment objectives. AFFILIATED FUND RISK. For funds-of-funds, the risk that the investment manager may have potential conflicts of interest in selecting underlying funds because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the investment manager is a fiduciary to the funds and is legally obligated to act in their best interests when selecting underlying funds, without taking fees into consideration. ALLOCATION RISK. For funds-of-funds, the risk that the investment manager's evaluations regarding asset classes or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also a risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the asset class. BORROWING RISK. To the extent the fund borrows money for investment purposes, which is commonly referred to as "leveraging," the fund's exposure to fluctuations in the prices of its assets will be increased as compared to the fund's exposure if the fund did not borrow. The fund's borrowing activities will exaggerate any increase or decrease in the net asset value of the fund. In addition, the interest which the fund pays on borrowed money, together with any additional costs of maintaining a borrowing facility, are additional costs borne by the fund and could reduce or eliminate any net investment profits. Unless profits on assets acquired with borrowed funds exceed the costs of borrowing, the use of borrowing will diminish the investment performance of the fund compared with what it would have been without borrowing. When the fund borrows money it must comply with certain asset coverage requirements, which at times may require the fund to dispose of some of its holdings, even though it may be disadvantageous to do so at the time. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the fund purchases unrated securities, or if the rating of a security is reduced after purchase, the fund will depend on the investment manager's analysis of credit risk more heavily than usual. CONFIDENTIAL INFORMATION ACCESS RISK. For funds investing in floating rate loans, the investment manager normally will seek to avoid the receipt of material, non-public information (Confidential Information) about the issuers of floating rate loans being considered for acquisition by the fund, or held in the fund. In many instances, issuers of floating rate loans offer to furnish Confidential Information to prospective purchasers or holders of the issuer's floating rate loans to help potential investors assess the value of the loan. The investment manager's decision not to receive Confidential Information from these issuers may disadvantage the fund as compared to other floating rate loan investors, and may adversely affect the price the fund pays for the loans it purchases, or the price at which the fund sells the loans. Further, in situations when holders of floating rate loans are asked, for example, to grant consents, waivers or amendments, the investment manager's ability to assess the desirability of such consents, waivers or amendments may be compromised. For these and other reasons, it is possible that the investment manager's decision under normal circumstances not to receive Confidential Information could adversely affect the fund's performance. COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a financial instrument entered into by the fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. The fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The fund may obtain only limited recovery or may obtain no recovery in such circumstances. The fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager. Statement of Additional Information - April 1, 2009 Page 13 DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. 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. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rates between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents 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 Statement of Additional Information - April 1, 2009 Page 14 devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the fund may be more volatile than a more geographically diversified fund. For state-specific funds. Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub- divisions of the state, each fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax- exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. See Appendix B for details. The value of municipal securities owned by a fund also may be adversely affected by future changes in federal or state income tax laws. In addition, because of the relatively small number of issuers of tax-exempt securities, the fund may invest a higher percentage of its assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. HIGHLY LEVERAGED TRANSACTIONS RISK. Certain corporate loans and corporate debt securities involve refinancings, recapitalizations, mergers and acquisitions, and other financings for general corporate purposes. These investments also may include senior obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code (commonly known as "debtor-in-possession" financings), provided that such senior obligations are determined by the fund's investment manager upon its credit analysis to be a suitable investment by the fund. In such highly leveraged transactions, the borrower assumes large amounts of debt in order to have the financial resources to attempt to achieve its business objectives. Such business objectives may include but are not limited to: management's taking over control of a company (leveraged buy-out); reorganizing the assets and liabilities of a company (leveraged recapitalization); or acquiring another company. Loans or securities that are part of highly leveraged transactions involve a greater risk (including default and bankruptcy) than other investments. IMPAIRMENT OF COLLATERAL RISK. The value of collateral, if any, securing a floating rate loan can decline, and may be insufficient to meet the borrower's obligations or difficult to liquidate. In addition, the fund's access to collateral may be limited by bankruptcy or other insolvency laws. Further, certain floating rate loans may not be fully collateralized and may decline in value. INDEXING RISK. For funds that are managed to an index, the fund's performance will rise and fall as the performance of the index rises and falls. INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation- protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of fund distributions that comes from inflation adjustments. INITIAL PUBLIC OFFERING (IPO) RISK. IPOs are subject to many of the same risks as investing in companies with smaller market capitalizations. To the extent a fund determines to invest in IPOs it may not be able to invest to the extent desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available. The investment performance of a fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the fund is able to do so. In addition, as a fund increases in size, the impact of IPOs on the fund's performance will generally decrease. IPOs will frequently be sold within 12 months of purchase. This may result in increased short-term capital gains, which will be taxable to shareholders as ordinary income. 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 Statement of Additional Information - April 1, 2009 Page 15 net asset value ("NAV") even greater and thus result in increased volatility of returns. The fund's assets that are used as collateral to secure the short sales may decrease in value while the short positions are outstanding, which may force the fund to use its other assets to increase the collateral. Leverage can also create an interest expense that may lower the fund's overall returns. Lastly, there is no guarantee that a leveraging strategy will be successful. LIQUIDITY RISK. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be called, or otherwise converted, prepaid, or redeemed, before maturity. This risk is primarily associated with asset-backed securities, including mortgage backed securities. If a security is converted, prepaid, or redeemed, before maturity, particularly during a time of declining interest rates, the portfolio managers may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The portfolio managers may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may perform differently from the market as a whole as a result of the factors used in the quantitative method, the weight placed on each factor, and changes in the factors' historical trends. The quantitative methodology employed by the investment manager has been extensively tested using historical securities market data, but has only recently begun to be used to manage open-end mutual funds. There can be no assurance that the methodology will enable the fund to achieve its objective. REINVESTMENT RISK. The risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility. SHORT SALES RISK. The fund may make short sales, which involves selling a security the fund does not own in anticipation that the security's price will decline. The fund must borrow those securities to make delivery to the buyer. The fund may not always be able to borrow a security it wants to sell short. The fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. It is possible that the fund's long positions will decline in value at the same time that the value of its short positions increase, thereby increasing potential losses to the fund. Short sales expose the fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the fund. The fund may also be required to close out a short position at a time when it might not otherwise choose, for example, if the lender of the security calls it back, which may have the effect of reducing or eliminating potential gain, or cause the fund to realize a loss. Short positions introduce more risk to the fund than long positions (purchases) because the maximum sustainable loss on a security purchased (held long) is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Additionally, the fund's use of short sales in effect "leverages" the fund, as the fund intends to use the cash proceeds from short sales to invest in additional long positions. This leverage effect potentially exposes the fund to greater risks due to unanticipated market movements, which may magnify losses and increase the volatility of returns. See Leverage Risk and Market Risk. 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 Statement of Additional Information - April 1, 2009 Page 16 excluding from the definition of "qualifying incomes" a fund's foreign currency gains not "directly related" to its "principal business" of investing in stocks or securities (or options and futures with respect thereto). Such regulations might treat gains from some of the Fund's foreign currency-denominated positions as not "qualifying income" and there is a remote possibility that such regulations might be applied retroactively, in which case, the Fund might not qualify as a regulated investment company for one or more years. In the event the Treasury Department issues such regulations, the Fund's Board of Directors may authorize a significant change in investment strategy or Fund liquidation. TRACKING ERROR RISK. For funds that are managed to an index, the fund may not track the index perfectly because differences between the index and the fund's portfolio can cause differences in performance. The investment manager purchases securities and other instruments in an attempt to replicate the performance of the index. However, the tools that the investment manager uses to replicate the index are not perfect and the fund's performance is affected by factors such as the size of the fund's portfolio, transaction costs, management fees and expenses, brokerage commissions and fees, the extent and timing of cash flows in and out of the fund and changes in the index. In addition, the returns from a specific type of security (for example, mid-cap stocks) may trail returns from other asset classes or the overall market. Each type of security will go through cycles of doing better or worse than stocks or bonds in general. These periods may last for several years. UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category. INVESTMENT STRATEGIES The following information supplements the discussion of each fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes strategies that many mutual funds use and types of securities that they purchase. Please refer to the table titled Investment Strategies and Types of Investments to see which are applicable to various categories of funds. AGENCY AND GOVERNMENT SECURITIES The U.S. government and its agencies issue many different types of securities. U.S. Treasury bonds, notes, and bills and securities, including mortgage pass through certificates of the Government National Mortgage Association (GNMA), are guaranteed by the U.S. government. Other U.S. government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not guaranteed by the U.S. government. This may increase the credit risk associated with these investments. Government- sponsored entities issuing securities include privately owned, publicly chartered entities created to reduce borrowing costs for certain sectors of the economy, such as farmers, homeowners, and students. They include the Federal Farm Credit Bank System, Farm Credit Financial Assistance Corporation, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation(*) (FHLMC), Federal National Mortgage Association(*) (FNMA), Student Loan Marketing Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Agency and government securities are subject to the same concerns as other debt obligations. (See also Debt Obligations and Mortgage- and Asset- Backed Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with agency and government securities include: Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and Reinvestment Risk. 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. Statement of Additional Information - April 1, 2009 Page 17 Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Inflation Risk. * On Sept. 7, 2008, the Federal Housing Finance Agency (FHFA), an agency of the U.S. government, placed the FHLMC and FNMA into conservatorship, a statutory process with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate the enterprises until they are stabilized. CASH/MONEY MARKET INSTRUMENTS Cash-equivalent investments include short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances, and letters of credit of banks or savings and loan associations having capital, surplus, and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. A fund also may purchase short-term notes and obligations of U.S. and foreign banks and corporations and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types of instruments generally offer low rates of return and subject a fund to certain costs and expenses. See Appendix A for a discussion of securities ratings. Bankers' acceptances are marketable short-term credit instruments used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity. Bank certificates of deposit are certificates issued against funds deposited in a bank (including eligible foreign branches of U.S. banks), are for a definite period of time, earn a specified rate of return and are normally negotiable. A fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource Family of Funds and other institutional clients of RiverSource Investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk and Inflation Risk. COLLATERALIZED BOND OBLIGATIONS Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of bonds, which may include junk bonds. CBOs are similar in concept to collateralized mortgage obligations (CMOs), but differ in that CBOs represent different degrees of credit quality rather than different maturities. (See also Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and diversified pool of high-risk, high-yield junk bonds, which is then separated into "tiers." Typically, the first tier represents the higher quality collateral and pays the lowest interest rate; the second tier is backed by riskier bonds and pays a higher rate; the third tier represents the lowest credit quality and instead of receiving a fixed interest rate receives the residual interest payments -- money that is left over after the higher tiers have been paid. CBOs, like CMOs, are substantially overcollateralized and this, plus the diversification of the pool backing them, may earn certain of the tiers investment-grade bond ratings. Holders of third-tier CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield Debt Securities (Junk Bonds).) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and Prepayment and Extension Risk. COMMERCIAL PAPER Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk and Liquidity Risk. 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. Statement of Additional Information - April 1, 2009 Page 18 Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Market Risk, and Small and Mid-Sized Company Risk. CONVERTIBLE SECURITIES Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common, preferred or other securities of the same or a different issuer within a particular period of time at a specified price. Some convertible securities, such as preferred equity-redemption cumulative stock (PERCs), have mandatory conversion features. Others are voluntary. A convertible security entitles the holder to receive interest normally paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted, or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment Risk. CORPORATE BONDS Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEBT OBLIGATIONS Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a fixed, variable or floating rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. 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).) Statement of Additional Information - April 1, 2009 Page 19 Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings. All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by a fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating agency or its rating system, a fund will attempt to use comparable ratings as standards for selecting investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEPOSITARY RECEIPTS Some foreign securities are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally, depositary receipts in registered form are designed for use in the U.S. and depositary receipts in bearer form are designed for use in securities markets outside the U.S. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary receipts involve the risks of other investments in foreign securities. In addition, ADR holders may not have all the legal rights of shareholders and may experience difficulty in receiving shareholder communications. (See also Common Stock and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, and Market Risk. DERIVATIVE INSTRUMENTS Derivative instruments are commonly defined to include securities or contracts whose values depend, in whole or in part, on (or "derive" from) the value of one or more other assets, such as securities, currencies, or commodities. A derivative instrument generally consists of, is based upon, or exhibits characteristics similar to options or forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment. Their value changes daily based on a security, a currency, a group of securities or currencies, or an index. A small change in the value of the underlying security, currency, or index can cause a sizable percentage gain or loss in the price of the derivative instrument. Options and forward contracts are considered to be the basic "building blocks" of derivatives. For example, forward- based derivatives include forward contracts, swap contracts, and exchange-traded futures. Forward-based derivatives are sometimes referred to generically as "futures contracts." Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options on futures) and exchange- traded options on futures. Diverse types of derivatives may be created by combining options or futures in different ways, and by applying these structures to a wide range of underlying assets. Options. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees for the length of the contract to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants 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 Statement of Additional Information - April 1, 2009 Page 20 security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions. One of the risks an investor assumes when it buys an option is the loss of the premium. To be beneficial to the investor, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then, the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Options on many securities are listed on options exchanges. If a fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, Chicago Board Options Exchange, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices. Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised. Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges. Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by an investor taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market. Futures contracts may be based on various securities, securities indexes (such as the S&P 500 Index), foreign currencies and other financial instruments and indexes. A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC. Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a 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. Statement of Additional Information - April 1, 2009 Page 21 Options on Indexes. Options on indexes are securities traded on national securities exchanges. An option on an index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Options may also be traded with respect to other types of indexes, such as options on indexes of commodities futures. Currency Options. Options on currencies are contracts that give the buyer the right, but not the obligation, to buy (call options) or sell (put options) a specified amount of a currency at a predetermined price (strike rate) on or before the option matures (expiry date). Conversely, the seller has the obligation to buy or sell a currency option upon exercise of the option by the purchaser. Currency options are traded either on a national securities exchange or over-the-counter. Tax and Accounting Treatment. As permitted under federal income tax laws and to the extent a fund is allowed to invest in futures contracts, a fund would intend to identify futures contracts as part of a mixed straddle and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If a fund is using short futures contracts for hedging purposes, the fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Any losses incurred on securities that are part of a straddle may be deferred to the extent there is unrealized appreciation on the offsetting position until the offsetting position is sold. Federal income tax treatment of gains or losses from transactions in options, options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, a fund would either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. The Internal Revenue Service (IRS) has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (a fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last- quoted sales price on their primary exchange. Other Risks of Derivatives. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. 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. Statement of Additional Information - April 1, 2009 Page 22 Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Derivatives Risk and Liquidity Risk. EXCHANGE-TRADED FUNDS Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit investment trusts or depositary receipts. ETFs hold portfolios of securities that are designed to replicate, as closely as possible before expenses, the price and yield of a specified market index. The performance results of ETFs will not replicate exactly the performance of the pertinent index due to transaction and other expenses, including fees to service providers, borne by ETFs. ETF shares are sold and redeemed at net asset value only in large blocks called creation units and redemption units, respectively. ETF shares also may be purchased and sold in secondary market trading on national securities exchanges, which allows investors to purchase and sell ETF shares at their market price throughout the day. Although one or more of the other risks described in this SAI may apply, investments in ETFs involve the same risks associated with a direct investment in the types of securities included in the indices the ETFs are designed to replicate, including Market Risk. 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. Statement of Additional Information - April 1, 2009 Page 23 Certain of the loans acquired by a fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan assignment. To the extent that the fund is committed to make additional loans under such an assignment, it will at all times designate cash or securities in an amount sufficient to meet such commitments. Notwithstanding its intention in certain situations to not receive material, non-public information with respect to its management of investments in floating rate loans, the investment manager may from time to time come into possession of material, non-public information about the issuers of loans that may be held in a fund's portfolio. Possession of such information may in some instances occur despite the investment manager's efforts to avoid such possession, but in other instances the investment manager may choose to receive such information (for example, in connection with participation in a creditors' committee with respect to a financially distressed issuer). As, and to the extent, required by applicable law, the investment manager's ability to trade in these loans for the account of the fund could potentially be limited by its possession of such information. Such limitations on the investment manager's ability to trade could have an adverse effect on the fund by, for example, preventing the fund from selling a loan that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of time. In some instances, other accounts managed by the investment manager may hold other securities issued by borrowers whose floating rate loans may be held in a fund's portfolio. These other securities may include, for example, debt securities that are subordinate to the floating rate loans held in the fund's portfolio, convertible debt or common or preferred equity securities. In certain circumstances, such as if the credit quality of the issuer deteriorates, the interests of holders of these other securities may conflict with the interests of the holders of the issuer's floating rate loans. In such cases, the investment manager may owe conflicting fiduciary duties to the fund and other client accounts. The investment manager will endeavor to carry out its obligations to all of its clients to the fullest extent possible, recognizing that in some cases certain clients may achieve a lower economic return, as a result of these conflicting client interests, than if the investment manager's client accounts collectively held only a single category of the issuer's securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with floating rate loans include: Credit Risk and Prepayment and Extension Risk. FOREIGN CURRENCY TRANSACTIONS Investments in foreign countries usually involve currencies of foreign countries. In addition, a fund may hold cash and cash equivalent investments in foreign currencies. As a result, the value of a fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, a fund may incur costs in connection with conversions between various currencies. Currency exchange rates may fluctuate significantly over short periods of time causing a fund's NAV (Net Asset Value) to fluctuate. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets, actual or anticipated changes in interest rates, and other complex factors. Currency exchange rates also can be affected by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments. Spot Rates and Derivative Instruments. A fund may conduct its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts). (See also Derivative Instruments.) These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, a fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots. A fund may enter into forward contracts for a variety of reasons, but primarily it will enter into such contracts for risk management (hedging) or for investment purposes. A fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a 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 Statement of Additional Information - April 1, 2009 Page 24 the value of foreign securities it holds against an adverse move in exchange rates. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. Unless specifically permitted, a fund would not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate it to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency. This method of protecting the value of the fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. A fund may also enter into forward contracts when its management believes the currency of a particular country will increase in value relative to another currency. A fund may buy currencies forward to gain exposure to a currency without incurring the additional costs of purchasing securities denominated in that currency. Absolute Return Currency and Income Fund is designed to invest in a combination of forward currency contracts and U.S. dollar-denominated market instruments in an attempt to obtain an investment result that is substantially the same as a direct investment in a foreign currency-denominated instrument. For example, the combination of U.S. dollar-denominated instruments with long forward currency exchange contracts creates a position economically equivalent to a position in the foreign currency, in anticipation of an increase in the value of the foreign currency against the U.S. dollar. Conversely, the combination of U.S. dollar- denominated instruments with short forward currency exchange contracts is economically equivalent to borrowing the foreign currency for delivery at a specified date in the future, in anticipation of a decrease in the value of the foreign currency against the U.S. dollar. This strategy may also be employed by other funds. Unanticipated changes in the currency exchange results could result in poorer performance for funds that enter into these types of transactions. A fund may designate cash or securities in an amount equal to the value of the fund's total assets committed to consummating forward contracts entered into under the circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the fund's commitments on such contracts. At maturity of a forward contract, a fund may either deliver (if a contract to sell) or take delivery of (if a contract to buy) the foreign currency or terminate its contractual obligation by entering into an offsetting contract with the same currency trader, the same maturity date, and covering the same amount of foreign currency. If a fund engages in an offsetting transaction, it would incur a gain or loss to the extent there has been movement in forward contract prices. If a fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to buy or sell the foreign currency. Although a fund values its assets each business day in terms of U.S. dollars, it may not intend to convert its foreign currencies into U.S. dollars on a daily basis. It would do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should a fund desire to resell that currency to the dealer. For Absolute Return Currency and Income Fund, it is possible, under certain circumstances, including entering into forward currency contracts for investment purposes, that the fund may have to limit or restructure its forward contract currency transactions to qualify as a "regulated investment company" under the Internal Revenue Code. Options on Foreign Currencies. A fund may buy put and call options and write covered call and cash-secured put options on foreign currencies for hedging purposes and to gain exposure to foreign currencies. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value 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. Statement of Additional Information - April 1, 2009 Page 25 As in the case of other types of options, however, the benefit to a fund derived from purchases of foreign currency options would be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in rates. A fund may write options on foreign currencies for the same types of purposes. For example, when a fund anticipates a decline in the dollar value of foreign- denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option would most likely not be exercised and the diminution in value of securities would be fully or partially offset by the amount of the premium received. Similarly, instead of purchasing a call option when a foreign currency is expected to appreciate, a fund could write a put option on the relevant currency. If rates move in the manner projected, the put option would expire unexercised and allow the fund to hedge increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if a fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the- counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) 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 Statement of Additional Information - April 1, 2009 Page 26 response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of a fund's investments denominated in that currency over time. A fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The fund would not enter into an option or futures position that exposes the fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Derivatives Risk, Interest Rate Risk, and Liquidity Risk. FOREIGN SECURITIES Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. The introduction of a single currency, the euro, on Jan. 1, 1999 for participating European nations in the Economic and Monetary Union (EU) presents unique uncertainties, including the legal treatment of certain outstanding financial contracts after Jan. 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the admission of other countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk and Issuer Risk. 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. Statement of Additional Information - April 1, 2009 Page 27 HIGH-YIELD DEBT SECURITIES (JUNK BONDS) High yield (high-risk) debt securities are sometimes referred to as junk bonds. They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) All fixed rate interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher- rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than a default by issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality. An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher- rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers. Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield debt securities include: Credit Risk, Interest Rate Risk, and Prepayment and Extension Risk. ILLIQUID AND RESTRICTED SECURITIES Illiquid securities are securities that are not readily marketable. These securities may include, but are not limited to, certain securities that are subject to legal or contractual restrictions on resale, certain repurchase agreements, and derivative instruments. To the extent a fund invests in illiquid or restricted securities, it may encounter difficulty in determining a market value for the securities. Disposing of illiquid or restricted securities may involve time- consuming negotiations and legal expense, and it may be difficult or impossible for a fund to sell the investment promptly and at an acceptable price. In determining the liquidity of all securities and derivatives, such as Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities the investment manager, under guidelines established by 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 Statement of Additional Information - April 1, 2009 Page 28 or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk and Market Risk. INFLATION PROTECTED SECURITIES Inflation is a general rise in prices of goods and services. Inflation erodes the purchasing power of an investor's assets. For example, if an investment provides a total return of 7% in a given year and inflation is 3% during that period, the inflation-adjusted, or real, return is 4%. Inflation-protected securities are debt securities whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. One type of inflation-protected debt security is issued by the U.S. Treasury. The principal of these securities is adjusted for inflation as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest is paid on the adjusted amount. The CPI is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. If the CPI falls, the principal value of inflation-protected securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Conversely, if the CPI rises, the principal value of inflation-protected securities will be adjusted upward, and consequently the interest payable on these securities will be increased. Repayment of the original bond principal upon maturity is guaranteed in the case of U.S. Treasury inflation-protected securities, even during a period of deflation. However, the current market value of the inflation-protected securities is not guaranteed and will fluctuate. Other inflation-indexed securities include inflation-related bonds, which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. Other issuers of inflation-protected debt securities include other U.S. government agencies or instrumentalities, corporations and foreign governments. There can be no assurance that the CPI or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by IRS regulations to be taxable income in the year it occurs. For direct holders of an inflation-protected security, this means that taxes must be paid on principal adjustments even though these amounts are not received until the bond matures. By contrast, a fund holding these securities distributes both interest income and the income attributable to principal adjustments in the form of cash or reinvested shares, which are taxable to shareholders. Although one or more of the other risks described in this SAI may apply, the largest risks associated with inflation- protected securities include: Interest Rate Risk and Market Risk. INITIAL PUBLIC OFFERINGS (IPOS) Companies issuing IPOs generally have limited operating histories, and their prospects for future profitability are uncertain. These companies often are engaged in new and evolving businesses and are particularly vulnerable to competition and to changes in technology, markets and economic conditions. They may be dependent on certain key managers and third parties, need more personnel and other resources to manage growth and require significant additional capital. They may also be dependent on limited product lines and uncertain property rights and need regulatory approvals. Funds that invest in IPOs can be affected by sales of additional shares and by concentration of control in existing management and principal shareholders. Stock prices of IPOs can also be highly unstable, due to the absence of a prior public market, the small number of shares available for trading and limited investor information. Most IPOs involve a high degree of risk not normally associated with offerings of more seasoned companies. 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 Statement of Additional Information - April 1, 2009 Page 29 with long-term interest rates; as long-term interest rates go down, the price of the inverse floater moves up and, when long-term interest rates go up, the price of the inverse floater moves down. While inverse floater securities tend to provide more income than similar term and credit quality fixed-rate bonds, they also exhibit greater volatility in price movement (both up and down). In the municipal market an inverse floater is typically created when the owner of a municipal fixed rate bond transfers that bond to a trust in exchange for cash and a residual interest in the trust's assets and cash flows (inverse floater certificates). The trust funds the purchase of the bond by issuing two classes of certificates: short-term floating rate notes (typically sold to third parties) and the inverse floaters (also known as residual certificates). No additional income beyond that provided by the trust's underlying bond is created; rather, that income is merely divided-up between the two classes of certificates. The holder of the inverse floating rate securities typically has the right to (1) cause the holders of the short-term floating rate notes to tender their notes at par ($100) and (2) to return the inverse floaters and withdraw the underlying bonds, thereby collapsing the trust. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with transactions in inverse floaters include: Interest Rate Risk, Credit Risk, Liquidity Risk and Market Risk. INVESTMENT COMPANIES Investing in securities issued by registered and unregistered investment companies may involve the duplication of advisory fees and certain other expenses. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the securities of other investment companies include: Market Risk. LENDING OF PORTFOLIO SECURITIES 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 Statement of Additional Information - April 1, 2009 Page 30 credit enhancement. Commercial mortgage-backed securities (CMBS) are a specific type of mortgage-backed security collateralized by a pool of mortgages on commercial real estate. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage- backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage- backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset- backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage and asset-backed securities include: Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension Risk. 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 Statement of Additional Information - April 1, 2009 Page 31 and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes, and similar instruments. Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) Taxable Municipal Obligations. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non- qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan. Although one or more of the other risks described in this SAI may apply, the largest risks associated with municipal obligations include: Credit Risk, Inflation Risk, Interest Rate Risk, and Market Risk. PREFERRED STOCK Preferred stock is a type of stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. The price of a preferred stock is generally determined by earnings, type of products or services, projected growth rates, experience of management, liquidity, and general market conditions of the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with preferred stock include: Issuer Risk and Market Risk. 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. Statement of Additional Information - April 1, 2009 Page 32 REPURCHASE AGREEMENTS Repurchase agreements may be entered into with certain banks or non-bank dealers. In a repurchase agreement, the purchaser buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the purchaser's ability to dispose of the underlying securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with repurchase agreements include: Credit Risk. REVERSE REPURCHASE AGREEMENTS In a reverse repurchase agreement, an investor sells a security and enters into an agreement to repurchase the security at a specified future date and price. The investor generally retains the right to interest and principal payments on the security. Since the investor receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Credit Risk and Interest Rate Risk. SHORT SALES In short selling transactions, a fund sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, a fund must borrow the security to make delivery to the buyer. A fund is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by a fund, which may result in a loss or gain, respectively. Unlike taking a long position in a security by purchasing the security, where potential losses are limited to the purchase price, short sales have no cap on maximum losses, and gains are limited to the price of the security at the time of the short sale. Short sales of forward commitments and derivatives do not involve borrowing a security. These types of short sales may include futures, options, contracts for differences, forward contracts on financial instruments and options such as contracts, credit linked instruments, and swap contracts. A fund may not always be able to borrow a security it wants to sell short. A fund also may be unable to close out an established short position at an acceptable price and may have to sell long positions at disadvantageous times to cover its short positions. The value of your investment in a fund will fluctuate in response to the movements in the market. Fund performance also will depend on the effectiveness of the investment manager's research and the management team's investment decisions. Short sales also involve other costs. A fund must repay to the lender an amount equal to any dividends or interest that accrues while the loan is outstanding. To borrow the security, a fund may be required to pay a premium. A fund also will incur truncation costs in effecting short sales. The amount of any ultimate gain for a fund resulting from a short sale will be 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. Statement of Additional Information - April 1, 2009 Page 33 Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk and Foreign/Emerging Markets Risk. STRUCTURED INVESTMENTS A structured investment is a security whose return is tied to an underlying index or to some other security or pool of assets. Structured investments generally are individually negotiated agreements and may be traded over-the- counter. Structured investments are created and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments, such as commercial bank loans, and the issuance by that entity of one or more classes of debt obligations ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities, and interest rate provisions. The extent of the payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Structured securities are often offered in different classes. As a result a given class of a structured security may be either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and at any given time there may be no active trading market for a particular structured security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured investments include: Credit Risk and Liquidity Risk. SWAP AGREEMENTS Swap agreements are typically individually negotiated agreements that obligate two parties to exchange payments based on a reference to a specified asset, reference rate or index. Swap agreements will tend to shift a party's investment exposure from one type of investment to another. A swap agreement can increase or decrease the volatility of a fund's investments and its net asset value. Swap agreements are traded in the over-the-counter market and may be considered to be illiquid. Swap agreements entail the risk that a party will default on its payment obligations. A fund will enter into a swap agreement only if the claims- paying ability of the other party or its guarantor is considered to be investment grade by the investment manager. Generally, the unsecured senior debt or the claims-paying ability of the other party or its guarantor must be rated in one of the three highest rating categories of at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of entering into the transaction. If there is a default by the other party to such a transaction, a fund will have to rely on its contractual 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 Statement of Additional Information - April 1, 2009 Page 34 beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and termination of the agreements, both sides will also have to pay in full periodically based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps. Total Return Swaps. Total return swaps are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. For example, CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage- backed securities. In a typical total return equity swap, payments made by the fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement. Swaption Transaction. A swaption is an option on a swap agreement and a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms, in return for payment of the purchase price (the "premium") of the option. The fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. The writer of the contract receives the premium and bears the risk of unfavorable changes in the market value on the underlying swap agreement. Swaptions can be bundled and sold as a package. These are commonly called interest rate caps, floors and collars. In interest rate cap transactions, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap. Interest rate floor transactions require one party, in exchange for a premium to agree to make payments to the other to the extent that interest rates fall below a specified level, or floor. In interest rate collar transactions, one party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels or collar amounts. Credit Default Swaps. Credit default swaps are contracts in which third party credit risk is transferred from one party to another party by one party, the protection buyer, making payments to the other party, the protection seller, in return for the ability of the protection buyer to deliver a reference obligation, or portfolio of reference obligations, to the protection seller upon the occurrence of certain credit events relating to the issuer of the reference obligation and receive the notional amount of the reference obligation from the protection seller. A fund may use credit default swaps for various purposes including to increase or decrease its credit exposure to various issuers. For example, as a seller in a transaction, a fund could use credit default swaps as a way of increasing investment exposure to a particular issuer's bonds in lieu of purchasing such bonds 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 Statement of Additional Information - April 1, 2009 Page 35 offsetting positions, with a value at least equal to the fund's exposure (any accrued but unpaid net amounts owed by the fund to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a fund is the seller, the fund will segregate or "earmark" cash or other liquid assets, or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the fund). Such segregation or "earmarking" will ensure that the fund has assets available to satisfy its obligations with respect to the transaction. Such segregation or "earmarking" will not limit the fund's exposure to loss. The use of swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment. Although one or more of the other risks described in this SAI may apply, the largest risks associated with swaps include: Credit Risk, Liquidity Risk and Market Risk. VARIABLE- OR FLOATING-RATE SECURITIES Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. Variable- or floating-rate securities frequently include a demand feature enabling the holder to sell the securities to the issuer at par. In many cases, the demand feature can be exercised at any time. Some securities that do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. Variable-rate demand notes include master demand notes that are obligations that permit the investor to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the investor as lender, and the borrower. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded. There generally is not an established secondary market for these obligations. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the lender's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and may involve heightened risk of default by the issuer. Although one or more of the other risks described in this SAI may apply, the largest risks associated with variable- or floating-rate securities include: Credit Risk. 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 - April 1, 2009 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 - April 1, 2009 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 - April 1, 2009 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 2009 2008 2007 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------ Income Builder Basic Income $ 0 $ 0(a) $ 0 - ------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 0 0(a) 0 - ------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 0 0(a) 0 - ------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 0 0 0 - ------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 0 0 0 - ------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 0 0 0 - ------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 0 0 0 - ------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 0 0 0 - ------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 0 0 0 - ------------------------------------------------------------------------------------------------------ S&P 500 Index 16,486 40,706 21,050 - ------------------------------------------------------------------------------------------------------ Small Company Index 123,243 108,360 56,843 - ------------------------------------------------------------------------------------------------------ 2008 2007 2006 - ------------------------------------------------------------------------------------------------------ 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(b) N/A N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2010 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2015 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2020 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2025 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2030 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2035 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2040 0 0(c) N/A - ------------------------------------------------------------------------------------------------------ Retirement Plus 2045 0 0(c) 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 - April 1, 2009 Page 39
TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------ FUND 2008 2007 2006 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------ Dividend Opportunity $ 412,022 $ 576,524 $ 456,446 - ------------------------------------------------------------------------------------------------------ Real Estate 173,705 187,309 152,782 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------ Cash Management 0 0 0 - ------------------------------------------------------------------------------------------------------ Disciplined Equity 1,951,255 1,577,337 987,624 - ------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 124,754 156,759 8,916(d) - ------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 75,041 64,928 33,110(e) - ------------------------------------------------------------------------------------------------------ Floating Rate 861 0 0(e) - ------------------------------------------------------------------------------------------------------ Growth 10,366,547 12,096,184 10,375,981 - ------------------------------------------------------------------------------------------------------ Income Opportunities 0 0 0 - ------------------------------------------------------------------------------------------------------ Inflation Protected Securities 11,586 0 0 - ------------------------------------------------------------------------------------------------------ Large Cap Equity 10,502,917 15,040,354 9,944,390 - ------------------------------------------------------------------------------------------------------ Large Cap Value 61,073 88,935 138,363 - ------------------------------------------------------------------------------------------------------ Limited Duration Bond 4,138 5,172 4,006 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------ California Tax-Exempt 1,938 4,143 666(f) - ------------------------------------------------------------------------------------------------------ Diversified Bond 111,876 91,815 108,055 - ------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt 3,418 7,293 1,254(f) - ------------------------------------------------------------------------------------------------------ New York Tax-Exempt 724 1,524 255(f) - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------ Balanced 493,156 567,773 420,523 - ------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 150,374 45,978(g) N/A - ------------------------------------------------------------------------------------------------------ Disciplined Large Cap Value 6,631(h) N/A N/A - ------------------------------------------------------------------------------------------------------ Diversified Equity Income 4,085,552 3,790,954 2,923,490 - ------------------------------------------------------------------------------------------------------ Mid Cap Value 1,672,775 1,219,474 1,354,225 - ------------------------------------------------------------------------------------------------------ Strategic Allocation 1,049,954 1,425,483 638,067 - ------------------------------------------------------------------------------------------------------ Strategic Income Allocation 17,707 6,639(g) N/A - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 0 0 0(i) - ------------------------------------------------------------------------------------------------------ Disciplined International Equity 514,960 547,910 60,738(j) - ------------------------------------------------------------------------------------------------------ Emerging Markets Bond 0 0 0(k) - ------------------------------------------------------------------------------------------------------ Global Bond 18,925 17,268 9,664 - ------------------------------------------------------------------------------------------------------ Global Technology 471,967 1,027,281 1,237,181 - ------------------------------------------------------------------------------------------------------ Partners International Select Growth 1,690,066 1,932,330 1,265,256 - ------------------------------------------------------------------------------------------------------ Partners International Select Value 1,558,333 1,426,926 1,533,794 - ------------------------------------------------------------------------------------------------------ Partners International Small Cap 270,663 353,096 366,091 - ------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets 3,346,690 3,361,865 3,017,380 - ------------------------------------------------------------------------------------------------------ Threadneedle European Equity 396,474 282,104 160,239 - ------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 1,185,084 1,474,583 1,249,847 - ------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Income 5,030(l) N/A N/A - ------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Alpha 6,647(l) N/A N/A - ------------------------------------------------------------------------------------------------------ Threadneedle International Opportunity 1,020,584 1,150,182 989,118 - ------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 40
TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------ FUND 2008 2007 2006 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt $ 684 $ 2,175 $ 438 - ------------------------------------------------------------------------------------------------------ Mid Cap Growth 2,165,273 2,813,784 1,867,241 - ------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 6,431 19,450 4,257 - ------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 24,531 74,062 17,679 - ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 0 - ------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (d) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (e) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (f) 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. (g) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (h) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (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. (l) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - April 1, 2009 Page 41 For the last fiscal period, transactions were specifically directed to firms in exchange for research services as shown in the following table. The table also shows portfolio turnover rates for the last two fiscal periods. Higher turnover rates may result in higher brokerage expenses and taxes. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 5. BROKERAGE DIRECTED FOR RESEARCH AND TURNOVER RATES
- ---------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2009 2008 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) $ 0(b) $ 0(b) 39% 19% - ---------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) 0(b) 0(b) 36 24 - ---------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) 0(b) 0(b) 40 19 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0(b) 0(b) 35 40 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0(b) 0(b) 27 29 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0(b) 0(b) 34 27 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0(b) 0(b) 33 33 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0(b) 0(b) 29 31 - ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0(b) 0(b) 28 31 - ---------------------------------------------------------------------------------------------------------------------- S&P 500 Index 0 0 5 4 - ---------------------------------------------------------------------------------------------------------------------- Small Company Index 0 0 23 14 - ---------------------------------------------------------------------------------------------------------------------- 2008 2007 - ---------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 0(b) 0(b) 92 80(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 0(b) 0(b) 47 48(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 0(b) 0(b) 50 40(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 0(b) 0(b) 41 37(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 0(b) 0(b) 50 32(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 0(b) 0(b) 44 38(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 0(b) 0(b) 52 33(e) - ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 0(b) 0(b) 50 57(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 - April 1, 2009 Page 42
- ---------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2008 2007 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $ 15,749,145 $ 54,405 20% 17% - ---------------------------------------------------------------------------------------------------------------------- Real Estate 1,084,912 605 52 38 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------- Cash Management 0 0 N/A N/A - ---------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 0 58 62 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 0 56 84 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 0 87 127 - ---------------------------------------------------------------------------------------------------------------------- Floating Rate 0 0 43 91 - ---------------------------------------------------------------------------------------------------------------------- Growth 1,339,656,389 1,904,948 112 98 - ---------------------------------------------------------------------------------------------------------------------- Income Opportunities 0 0 75 122 - ---------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 59 76 - ---------------------------------------------------------------------------------------------------------------------- Large Cap Equity 1,378,682,998 1,744,468 68 66 - ---------------------------------------------------------------------------------------------------------------------- Large Cap Value 9,016,509 10,770 24 35 - ---------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 218(h) 263 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------- California Tax-Exempt(i) 0 0 49 62 - ---------------------------------------------------------------------------------------------------------------------- Diversified Bond 0 0 226 295 - ---------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt(i) 0 0 23 26 - ---------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt(i) 0 0 31 28 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------- Balanced 67,135,127 86,479 105 124 - ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 70 21(j) - ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0(k) 0(k) 6(k) N/A - ---------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 557,479,269 554,662 31 31 - ---------------------------------------------------------------------------------------------------------------------- Mid Cap Value 200,044,593 196,118 34 24 - ---------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 0 123 123 - ---------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0 0 137 70 - ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 39 36 - ---------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 0 61 47 - ---------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 82 41 - ---------------------------------------------------------------------------------------------------------------------- Global Bond 0 0 75 77 - ---------------------------------------------------------------------------------------------------------------------- Global Technology 20,896,126 37,913 81 167 - ---------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 97,589,551 156,876 85 104 - ---------------------------------------------------------------------------------------------------------------------- Partners International Select Value 559,869,117 309,044 40 28 - ---------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 87 96 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 133 125 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 180 114 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 97 100 - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 0(l) 0(l) 10(l) N/A - ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0(l) 0(l) 36(l) N/A - ---------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 78 84 - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 43
- ------------------------------------------------------------------------------------------------------------------------ BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2008 2007 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt $ 0 $ 0 36% 53% - ------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 54,423,999 96,049 76 87 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 0 0 37 51 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 0 0 37 47 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------
* Reported numbers include third party soft dollar commissions and portfolio manager directed commissions directed for research. RiverSource also receives proprietary research from brokers, but these amounts have not been included in the table. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) The underlying funds may have directed transactions to firms in exchange for research services. (c) Higher turnover rates may result in higher brokerage expenses and taxes. The higher turnover rate can be primarily attributed to repositioning the fund to a smaller number of holdings as it worked through risk management and secondarily, market volatility made up the balance of the turnover rate. (d) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (e) For the period from 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) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 124% for the year ended July 31, 2008. (i) 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. (j) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (k) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (l) For the period from Aug. 1, 2008 (when the Fund became available) to Oct. 31, 2008. Statement of Additional Information - April 1, 2009 Page 44 As of the end of the most recent fiscal period, the fund held securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 6. SECURITIES OF REGULAR BROKERS OR DEALERS
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income None N/A - -------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income None N/A - -------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative None N/A - -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity None N/A - -------------------------------------------------------------------------------------------------------------------- S&P 500 Index Ameriprise Financial $ 65,185 -------------------------------------------------------------------- Charles Schwab 190,015 -------------------------------------------------------------------- Citigroup 289,179 -------------------------------------------------------------------- E*Trade Financial 9,587 -------------------------------------------------------------------- Franklin Resources 109,671 -------------------------------------------------------------------- Goldman Sachs Group 533,707 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,423,202 -------------------------------------------------------------------- Legg Mason 34,047 -------------------------------------------------------------------- Morgan Stanley 321,071 -------------------------------------------------------------------- PNC Financial Services Group 207,965 - -------------------------------------------------------------------------------------------------------------------- Small Company Index Investment Technology Group 1,062,970 -------------------------------------------------------------------- LaBranche & Co. 408,547 -------------------------------------------------------------------- optionsXpress 525,824 -------------------------------------------------------------------- Piper Jaffray Companies 490,510 - -------------------------------------------------------------------------------------------------------------------- Stifel Financial 1,019,664 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------- Equity Value 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 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Citigroup 757,493 - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None N/A - -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None N/A - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 45
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------- High Yield Bond 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 -------------------------------------------------------------------- Citigroup/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 23,201,974 -------------------------------------------------------------------- Goldman Sachs Group 32,663,485 -------------------------------------------------------------------- JPMorgan Chase & Co. 22,009,110 -------------------------------------------------------------------- PNC Financial Services Group 3,911,464 - -------------------------------------------------------------------------------------------------------------------- Real Estate None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------- Cash Management Bear Stearns Companies 25,000,000 -------------------------------------------------------------------- Citigroup Funding 196,618,680 -------------------------------------------------------------------- Credit Suisse NY 146,620,740 -------------------------------------------------------------------- Goldman Sachs Group 25,000,000 -------------------------------------------------------------------- JPMorgan Chase & Co. 136,841,050 -------------------------------------------------------------------- Lehman Brothers Holdings* 80,100,000 -------------------------------------------------------------------- Merrill Lynch & Co. 152,998,540 -------------------------------------------------------------------- Morgan Stanley 20,720,382 - -------------------------------------------------------------------------------------------------------------------- Disciplined Equity Charles Schwab 4,016,005 -------------------------------------------------------------------- Citigroup 89,269,962 -------------------------------------------------------------------- E*TRADE 773,132 -------------------------------------------------------------------- Goldman Sachs Group 4,770,869 -------------------------------------------------------------------- JPMorgan Chase & Co. 41,756,101 -------------------------------------------------------------------- Lehman Brothers Holdings* 7,515,746 -------------------------------------------------------------------- Merrill Lynch & Co. 19,815,362 -------------------------------------------------------------------- Morgan Stanley 39,406,764 - -------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Knight Capital Group Cl A 145,822 -------------------------------------------------------------------- Piper Jaffray Companies 63,829 -------------------------------------------------------------------- Westwood Holdings Group 134,188 - -------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Knight Capital Group Cl A 72,493 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 46
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Floating Rate Ameritrade Holding Corp. $ 745,332 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 943,533 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 1,952,180 -------------------------------------------------------------------- CS First Boston Mtge Securities 855,783 -------------------------------------------------------------------- Lehman Brothers Holdings* 963,838 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 1,153,729 -------------------------------------------------------------------- Nuveen Investments 1,658,970 - -------------------------------------------------------------------------------------------------------------------- Growth Lehman Brothers Holdings* 6,021,142 - -------------------------------------------------------------------------------------------------------------------- Income Opportunities None N/A - -------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities None N/A - -------------------------------------------------------------------------------------------------------------------- Large Cap Equity Citigroup 26,071,447 -------------------------------------------------------------------- Goldman Sachs Group 22,551,709 -------------------------------------------------------------------- JPMorgan Chase & Co. 47,861,246 -------------------------------------------------------------------- Legg Mason 4,714,454 -------------------------------------------------------------------- Lehman Brothers Holdings* 19,819,100 -------------------------------------------------------------------- Merrill Lynch & Co. 4,367,136 -------------------------------------------------------------------- Morgan Stanley 17,105,697 -------------------------------------------------------------------- PNC Financial Services Group 7,082,875 - -------------------------------------------------------------------------------------------------------------------- Large Cap Value Citigroup 878,430 -------------------------------------------------------------------- Goldman Sachs Group 326,303 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,210,083 -------------------------------------------------------------------- Legg Mason 111,487 -------------------------------------------------------------------- Lehman Brothers Holdings* 366,723 -------------------------------------------------------------------- Merrill Lynch & Co. 173,678 -------------------------------------------------------------------- Morgan Stanley 465,824 -------------------------------------------------------------------- PNC Financial Services Group 288,083 - -------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Bear Stearns Adjustable Rate Mortgage Trust 872,823 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 641,299 -------------------------------------------------------------------- ChaseFlex Trust 248,077 -------------------------------------------------------------------- Citigroup 1,259,000 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 696,777 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 170,687 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 278,727 -------------------------------------------------------------------- Credit Suisse NY 226,272 -------------------------------------------------------------------- CS First Boston Mtge Securities 676,454 -------------------------------------------------------------------- GS Mortgage Securities II 799,079 -------------------------------------------------------------------- JPMorgan Chase & Co. 991,462 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 3,563,196 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 1,587,416 -------------------------------------------------------------------- Lehman Brothers Holdings* 544,494 -------------------------------------------------------------------- Merrill Lynch & Co. 706,410 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 122,321 -------------------------------------------------------------------- Morgan Stanley 944,154 -------------------------------------------------------------------- Morgan Stanley Capital 1 692,480 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 840,855 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 47
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- Diversified Bond Bear Stearns Adjustable Rate Mortgage Trust $ 17,436,578 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 21,099,342 -------------------------------------------------------------------- ChaseFlex Trust 1,571,241 -------------------------------------------------------------------- Citigroup 28,310,330 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 14,460,744 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 3,136,137 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 5,831,624 -------------------------------------------------------------------- Credit Suisse NY 4,591,057 -------------------------------------------------------------------- CS First Boston Mtge Securities 14,248,373 -------------------------------------------------------------------- GS Mortgage Securities II 13,047,600 -------------------------------------------------------------------- JPMorgan Chase Bank 8,319,926 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 69,173,902 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,062,237 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 30,843,436 -------------------------------------------------------------------- Lehman Brothers Holdings* 12,531,597 -------------------------------------------------------------------- Merrill Lynch & Co. 13,901,778 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 3,496,976 -------------------------------------------------------------------- Morgan Stanley 16,923,975 -------------------------------------------------------------------- Morgan Stanley Capital 1 16,818,388 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 14,352,406 - -------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------- Balanced Bear Stearns Adjustable Rate Mortgage Trust 2,056,495 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 2,433,377 -------------------------------------------------------------------- ChaseFlex Trust 950,665 -------------------------------------------------------------------- Citigroup 11,143,567 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 1,597,731 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 352,251 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 641,835 -------------------------------------------------------------------- Credit Suisse NY 336,023 -------------------------------------------------------------------- CS First Boston Mtge Securities 618,807 -------------------------------------------------------------------- Goldman Sachs Group 2,224,256 -------------------------------------------------------------------- GS Mortgage Securities II 1,093,832 -------------------------------------------------------------------- JPMorgan Chase & Co. 13,228,624 -------------------------------------------------------------------- JPMorgan Chase Bank 485,791 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 5,788,325 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 3,548,011 -------------------------------------------------------------------- Legg Mason 378,164 -------------------------------------------------------------------- Lehman Brothers Holdings* 93,125 -------------------------------------------------------------------- Merrill Lynch & Co. 2,155,227 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 222,584 -------------------------------------------------------------------- Morgan Stanley 1,939,572 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,954,402 -------------------------------------------------------------------- PNC Financial Services Group 2,794,751 - -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Goldman Sachs Group 2,407,041 -------------------------------------------------------------------- Merrill Lynch & Co. 1,031,582 -------------------------------------------------------------------- Morgan Stanley 2,026,438 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 48
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value Citigroup $ 465,556 -------------------------------------------------------------------- Lehman Brothers Holdings* 587 -------------------------------------------------------------------- Merrill Lynch & Co. 131,307 -------------------------------------------------------------------- Morgan Stanley 89,056 - -------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Citigroup 40,913,779 -------------------------------------------------------------------- JPMorgan Chase & Co. 49,760,204 - -------------------------------------------------------------------------------------------------------------------- Mid Cap Value None N/A - -------------------------------------------------------------------------------------------------------------------- Strategic Allocation Bear Stearns Commercial Mortgage Securities 3,562,336 -------------------------------------------------------------------- Charles Schwab 1,763,164 -------------------------------------------------------------------- Citigroup 30,594,415 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 1,642,261 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 2,042,743 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 641,835 -------------------------------------------------------------------- CS First Boston Mortgage Securities 4,882,828 -------------------------------------------------------------------- Goldman Sachs Group 994,048 -------------------------------------------------------------------- GS Mortgage Securities II 1,523,546 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,986,581 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,446,223 -------------------------------------------------------------------- Knight Capital Group Cl A 73,899 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,304,264 -------------------------------------------------------------------- Lehman Brothers Holdings* 29,688 -------------------------------------------------------------------- Merrill Lynch & Co. 6,168,171 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 927,435 -------------------------------------------------------------------- Morgan Stanley 7,342,576 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,337,566 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 1,512,553 - -------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Ameritrade Holding Corp. - subsidiary 594,322 -------------------------------------------------------------------- Bear Stearns Adjustable Rate Mortgage Trust 203,614 -------------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities 909,594 -------------------------------------------------------------------- Charles Schwab 25,090 -------------------------------------------------------------------- Citigroup 720,374 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 939,180 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,639,456 -------------------------------------------------------------------- Goldman Sachs Group 34,304 -------------------------------------------------------------------- JPMorgan Chase & Co. 217,669 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 1,875,303 -------------------------------------------------------------------- Lehman Brothers Holdings* 11,788 -------------------------------------------------------------------- Merrill Lynch & Co. 158,624 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 366,194 -------------------------------------------------------------------- Morgan Stanley 555,840 -------------------------------------------------------------------- Morgan Stanley Capital 1 119,467 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 756,276 -------------------------------------------------------------------- Nuveen Investments 105,610 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 49
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Bear Stearns Companies $ 745,926 -------------------------------------------------------------------- Citigroup 619,416 -------------------------------------------------------------------- Credit Suisse First Boston USA 636,727 -------------------------------------------------------------------- GS Mortgage Securities II 2,521,127 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 849,854 -------------------------------------------------------------------- Lehman Brothers Holdings* 75,200 -------------------------------------------------------------------- Morgan Stanley 633,832 -------------------------------------------------------------------- Morgan Stanley, Dean Witter Capital 1 1,167,921 - -------------------------------------------------------------------------------------------------------------------- Disciplined International Equity None N/A - -------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Morgan Stanley 1,258,573 - -------------------------------------------------------------------------------------------------------------------- Global Bond Bear Stearns Commercial Mortgage Securities 1,106,194 -------------------------------------------------------------------- Citigroup 709,276 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 1,294,437 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 715,932 -------------------------------------------------------------------- Credit Suisse NY 452,945 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,407,343 -------------------------------------------------------------------- GS Mortgage Securities II 1,260,948 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,275,448 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,531,712 -------------------------------------------------------------------- Lehman Brothers Holdings* 171,600 -------------------------------------------------------------------- Merrill Lynch & Co. 588,461 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,458,809 - -------------------------------------------------------------------------------------------------------------------- Global Technology None N/A - -------------------------------------------------------------------------------------------------------------------- Partners International Select Growth None N/A - -------------------------------------------------------------------------------------------------------------------- Partners International Select Value Credit Suisse Group 13,198,329 - -------------------------------------------------------------------------------------------------------------------- Partners International Small Cap None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Credit Suisse Group 791,189 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Goldman Sachs Group 1,322,195 -------------------------------------------------------------------- JPMorgan Chase & Co. 8,071,264 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income JPMorgan Chase & Co. 138,146 - -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha None N/A - -------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity Credit Suisse Group 3,541,191 - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None N/A - -------------------------------------------------------------------------------------------------------------------- Mid Cap Growth TD AmeriTrade Holding 5,944,887 - -------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None N/A - -------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None N/A - -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None N/A - --------------------------------------------------------------------------------------------------------------------
* Subsequent to Aug. 31, 2008. Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. Statement of Additional Information - April 1, 2009 Page 50 BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER Affiliates of the investment manager may engage in brokerage and other securities transactions on behalf of a fund according to procedures adopted by the Board and to the extent consistent with applicable provisions of the federal securities laws. Subject to approval by the Board, the same conditions apply to transactions with broker-dealer affiliates of any subadviser. The investment manager will use an affiliate only if (i) the investment manager determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. Information about any brokerage commissions paid by a fund in the last three fiscal periods to brokers affiliated with the fund's investment manager is contained in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 7. BROKERAGE COMMISSIONS PAID TO INVESTMENT MANAGER OR AFFILIATES
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2009 2008 2007 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- $ 0(a) $ 0 Basic Income - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0(a) 0 Enhanced Income - -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0(a) 0 Moderate Income - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None -- -- -- -- 0 0 Aggressive - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None -- -- -- -- 0 0 Conservative - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 Aggressive - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 Conservative - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total None -- -- -- -- 0 0 Equity - -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Small Company Index None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- 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 - April 1, 2009 Page 51
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity None(b) -- -- -- -- N/A N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None -- -- -- -- 0(c) N/A - -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None -- -- -- -- 0(c) 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 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity -- -- -- -- 0 0 None - -------------------------------------------------------------------------------------------------------------------------- Real Estate None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 52
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management None -- -- -- -- $ 0 $ 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity None 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and None -- -- -- -- 0 0(d) Mid Cap Equity - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small None -- -- -- -- 0 0(e) Cap Value - -------------------------------------------------------------------------------------------------------------------------- Floating Rate None -- -- -- -- 0 0(e) - -------------------------------------------------------------------------------------------------------------------------- Growth None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected None -- -- -- -- 0 0 Securities - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None -- -- -- -- 0 0(f) - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None -- -- -- -- 0 0(f) - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None -- -- -- -- 0 0(f) - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None -- -- -- -- 0(g) N/A Growth - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None(h) -- -- -- -- N/A N/A Value - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Strategic Income None -- -- -- -- 0(g) N/A Allocation - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency None -- -- -- -- 0 0(i) and Income - -------------------------------------------------------------------------------------------------------------------------- Disciplined International None -- -- -- -- 0 0(j) Equity - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond None -- -- -- -- 0 0(k) - -------------------------------------------------------------------------------------------------------------------------- Global Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Global Technology None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International JPMorgan 2 0 -- -- 0 8,149 Select Growth Securities, Inc. - -------------------------------------------------------------------------------------------------------------------------- Partners International Sanford 5 1,677 0.11% 0.04% N/A N/A Select Value Bernstein - --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 53
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 - -------------------------------------------------------------------------------------------------------------------------- Partners International None -- -- -- -- $ 0 $ 0 Small Cap - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging None -- -- -- -- 0 0 Markets - -------------------------------------------------------------------------------------------------------------------------- Threadneedle European None -- -- -- -- 0 0 Equity - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity None(l) -- -- -- -- N/A N/A Income - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global None(l) -- -- -- -- N/A N/A Extended Alpha - -------------------------------------------------------------------------------------------------------------------------- Threadneedle International None -- -- -- -- 0 0 Opportunity - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth -- -- -- -- 0 0 None - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None -- -- -- -- 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None -- -- -- -- 0 0 - --------------------------------------------------------------------------------------------------------------------------
* 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) Affiliate of AllianceBernstein, a subadviser. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (d) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (e) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (f) 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. (g) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (h) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (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. (l) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - April 1, 2009 Page 54 VALUING FUND SHARES As of the end of the most recent fiscal period, the computation of net asset value per share of a class of a fund was based on net assets of that class divided by the number of class shares outstanding as shown in the following table. All expenses of a fund, including the management fee and, as applicable, distribution and plan administration fees, are accrued daily and taken into account for the purpose of determining NAV. 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 $ 186,970,729 22,677,468 $ 8.24 Class B 27,939,305 3,394,885 8.23 Class C 9,281,940 1,126,721 8.24 Class R4 8,257 1,000 8.26 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Class A 164,090,568 21,598,784 7.60 Class B 18,998,046 2,503,256 7.59 Class C 7,980,635 1,051,482 7.59 Class R4 103,837 13,670 7.60 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Class A 338,875,864 43,137,952 7.86 Class B 40,992,857 5,230,164 7.84 Class C 14,003,542 1,784,927 7.85 Class R4 14,829 1,885 7.87 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Class A 294,773,096 45,416,245 6.49 Class B 56,863,918 8,803,125 6.46 Class C 11,330,376 1,765,176 6.42 Class R4 141,064 21,713 6.50 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Class A 145,919,328 17,150,019 8.51 Class B 41,589,703 4,905,272 8.48 Class C 10,602,340 1,249,604 8.48 Class R4 20,746 2,461 8.43 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Class A 664,054,374 87,640,367 7.58 Class B 144,798,038 19,199,873 7.54 Class C 33,449,418 4,433,154 7.55 Class R4 78,368 10,348 7.57 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Class A 644,510,105 91,887,421 7.01 Class B 130,075,493 18,628,806 6.98 Class C 26,360,644 3,778,666 6.98 Class R4 558,316 79,497 7.02 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Class A 257,155,177 32,046,209 8.02 Class B 60,844,849 7,606,644 8.00 Class C 15,772,351 1,971,183 8.00 Class R4 25,381 3,177 7.99 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Class A 245,908,353 40,787,041 6.03 Class B 45,514,660 7,624,879 5.97 Class C 9,263,309 1,558,801 5.94 Class R4 74,311 12,287 6.05 - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 55
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- S&P 500 Index Class D $ 21,470,665 7,875,153 $ 2.73 Class E 87,567,351 32,008,961 2.74 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Small Company Index Class A 280,601,738 99,425,503 2.82 Class B 50,844,680 22,379,419 2.27 Class R4 4,364,248 1,490,973 2.93 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ----------------------------------------------------------------------------------------------------------------- Equity Value Class A 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 - ----------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 56
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 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 - April 1, 2009 Page 57
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ----------------------------------------------------------------------------------------------------------------- High Yield Bond Class A $1,133,624,554 414,428,945 $ 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 - April 1, 2009 Page 58
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 1,166,836,238 151,153,162 7.72 Class B 171,162,689 22,320,646 7.67 Class C 21,336,365 2,787,614 7.65 Class I 196,677,710 25,428,411 7.73 Class R2 N/A N/A N/A Class R3 N/A N/A N/A Class R4 884,486 114,314 7.74 Class R5 N/A N/A N/A Class W 4,393 568 7.73 - ----------------------------------------------------------------------------------------------------------------- Real Estate Class A 86,019,287 7,529,295 11.42 Class B 14,247,297 1,256,751 11.34 Class C 1,419,450 125,279 11.33 Class I 113,290,977 9,895,570 11.45 Class R4 109,251 9,603 11.38 Class W 3,128 275 11.37 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------- Cash Management Class A 4,728,063,840 4,735,985,483 1.00 Class B 85,972,944 86,123,177 1.00 Class C 7,698,464 7,709,484 1.00 Class I 86,515,821 86,572,983 1.00 Class R5 4,990 5,000 1.00 Class W 38,283,118 38,307,096 1.00 Class Y 33,285,660 33,299,232 1.00 - ----------------------------------------------------------------------------------------------------------------- Disciplined Equity Class A 1,067,408,739 181,520,585 5.88 Class B 35,383,368 6,102,723 5.80 Class C 2,787,743 482,134 5.78 Class I 391,424,906 66,059,325 5.93 Class R2 3,886 661 5.88 Class R3 3,892 661 5.89 Class R4 126,215,819 21,367,300 5.91 Class R5 3,897 661 5.90 Class W 1,355,143,677 231,124,956 5.86 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Class A 16,737,687 1,995,771 8.39 Class B 1,001,638 121,121 8.27 Class C 162,845 19,685 8.27 Class I 15,280,626 1,816,335 8.41 Class R4 10,136 1,204 8.42 Class W 6,835,033 817,433 8.36 - ----------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Class A 12,703,109 1,450,722 8.76 Class B 347,557 40,165 8.65 Class C 54,959 6,351 8.65 Class I 22,825,612 2,600,072 8.78 Class R2 3,982 455 8.75 Class R3 3,987 455 8.76 Class R4 8,777 1,000 8.78 Class R5 3,989 455 8.77 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 59
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Floating Rate Class A $ 261,075,201 29,120,778 $ 8.97 Class B 23,136,657 2,580,594 8.97 Class C 19,695,527 2,196,860 8.97 Class I 184,939,822 20,637,515 8.96 Class R4 183,544 20,426 8.99 Class R5 4,995 556 8.98 Class W 4,456 497 8.97 - ----------------------------------------------------------------------------------------------------------------- Growth Class A 1,590,672,418 58,435,801 27.22 Class B 189,224,073 7,631,999 24.79 Class C 13,114,426 530,243 24.73 Class I 326,363,923 11,697,509 27.90 Class R2 4,280 155 27.61 Class R3 4,286 155 27.65 Class R4 55,923,087 2,013,270 27.78 Class R5 4,290 155 27.68 Class W 4,336 157 27.62 - ----------------------------------------------------------------------------------------------------------------- Income Opportunities Class A 138,240,324 14,797,904 9.34 Class B 25,890,499 2,772,741 9.34 Class C 3,872,515 414,776 9.34 Class I 68,474,383 7,321,389 9.35 Class R4 142,584 15,216 9.37 - ----------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Class A 222,999,226 21,714,361 10.27 Class B 36,023,542 3,509,539 10.26 Class C 10,682,613 1,040,718 10.26 Class I 402,165,599 39,165,376 10.27 Class R4 43,246 4,214 10.26 Class W 253,836,343 24,718,020 10.27 - ----------------------------------------------------------------------------------------------------------------- Large Cap Equity Class A 3,388,815,212 750,529,476 4.52 Class B 432,695,950 98,119,285 4.41 Class C 20,752,067 4,701,508 4.41 Class I 38,943,788 8,562,931 4.55 Class R2 3,743 822 4.55 Class R3 3,749 822 4.56 Class R4 179,264,616 39,104,432 4.58 Class R5 3,789 822 4.61 - ----------------------------------------------------------------------------------------------------------------- Large Cap Value Class A 35,085,132 8,397,421 4.18 Class B 7,328,116 1,765,846 4.15 Class C 659,182 159,562 4.13 Class I 11,230,530 2,671,840 4.20 Class R2 3,187 763 4.18 Class R3 3,192 763 4.18 Class R4 21,573 5,115 4.22 Class R5 3,253 763 4.26 - ----------------------------------------------------------------------------------------------------------------- Limited Duration Bond Class A 62,676,888 6,707,418 9.34 Class B 7,350,615 786,840 9.34 Class C 1,600,298 171,367 9.34 Class I 105,609,598 11,296,909 9.35 Class R4 9,369 1,000 9.37 Class W 4,793 512 9.36 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 60
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------- California Tax-Exempt Class A $ 172,038,905 35,097,770 $ 4.90 Class B 4,711,779 961,893 4.90 Class C 2,843,385 579,342 4.91 - ----------------------------------------------------------------------------------------------------------------- Diversified Bond Class A 1,920,027,558 413,143,778 4.65 Class B 254,464,345 54,765,337 4.65 Class C 31,688,522 6,817,452 4.65 Class I 693,189,044 148,965,143 4.65 Class R2 9,610 2,067 4.65 Class R3 9,610 2,067 4.65 Class R4 75,478,505 16,261,328 4.64 Class R5 9,588 2,067 4.64 Class W 655,311,873 140,970,151 4.65 - ----------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Class A 289,301,362 56,564,455 5.11 Class B 13,968,961 2,730,369 5.12 Class C 8,460,353 1,653,947 5.12 - ----------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Class A 52,571,799 10,842,089 4.85 Class B 3,503,352 722,515 4.85 Class C 717,930 148,072 4.85 FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Balanced Class A 634,072,106 69,966,655 9.06 Class B 26,100,296 2,897,118 9.01 Class C 3,748,762 416,783 8.99 Class R4 47,215,934 5,209,145 9.06 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Class A 25,775,970 3,371,206 7.65 Class B 2,911,541 384,045 7.58 Class C 1,725,877 227,595 7.58 Class I 161,645,963 21,034,723 7.68 Class R2 7,654 1,000 7.65 Class R3 7,669 1,000 7.67 Class R4 22,347 2,910 7.68 Class R5 7,680 1,000 7.68 Class W 4,387 573 7.66 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value Class A 394,708 43,191 9.14 Class B 19,345 2,120 9.13 Class C 9,124 1,000 9.12 Class I 8,359,169 914,414 9.14 Class R2 9,129 1,000 9.13 Class R3 9,134 1,000 9.13 Class R4 9,138 1,000 9.14 Class R5 9,142 1,000 9.14 Class W 9,135 1,000 9.14 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 61
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Diversified Equity Income Class A $4,504,417,578 483,974,117 $ 9.31 Class B 633,359,809 67,927,974 9.32 Class C 93,320,596 10,037,632 9.30 Class I 189,996,681 20,429,835 9.30 Class R2 7,727,583 832,912 9.28 Class R3 108,542,942 11,676,683 9.30 Class R4 182,738,003 19,618,165 9.31 Class R5 45,588,984 4,896,103 9.31 Class W 3,363 361 9.32 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Value Class A 1,745,361,398 244,325,635 7.14 Class B 164,379,864 23,826,489 6.90 Class C 54,137,367 7,844,791 6.90 Class I 15,525,593 2,138,378 7.26 Class R2 10,456,777 1,468,157 7.12 Class R3 30,952,140 4,330,118 7.15 Class R4 270,774,444 37,623,411 7.20 Class R5 65,029,360 9,020,432 7.21 Class W 3,638 506 7.19 - ----------------------------------------------------------------------------------------------------------------- Strategic Allocation Class A 1,437,164,150 157,978,918 9.10 Class B 169,089,504 18,763,641 9.01 Class C 59,278,791 6,608,282 8.97 Class I 3,946 434 9.09 Class R2 3,946 434 9.09 Class R3 3,946 434 9.09 Class R4 6,812,658 748,545 9.10 Class R5 3,946 434 9.09 - ----------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Class A 148,194,341 16,594,182 8.93 Class B 18,190,751 2,036,698 8.93 Class C 5,807,175 650,672 8.92 Class R2 4,797 537 8.93 Class R3 4,797 537 8.93 Class R4 4,797 537 8.93 Class R5 4,797 537 8.93 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Class A 175,659,037 17,625,597 9.97 Class B 3,268,605 328,166 9.96 Class C 9,463,358 951,266 9.95 Class I 202,106,353 20,252,851 9.98 Class R4 21,219 2,128 9.97 Class R5 9,399 942 9.98 Class W 303,933,095 30,493,927 9.97 - ----------------------------------------------------------------------------------------------------------------- Disciplined International Equity Class A 56,469,388 9,374,248 6.02 Class B 9,774,655 1,653,855 5.91 Class C 1,125,907 190,230 5.92 Class I 103,041,181 16,963,698 6.07 Class R2 3,062 509 6.02 Class R3 3,064 509 6.02 Class R4 60,625 9,985 6.07 Class R5 3,068 509 6.03 Class W 249,098,785 41,391,645 6.02 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 62
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Class A $ 9,670,545 1,370,967 $ 7.05 Class B 1,178,353 167,178 7.05 Class C 190,923 27,123 7.04 Class I 65,282,310 9,254,282 7.05 Class R4 14,966 2,122 7.05 Class W 104,386,031 14,813,074 7.05 - ----------------------------------------------------------------------------------------------------------------- Global Bond Class A 248,748,168 40,394,613 6.16 Class B 42,399,524 6,810,424 6.23 Class C 4,294,941 695,288 6.18 Class I 205,797,902 33,497,669 6.14 Class R4 118,425 19,229 6.16 Class W 135,156,943 21,988,540 6.15 - ----------------------------------------------------------------------------------------------------------------- Global Technology Class A 68,868,177 41,145,420 1.67 Class B 15,072,741 10,575,597 1.43 Class C 1,965,181 1,374,828 1.43 Class I 4,802 2,785 1.72 Class R4 80,257 47,182 1.70 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Growth Class A 190,233,626 40,703,983 4.67 Class B 29,647,619 6,606,389 4.49 Class C 3,212,928 717,874 4.48 Class I 155,259,864 32,753,046 4.74 Class R4 549,030 116,504 4.71 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Value Class A 659,380,574 131,334,112 5.02 Class B 112,548,353 23,561,229 4.78 Class C 12,609,706 2,647,530 4.76 Class I 95,735,708 18,694,350 5.12 Class R4 557,748 109,344 5.10 - ----------------------------------------------------------------------------------------------------------------- Partners International Small Cap Class A 27,160,173 7,106,419 3.82 Class B 4,963,699 1,344,161 3.69 Class C 450,022 122,028 3.69 Class I 14,279,407 3,686,270 3.87 Class R4 1,481,699 383,999 3.86 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Class A 250,088,197 50,453,378 4.96 Class B 28,179,486 6,354,512 4.43 Class C 3,162,935 711,847 4.44 Class I 7,972 1,558 5.12 Class R4 782,170 152,215 5.14 Class R5 2,746 535 5.13 - ----------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Class A 57,915,534 14,934,494 3.88 Class B 10,080,353 2,636,641 3.82 Class C 954,195 250,456 3.81 Class I 5,191 1,336 3.89 Class R4 13,097 3,360 3.90 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 63
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Class A $ 380,429,958 73,040,390 $ 5.21 Class B 42,166,196 8,654,662 4.87 Class C 4,754,813 985,451 4.83 Class I 3,498 666 5.25 Class R2 3,314 634 5.23 Class R3 3,322 634 5.24 Class R4 5,067,319 963,574 5.26 Class R5 3,329 634 5.25 Class W 3,342 639 5.23 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income Class A 5,428,904 749,581 7.24 Class B 648,517 89,630 7.24 Class C 57,726 7,976 7.24 Class I 3,573,485 493,000 7.25 Class R2 7,248 1,000 7.25 Class R3 7,250 1,000 7.25 Class R4 8,696 1,199 7.25 Class R5 7,248 1,000 7.25 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha Class A 2,207,567 158,009 13.97 Class B 238,583 17,116 13.94 Class C 93,733 6,724 13.94 Class I 3,445,776 246,500 13.98 Class R2 6,979 500 13.96 Class R3 6,984 500 13.97 Class R4 23,241 1,663 13.98 Class R5 6,988 500 13.98 Threadneedle International Opportunity Class A 248,481,494 38,086,295 6.52 Class B 26,534,037 4,183,815 6.34 Class C 1,937,373 308,820 6.27 Class I 72,732,880 11,020,753 6.60 Class R2 3,285 496 6.62 Class R3 3,293 496 6.64 Class R4 167,848 25,145 6.68 Class R5 3,299 496 6.65 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Class A 67,541,537 13,860,690 4.87 Class B 4,766,940 979,243 4.87 Class C 2,312,311 475,008 4.87 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Growth Class A 348,889,713 66,587,189 5.24 Class B 44,292,642 10,090,767 4.39 Class C 2,596,534 591,200 4.39 Class I 53,382,926 9,727,776 5.49 Class R4 2,610,805 484,792 5.39 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Class A 583,790,472 173,452,947 3.37 Class B 19,621,893 5,829,378 3.37 Class C 5,593,015 1,661,152 3.37 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 64
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Class A $2,135,093,331 574,689,338 $ 3.72 Class B 53,720,142 14,466,113 3.71 Class C 12,329,720 3,317,475 3.72 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 138,915,998 138,948,951 1.00 - -----------------------------------------------------------------------------------------------------------------
FOR FUNDS OTHER THAN MONEY MARKET FUNDS. A fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): - Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. - Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market. - Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. - Securities included in the NASDAQ National Market System for which a last- quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices. - Futures and options traded on major exchanges are valued at the last- quoted sales price on their primary exchange. - Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars utilizing spot exchange rates at the close of regular trading on the Exchange. - Occasionally, events affecting the value of securities occur between the time the primary market on which the securities are traded closes and the close of the Exchange. If events materially affect the value of securities, the securities will be valued at their fair value according to procedures decided upon in good faith by the Board. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is likely to be different from the quoted or published price. - Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. - Securities without a readily available market price and securities for which the price quotations or valuations received from other sources are deemed unreliable or not reflective of market value are valued at fair value as determined in good faith by the Board. The Board is responsible for selecting methods it believes provide fair value. - When possible, bonds are valued 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 - April 1, 2009 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 - April 1, 2009 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 - April 1, 2009 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 - April 1, 2009 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 funds may invest in shares of other funds in the RiverSource Family of Funds (referred to in this context as "underlying funds") and may own substantial portions of these underlying funds. The proxy policy of the funds is to ensure that direct public shareholders of underlying funds control the outcome of any shareholder vote. To help manage this potential conflict of interest, recognizing that the direct public shareholders of these underlying funds may represent only a minority interest, the policy of the funds is to vote proxies of the underlying funds in the same proportion as the vote of the direct public shareholders. If there are no direct public shareholders of an underlying fund, the policy is to cast votes in accordance with instructions from the independent members of the Board. OBTAIN A PROXY VOTING RECORD Each year the funds file their proxy voting records with the SEC and make them available by August 31 for the 12-month period ending June 30 of that year. The records can be obtained without charge through riversource.com/funds or searching the website of the SEC at www.sec.gov. Statement of Additional Information - April 1, 2009 Page 69 INVESTING IN A FUND SALES CHARGE FOR FUNDS OTHER THAN MONEY MARKET FUNDS: Investors should understand that the purpose and function of the initial sales charge and distribution fee for Class A shares is the same as the purpose and function of the contingent deferred sales charge ("CDSC") and distribution fee for Class B and Class C shares. The sales charges and distribution fees applicable to each class pay for the distribution of shares of a fund. Shares of a fund are sold at the public offering price. The public offering price is the NAV of one share adjusted for the sales charge for Class A. For Class B, Class C, Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W and Class Y there is no initial sales charge so the public offering price is the same as the NAV. CLASS A - CALCULATION OF THE SALES CHARGE Sales charges are determined as shown in the following tables. The first table is organized by investment category. You can find your fund's investment category in Table 1. TABLE 9. CLASS A 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 - April 1, 2009 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 $ 8.24 0.9525 $ 8.65 - ---------------------------------------------------------------------------------------------- Income Builder Enhanced Income 7.60 0.9525 7.98 - ---------------------------------------------------------------------------------------------- Income Builder Moderate Income 7.86 0.9525 8.25 - ---------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 6.49 0.9425 6.89 - ---------------------------------------------------------------------------------------------- Portfolio Builder Conservative 8.51 0.9525 8.93 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate 7.58 0.9425 8.04 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 7.01 0.9425 7.44 - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 8.02 0.9525 8.42 - ---------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 6.03 0.9425 6.40 - ---------------------------------------------------------------------------------------------- S&P 500 Index (for Class D) 2.73 No sales charge 2.73 - ---------------------------------------------------------------------------------------------- Small Company Index 2.82 0.9425 2.99 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------- Equity Value 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 - ---------------------------------------------------------------------------------------------- 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 7.72 0.9425 8.19 - ---------------------------------------------------------------------------------------------- Real Estate 11.42 0.9425 12.12 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Cash Management 1.00 No sales charge 1.00 - ---------------------------------------------------------------------------------------------- Disciplined Equity 5.88 0.9425 6.24 - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 8.39 0.9425 8.90 - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value 8.76 0.9425 9.29 - ---------------------------------------------------------------------------------------------- Floating Rate 8.97 0.9700 9.25 - ----------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 71
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE - ---------------------------------------------------------------------------------------------- Growth $27.22 0.9425 $28.88 - ---------------------------------------------------------------------------------------------- Income Opportunities 9.34 0.9525 9.81 - ---------------------------------------------------------------------------------------------- Inflation Protected Securities 10.27 0.9700 10.59 - ---------------------------------------------------------------------------------------------- Large Cap Equity 4.52 0.9425 4.80 - ---------------------------------------------------------------------------------------------- Large Cap Value 4.18 0.9425 4.44 - ---------------------------------------------------------------------------------------------- Limited Duration Bond 9.34 0.9700 9.63 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------- California Tax-Exempt 4.90 0.9525 5.14 - ---------------------------------------------------------------------------------------------- Diversified Bond 4.65 0.9525 4.88 - ---------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 5.11 0.9525 5.36 - ---------------------------------------------------------------------------------------------- New York Tax-Exempt 4.85 0.9525 5.09 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced 9.06 0.9425 9.61 - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 7.65 0.9425 8.12 - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Value 9.14 0.9425 9.70 - ---------------------------------------------------------------------------------------------- Diversified Equity Income 9.31 0.9425 9.88 - ---------------------------------------------------------------------------------------------- Mid Cap Value 7.14 0.9425 7.58 - ---------------------------------------------------------------------------------------------- Strategic Allocation 9.10 0.9425 9.66 - ---------------------------------------------------------------------------------------------- Strategic Income Allocation 8.93 0.9525 9.38 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Absolute Return Currency and Income 9.97 0.9700 10.28 - ---------------------------------------------------------------------------------------------- Disciplined International Equity 6.02 0.9425 6.39 - ---------------------------------------------------------------------------------------------- Emerging Markets Bond 7.05 0.9525 7.40 - ---------------------------------------------------------------------------------------------- Global Bond 6.16 0.9525 6.47 - ---------------------------------------------------------------------------------------------- Global Technology 1.67 0.9425 1.77 - ---------------------------------------------------------------------------------------------- Partners International Select Growth 4.67 0.9425 4.95 - ---------------------------------------------------------------------------------------------- Partners International Select Value 5.02 0.9425 5.33 - ---------------------------------------------------------------------------------------------- Partners International Small Cap 3.82 0.9425 4.05 - ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 4.96 0.9425 5.26 - ---------------------------------------------------------------------------------------------- Threadneedle European Equity 3.88 0.9425 4.12 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity 5.21 0.9425 5.53 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 7.24 0.9425 7.68 - ---------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 13.97 0.9425 14.82 - ---------------------------------------------------------------------------------------------- Threadneedle International Opportunity 6.52 0.9425 6.92 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 4.87 0.9700 5.02 - ---------------------------------------------------------------------------------------------- Mid Cap Growth 5.24 0.9425 5.56 - ---------------------------------------------------------------------------------------------- Tax-Exempt Bond 3.37 0.9525 3.54 - ---------------------------------------------------------------------------------------------- Tax-Exempt High Income 3.72 0.9525 3.91 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------- Tax-Exempt Money Market 1.00 No sales charge 1.00 - ----------------------------------------------------------------------------------------------
CLASS A - LETTER OF INTENT (LOI) If you intend to invest $50,000 or more over a period of time, you may be able to reduce the sales charge 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 a fund in the RiverSource Family of Funds. Shareholder completes an LOI to invest $100,000 in funds Statement of Additional Information - April 1, 2009 Page 72 (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in funds' Class A shares in order to fulfill 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 funds other than Class A; does not include any new reinvested dividends and directed dividends earned in any funds during the 13-month period; purchases in funds held within a wrap product; and purchases of 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 A SHARES Class A shares may be sold at net asset value to certain persons since such sales require less sales effort and lower sales-related expenses as compared with sales to the general public. If you are eligible to purchase Class A shares without a sales charge, you should inform your financial advisor, financial intermediary or the transfer agent of such eligibility and be prepared to provide proof thereof. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - Shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. - Participants of "eligible employee benefit plans" including 403(b) plans for which Ameriprise Financial Services, Inc. (Ameriprise Financial Services) serves as broker-dealer, and the school district or group received a written proposal from Ameriprise Financial Services between November 1, 2007 and December 31, 2008 (each a Qualifying 403(b) Plan). In order for participants in one of these 403(b) plans to receive this waiver, at least one participant account of the 403(b) plan must have been funded at Ameriprise Financial Services prior to December 31, 2009. This waiver may be discontinued for any Qualifying 403(b) Plan, in the sole discretion of the distributor, after December 31, 2009. - To participants in retirement and benefit plans made through financial intermediaries that perform participant recordkeeping or other administrative services for the plans and that have entered into arrangements with the funds and/or the distributor specifically for such purchases. 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. Statement of Additional Information - April 1, 2009 Page 73 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. 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 Statement of Additional Information - April 1, 2009 Page 74 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. 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. Statement of Additional Information - April 1, 2009 Page 75 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 2009 IN 2010 IN 2011 IN 2012 IN 2013 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 8,559,573 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 13,065,266 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 19,970,659 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 10,806,229 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 192,230 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 10,391,694 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 13,834,899 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 2,290,537 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 11,256,800 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index 5,965,014 0 942,797 0 0 2,640,220 - -------------------------------------------------------------------------------------------------------------------------- Small Company Index 22,588,242 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2014 IN 2015 IN 2016 IN 2017 IN 2018 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 0 0 0 $ 2,942,103 $ 5,617,470 - ------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 0 0 0 5,920,892 7,144,374 - ------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 0 0 0 7,376,558 12,594,101 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 0 0 0 2,936,474 7,869,755 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 0 0 0 0 192,230 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 0 0 0 7,597,638 2,794,056 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 0 0 0 1,997,917 11,836,982 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 0 0 0 1,062,939 1,227,598 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 0 0 0 3,787,911 7,468,889 - ------------------------------------------------------------------------------------------------------------ S&P 500 Index 235,890 66,065 0 0 2,080,042 - ------------------------------------------------------------------------------------------------------------ Small Company Index 0 0 0 0 22,588,242 - ------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL LOSS AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CARRY- EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING OVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 - -------------------------------------------------------------------------------------------------------------------------- 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 IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 - ------------------------------------------------------------------------------------------------------------ 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 - April 1, 2009 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 APRIL 30 - -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $ 1,239,657 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 343,927,468 0 0 0 343,927,468 0 - -------------------------------------------------------------------------------------------------------------------------- Real Estate 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management 8,101,462 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 17,293,096 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 3,831,834 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Floating Rate 17,326,421 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Growth 202,027,584 0 0 0 178,158,939 0 - -------------------------------------------------------------------------------------------------------------------------- Income Opportunities 12,433,543 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 235,009,471 0 60,717,128 20,982,455 9,473,267 0 - -------------------------------------------------------------------------------------------------------------------------- Large Cap Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 2,491,213 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------- 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 0 - --------------------------------------------------------------------------------------------------------- Real Estate -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------------------------------- Cash Management 0 0 0 6,554 8,094,908 - --------------------------------------------------------------------------------------------------------- Disciplined Equity -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 93,125 21,904 2,186,828 14,991,239 - --------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 0 0 554,680 3,277,154 - --------------------------------------------------------------------------------------------------------- Floating Rate 0 0 33,562 3,488,601 13,804,258 - --------------------------------------------------------------------------------------------------------- Growth 0 0 0 0 23,868,645 - --------------------------------------------------------------------------------------------------------- Income Opportunities 0 0 0 1,946,556 10,486,987 - --------------------------------------------------------------------------------------------------------- Inflation Protected Securities -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Large Cap Equity 0 0 0 0 143,836,621 - --------------------------------------------------------------------------------------------------------- Large Cap Value -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 2,205,797 0 285,416 - ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 77
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 $ 1,415,210 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond 125,823,517 0 56,247,571 49,658,521 0 5,227,159 - -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 2,765,793 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 102,852 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced 718,823,723 0 0 294,910,142 368,676,980 24,886,878 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 5,736,409 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 24,253 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 11,089 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 23,521,188 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 2,399,388 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Global Bond 6,492,562 0 0 3,665,053 0 0 - -------------------------------------------------------------------------------------------------------------------------- Global Technology 348,953,680 0 250,345,326 81,299,227 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 57,544,459 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Partners International Select Value 0 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 16,740,416 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 8,838,403 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 45,298,067 0 19,489,378 16,514,518 5,021,215 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 404,243,287 0 170,490,067 143,634,885 30,509,951 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 182,867 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 577,229 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 246,866,293 0 137,301,860 59,231,998 38,262,972 0 - -------------------------------------------------------------------------------------------------------------------------- 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 0 0 0 $359,905 $1,055,305 - --------------------------------------------------------------------------------------------------------- Diversified Bond 2,996,287 9,840,520 0 0 1,853,459 - --------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 1,199,755 913,006 3,601 0 649,431 - --------------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 0 0 3,668 99,184 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------------------------------- Balanced 0 0 0 0 30,349,723 - --------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 0 0 5,736,409 - --------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0 0 0 24,253 0 - --------------------------------------------------------------------------------------------------------- Diversified Equity Income -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Mid Cap Value -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Strategic Allocation -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0 0 0 0 11,089 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 0 0 23,521,188 0 - --------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 0 2,399,388 0 - --------------------------------------------------------------------------------------------------------- Global Bond 0 498,771 0 2,328,738 0 - --------------------------------------------------------------------------------------------------------- Global Technology 0 0 0 17,309,127 0 - --------------------------------------------------------------------------------------------------------- Partners International Select Growth 0 0 0 57,544,459 0 - --------------------------------------------------------------------------------------------------------- Partners International Select Value -- -- -- -- -- - --------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 0 16,740,416 0 - --------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 0 8,838,403 0 - --------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 0 4,272,956 0 - --------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 0 59,608,384 0 - --------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 0 0 0 182,867 0 - --------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0 0 0 577,229 0 - --------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 0 12,069,463 0 - ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 78
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 538,998 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 21,448,607 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 9,775,831 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 30,950,938 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 675 0 0 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0 $ 177,580 0 $ 361,418 0 - --------------------------------------------------------------------------------------------------------- Mid Cap Growth 0 0 0 21,448,607 0 - --------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 729,270 0 9,046,561 0 - --------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 0 0 30,950,938 0 - --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 675 0 0 0 0 - ---------------------------------------------------------------------------------------------------------
TAXES SUBCHAPTER M COMPLIANCE Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code as a regulated investment company. Each fund intends to maintain its qualification as a regulated investment company by meeting certain requirements relating to distributions, source of income, and asset diversification. Distribution requirements include distributing at least 90% of the fund's investment company taxable income 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. Statement of Additional Information - April 1, 2009 Page 79 A fund may use equalization payments to satisfy its requirement to make distributions of net investment income and capital gain net income. Equalization payments occur when a fund allocates a portion of its net investment income and realized capital gain net income to redemptions of fund shares. These payments reduce the amount of taxable distributions paid to shareholders. The IRS has not issued any guidance concerning the methods used to allocate investment income and capital gain to redemptions of shares. If the IRS determines that a fund is using an improper method of allocation for these purposes, the fund may be liable for additional federal income tax. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state, and local income tax laws to fund distributions. See Appendix B for more information regarding state tax-exempt funds. EXCHANGES 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 Statement of Additional Information - April 1, 2009 Page 80 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). The QDI for individuals for the most recent fiscal period is shown in the table below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 12. CORPORATE DEDUCTION AND QUALIFIED DIVIDEND INCOME
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------- Income Builder Basic Income 13.39% 15.15% - -------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 10.32 14.00 - -------------------------------------------------------------------------------------------------- Income Builder Moderate Income 14.02 16.58 - -------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 36.36 52.12 - -------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 5.23 7.20 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 12.95 18.45 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 20.91 29.91 - -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 8.87 12.44 - -------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 69.21 99.47 - -------------------------------------------------------------------------------------------------- S&P 500 Index 100.00 100.00 - -------------------------------------------------------------------------------------------------- Small Company Index 100.00 100.00 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------- Equity Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Partners Small Cap Growth 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 - -------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 81
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------- High Yield Bond 0% 0% - -------------------------------------------------------------------------------------------------- Partners Aggressive Growth 0 0 - -------------------------------------------------------------------------------------------------- Partners Fundamental Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Partners Select Value 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 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - -------------------------------------------------------------------------------------------------- Dividend Opportunity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Real Estate 1.69 15.81 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------- Cash Management 0 0 - -------------------------------------------------------------------------------------------------- Disciplined Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Floating Rate 0 0 - -------------------------------------------------------------------------------------------------- Growth 100.00 100.00 - -------------------------------------------------------------------------------------------------- Income Opportunities 0 0 - -------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 - -------------------------------------------------------------------------------------------------- Large Cap Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Large Cap Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- Diversified Bond 0 0 - -------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------- Balanced 60.12 64.58 - -------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 100.00 100.00 - -------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0 0 - -------------------------------------------------------------------------------------------------- Diversified Equity Income 100.00 100.00 - -------------------------------------------------------------------------------------------------- Mid Cap Value 100.00 100.00 - -------------------------------------------------------------------------------------------------- Strategic Allocation 52.43 76.74 - -------------------------------------------------------------------------------------------------- Strategic Income Allocation 4.53 3.90 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 82
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0% 0% - -------------------------------------------------------------------------------------------------- Disciplined International Equity 0.54 100.00 - -------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 - -------------------------------------------------------------------------------------------------- Global Bond 0 0 - -------------------------------------------------------------------------------------------------- Global Technology 0 0 - -------------------------------------------------------------------------------------------------- Partners International Select Growth 6.48 100.00 - -------------------------------------------------------------------------------------------------- Partners International Select Value 0 0 - -------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 - -------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 - -------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Equity 100.00 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 100.00 100.00 - -------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0 0 - -------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 100.00 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0 0 - -------------------------------------------------------------------------------------------------- Mid Cap Growth 25.80 25.95 - -------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 0 - -------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 0 - -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 - --------------------------------------------------------------------------------------------------
CAPITAL GAINS DISTRIBUTIONS Capital gain distributions, if any, received by shareholders 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. Statement of Additional Information - April 1, 2009 Page 83 SERVICE PROVIDERS INVESTMENT MANAGEMENT SERVICES RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreements, the investment manager, subject to the policies set by the Board, provides investment management services. For its services, the investment manager is paid a monthly fee based on the following schedule. Each class of a fund pays its proportionate share of the fee. The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. TABLE 13. INVESTMENT MANAGEMENT SERVICES AGREEMENT FEE SCHEDULE
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity First $0.25 0.950% 0.950% Next 0.25 0.930 Next 0.50 0.910 Over 1.0 0.890 - ------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income First 1.0 0.890 0.890 Next 1.0 0.865 Next 1.0 0.840 Next 3.0 0.815 Next 1.5 0.790 Next 1.5 0.775 Next 1.0 0.770 Next 5.0 0.760 Next 5.0 0.750 Next 4.0 0.740 Next 26.0 0.720 Over 50.0 0.700 - ------------------------------------------------------------------------------------------------------------------------------ Balanced First 1.0 0.530 0.530 Next 1.0 0.505 Next 1.0 0.480 Next 3.0 0.455 Next 1.5 0.430 Next 2.5 0.410 Next 5.0 0.390 Next 9.0 0.370 Over 24.0 0.350 - ------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt First 0.25 0.410 California - 0.410 Minnesota Tax-Exempt Next 0.25 0.385 Minnesota - 0.405 New York Tax-Exempt Next 0.25 0.360 New York - 0.410 Next 0.25 0.345 Next 6.5 0.320 Next 2.5 0.310 Next 5.0 0.300 Next 9.0 0.290 Next 26.0 0.270 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 84
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity First 1.0 0.600 Disciplined Equity - 0.575 Disciplined Large Cap Growth Next 1.0 0.575 Disciplined Large Cap Growth - 0.600 Disciplined Large Cap Value Next 1.0 0.550 Disciplined Large Cap Value - 0.600 Diversified Equity Income Next 3.0 0.525 Diversified Equity Income - 0.551 Growth Next 1.5 0.500 Growth - 0.584 Large Cap Equity Next 2.5 0.485 Large Cap Equity - 0.562 Large Cap Value Next 5.0 0.470 Large Cap Value - 0.600 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity First 0.25 0.800 Disciplined International Equity - 0.790 Threadneedle European Equity Next 0.25 0.775 Threadneedle European Equity - 0.800 Threadneedle Global Equity Next 0.25 0.750 Threadneedle Global Equity - 0.789 Threadneedle Global Equity Income Next 0.25 0.725 Threadneedle Global Equity Income - 0.800 Threadneedle International Opportunity Next 1.0 0.700 Threadneedle International Opportunity - 0.793 Next 5.5 0.675 Next 2.5 0.660 Next 5.0 0.645 Next 5.0 0.635 Next 4.0 0.610 Next 26.0 0.600 Over 50.0 0.570 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity First 1.0 0.700 Disciplined Small and Mid Cap Mid Cap Growth Next 1.0 0.675 Equity - 0.700 Next 1.0 0.650 Mid Cap Growth - 0.700 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value First 0.25 0.850 0.850 Next 0.25 0.825 Next 0.25 0.800 Next 0.25 0.775 Next 1.0 0.750 Over 2.0 0.725 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 85
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ Diversified Bond First $1.0 0.480% Diversified Bond - 0.446% Limited Duration Bond Next 1.0 0.455 Limited Duration Bond - 0.480 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 - ------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity First 0.50 0.610 0.584 Next 0.50 0.585 Next 1.0 0.560 Next 1.0 0.535 Next 3.0 0.510 Next 4.0 0.480 Next 5.0 0.470 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 - ------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond First 0.25 0.720 Emerging Markets Bond - 0.720 Global Bond Next 0.25 0.695 Global Bond - 0.699 Next 0.25 0.670 Next 0.25 0.645 Next 6.5 0.620 Next 2.5 0.605 Next 5.0 0.590 Next 5.0 0.580 Next 4.0 0.560 Next 26.0 0.540 Over 50.0 0.520 - ------------------------------------------------------------------------------------------------------------------------------ Equity Value First 0.50 0.530 0.517 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 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 86
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ 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 N/A N/A N/A Income Builder Enhanced Income Income Builder Moderate Income Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 - ------------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities First 1.0 0.440 0.440 Next 1.0 0.415 Next 1.0 0.390 Next 3.0 0.365 Next 1.5 0.340 Next 1.5 0.325 Next 1.0 0.320 Next 5.0 0.310 Next 5.0 0.300 Next 4.0 0.290 Next 26.0 0.270 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 87
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value First 1.0 0.700 0.682 Next 1.0 0.675 Next 1.0 0.650 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 - ------------------------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth First 0.50 0.890 0.885 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 0.992 Next 0.25 0.975 Next 0.25 0.950 Next 0.25 0.925 Next 1.0 0.900 Over 2.0 0.875 - ------------------------------------------------------------------------------------------------------------------------------ Partners International Select Value First 0.25 0.900 0.868 Next 0.25 0.875 Next 0.25 0.850 Next 0.25 0.825 Next 1.0 0.800 Over 2.0 0.775 - ------------------------------------------------------------------------------------------------------------------------------ Partners International Small Cap First 0.25 1.120 1.120 Next 0.25 1.095 Next 0.25 1.070 Next 0.25 1.045 Next 1.0 1.020 Over 2.0 0.995 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 88
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 89
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ Small Company Index First 0.25 0.360 0.357 Next 0.25 0.350 Next 0.25 0.340 Next 0.25 0.330 Next 6.5 0.320 Next 7.5 0.300 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.240 - ------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation First 1.0 0.570 0.560 Next 1.0 0.545 Next 1.0 0.520 Next 3.0 0.495 Next 1.5 0.470 Next 2.5 0.450 Next 5.0 0.430 Next 9.0 0.410 Over 24.0 0.390 - ------------------------------------------------------------------------------------------------------------------------------ Strategic Income Allocation First 0.25 0.550 0.550 Next 0.25 0.525 Next 0.25 0.500 Over 0.75 0.475 - ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond First 1.0 0.410 0.410 Next 1.0 0.385 Next 1.0 0.360 Next 3.0 0.335 Next 1.5 0.310 Next 2.5 0.300 Next 5.0 0.290 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 90
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income First $1.0 0.470% 0.454% Next 1.0 0.445 Next 1.0 0.420 Next 3.0 0.395 Next 1.5 0.370 Next 2.5 0.360 Next 5.0 0.350 Next 9.0 0.340 Next 26.0 0.320 Over 50.0 0.300 - ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market First 1.0 0.330 0.330 Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets First 0.25 1.100 1.100 Next 0.25 1.080 Next 0.25 1.060 Next 0.25 1.040 Next 1.0 1.020 Next 5.5 1.000 Next 2.5 0.985 Next 5.0 0.970 Net 5.0 0.960 Next 4.0 0.935 Next 26.0 0.920 Over 50.0 0.900 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Alpha First 0.25 1.050 1.050 Next 0.25 1.030 Next 0.50 1.010 Next 1.0 0.990 - ------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage First 1.0 0.480 0.480 Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 91 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. 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* - ---------------------------------------------------------------------------------------------- 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 916,530 - ---------------------------------------------------------------------------------------------- Real Estate Lipper Real Estate Funds (190,002) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Disciplined Equity Lipper Large-Cap Core Funds (1,361,345) - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds (79,088) - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value Lipper Small-Cap Value Funds (38,280) - ---------------------------------------------------------------------------------------------- Growth Lipper Large-Cap Growth Funds (3,707,468) - ---------------------------------------------------------------------------------------------- Large Cap Equity Lipper Large-Cap Core Funds (4,214,418) - ---------------------------------------------------------------------------------------------- Large Cap Value Lipper Large-Cap Value Funds (58,120) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced Lipper Balanced Funds (787,804) - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Lipper Large-Cap Growth Funds (106,808) - ---------------------------------------------------------------------------------------------- Disciplined Large Cap Value Lipper Large-Cap Value Funds N/A* - ---------------------------------------------------------------------------------------------- Diversified Equity Income Lipper Equity Income Funds 4,992,605 - ---------------------------------------------------------------------------------------------- Mid Cap Value Lipper Mid-Cap Value Funds 1,681,079 - ---------------------------------------------------------------------------------------------- Strategic Allocation Lipper Flexible Portfolio Funds (1,260,515) - ----------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 92
FEE INCREASE OR FUND LIPPER INDEX (DECREASE) - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Disciplined International Equity Funds $ (213,635) - ---------------------------------------------------------------------------------------------- Lipper Global Science and Technology Global Technology Funds(c) (148,556) - ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Partners International Select Growth Growth Funds (387,870) - ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Value Partners International Select Value Funds (2,449,779) - ---------------------------------------------------------------------------------------------- Partners International Small Cap Lipper International Small-Cap Funds (51,416) - ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Lipper Emerging Markets Funds 507,378 - ---------------------------------------------------------------------------------------------- Threadneedle European Equity Lipper European Funds 19,559 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Lipper Global Funds 393,409 - ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Income MSCI All Country World Index N/A* - ---------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha MSCI All Country World Index N/A* - ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Threadneedle International Opportunity Funds 119,014 - ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Mid Cap Growth Lipper Mid-Cap Growth Funds (965,508) - ----------------------------------------------------------------------------------------------
* 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. (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) The index against which the fund's performance was measured prior to July 1, 2008 was the Lipper Science and Technology Funds Index. See "Change in Index" below. FOR ALL FUNDS NOTED IN TABLE 14 EXCEPT 120/20 CONTRARIAN EQUITY AND THREADNEEDLE GLOBAL EXTENDED ALPHA: The adjustment will be determined monthly by measuring the percentage difference over a rolling 12-month period (subject to earlier determination based on the Transition Period, as set forth below) between the annualized performance of one Class A share of the fund and the annualized performance of the 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. Statement of Additional Information - April 1, 2009 Page 93 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 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 THREADNEEDLE GLOBAL EXTENDED ALPHA: The adjustment will be determined monthly by measuring the percentage difference over a rolling 36-month period (subject to earlier determination based on the Transition Period, as set forth below) between the annualized performance of one Class A share of the fund and the annualized performance of the 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 Statement of Additional Information - April 1, 2009 Page 94 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 - April 1, 2009 Page 95 The table below shows the total management fees paid by each fund for the last three fiscal periods as well as nonadvisory expenses, net of earnings credits, waivers and expenses reimbursed by the investment manager and its affiliates. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 16. MANAGEMENT FEES AND NONADVISORY EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - ------------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - ------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A $ 139,640 $ 103,636(a) $ 145,971 - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 118,255 134,546(a) 153,282 - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 175,842 129,062(a) 202,410 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive N/A N/A N/A* 199,501 168,942 209,004 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A N/A* 146,492 96,147 134,788 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A* 278,861 247,980 246,216 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive N/A N/A N/A* 299,503 247,472 355,360 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative N/A N/A N/A* 170,774 117,533 140,615 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A* 149,589 173,675 188,843 - ------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index $ 371,178 $ 579,548 $ 566,109 (194,370) (254,777) (272,996) - ------------------------------------------------------------------------------------------------------------------------------- (1,171,6- (1,007,3- Small Company Index 1,990,095 3,292,392 3,889,499 27) 06) (662,392) - ------------------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 2008 2007 2006 - ------------------------------------------------------------------------------------------------------------------------------- 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(b) N/A N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A 41 4,075(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A 310 3,927(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A 745 6,231(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A 332 4,478(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A 431 2,766(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A 487 878(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A (796) 2,640(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A (2,131) (2,522)(c) N/A - ------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------- 11,401,8- 12,713,3- High Yield Bond 9,610,810 45 21 665,785 481,606 688,374 - ------------------------------------------------------------------------------------------------------------------------------- (1,047,8- Partners Aggressive Growth 5,729,264 4,627,106 1,950,153 (786,490) 23) (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 - ------------------------------------------------------------------------------------------------------------------------------- (1,025,9- (1,688,3- Short Duration U.S. Government 3,816,196 4,419,003 6,683,201 (771,512) 39) 00) - ------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 1,958,404 1,348,887 1,327,433 (389,262) (438,473) (549,885) - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 96
- ----------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - ----------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------- Dividend Opportunity $12,015,660 $10,678,661 $ 7,688,134 $ 626,341 $ 540,349 $ 480,473 - ----------------------------------------------------------------------------------------------------------------- Real Estate 1,667,040 2,299,121 1,398,778 138,649 207,925 153,244 - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------- Cash Management 15,026,220 12,713,351 10,801,723 1,290,897 859,062 (1,747,535) - ----------------------------------------------------------------------------------------------------------------- Disciplined Equity 17,556,244 14,110,274 5,175,451 726,080 (202,920) (83,131) - ----------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 365,578 273,481 13,335(d) 125,645 91,799 4,577(d) - ----------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 286,759 206,071 49,035(e) 33,868 37,535 9,684(e) - ----------------------------------------------------------------------------------------------------------------- Floating Rate 3,509,190 3,332,472 412,667(e) 293,676 151,486 19,402(e) - ----------------------------------------------------------------------------------------------------------------- Growth 12,541,267 22,705,786 19,922,079 850,735 954,358 1,214,759 - ----------------------------------------------------------------------------------------------------------------- Income Opportunities 1,767,885 2,116,555 2,229,460 196,944 187,627 198,512 - ----------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 2,554,103 1,313,892 1,078,635 (238,396) (126,032) (45,905) - ----------------------------------------------------------------------------------------------------------------- Large Cap Equity 25,467,893 39,667,264 20,724,477 (995,206) 1,168,504 682,652 - ----------------------------------------------------------------------------------------------------------------- Large Cap Value 401,168 602,406 715,200 205,428 184,710 186,504 - ----------------------------------------------------------------------------------------------------------------- Limited Duration Bond 792,200 726,809 990,881 (78,320) (73,339) (96,959) - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------- California Tax-Exempt 715,946 717,999 1,008,174(f) 44,499 20,854 (8,449)(f) - ----------------------------------------------------------------------------------------------------------------- Diversified Bond 14,772,880 12,770,016 12,388,294 (461,298) (1,129,485) (1,870,049) - ----------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 1,246,083 1,351,439 1,898,065(f) 506,328 676,782 599,362(f),(g) - ----------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 242,807 279,438 402,241(f) 75,790 134,099 133,306(f),(g) - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------- Balanced 3,977,541 6,315,077 5,690,832 437,940 368,447 563,493 - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 905,956 114,048(h) N/A 195,661 54,709(h) N/A - ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 6,618(i) N/A N/A 2,877(i) N/A N/A - ----------------------------------------------------------------------------------------------------------------- Diversified Equity Income 44,177,652 42,530,087 37,321,661 1,905,627 1,561,033 1,761,776 - ----------------------------------------------------------------------------------------------------------------- Mid Cap Value 18,813,340 15,908,732 11,459,838 992,201 826,273 728,841 - ----------------------------------------------------------------------------------------------------------------- Strategic Allocation 10,108,947 11,025,000 7,064,937 1,047,907 921,198 665,164 - ----------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 904,660 168,875(h) N/A 294,099 76,656(h) N/A - ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 4,188,137 887,341 176,149(j) 313,877 103,119 28,907(j) - ----------------------------------------------------------------------------------------------------------------- Disciplined International Equity 5,209,129 2,161,563 147,388(k) 512,793 358,005 48,716(k) - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 1,182,004 706,943 191,237(l) 172,124 120,044 77,772(l) - ----------------------------------------------------------------------------------------------------------------- Global Bond 5,074,934 3,438,893 3,734,676 165,694 (17,529) (159,716) - ----------------------------------------------------------------------------------------------------------------- Global Technology 857,290 1,412,081 1,327,883 188,087 187,390 249,939 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Growth 5,965,413 6,048,963 4,039,162 334,550 672,542 530,707 - ----------------------------------------------------------------------------------------------------------------- Partners International Select Value 13,239,202 20,067,871 15,936,398 1,054,830 1,286,758 990,734 - ----------------------------------------------------------------------------------------------------------------- Partners International Small Cap 1,057,146 1,270,558 1,050,011 63,912 208,621 246,920 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 7,352,591 7,106,815 5,659,680 1,138,897 1,190,259 745,246 - ----------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 980,629 952,484 821,750 223,792 199,237 182,061 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 5,825,153 6,075,014 5,791,016 554,139 577,463 517,920 - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 15,723(m) N/A N/A 2,989(m) N/A N/A - ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 16,485(m) N/A N/A 1,122(m) N/A N/A - ----------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 4,661,800 4,923,040 4,840,788 486,074 545,663 505,513 - -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 97
- ---------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES - ---------------------------------------------------------------------------------------------------------------- 2008 2007 2006 2008 2007 2006 - ---------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 291,762 $ 321,011 $ 435,316 $ 2,588 $ (4,565) $ (25,206) - ---------------------------------------------------------------------------------------------------------------- Mid Cap Growth 4,726,590 6,373,531 9,852,112 437,496 241,412 670,574 - ---------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 2,764,541 3,157,092 3,345,629 506,736 (8,650) 905,255 - ---------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 11,447,732 13,006,578 15,027,647 2,984,232 (847,490) 8,025,340 - ---------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 464,177 406,763 390,170 161,459 32,730 118,441 - ----------------------------------------------------------------------------------------------------------------
* Effective Feb. 1, 2006, this fee was eliminated. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (d) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (e) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (f) 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. (g) 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. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. MANAGER OF MANAGERS EXEMPTION The funds have received an order from the SEC that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. For California Tax-Exempt, Cash Management, Diversified Bond, Global Bond, High Yield Bond, Intermediate Tax- Exempt, 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 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. Statement of Additional Information - April 1, 2009 Page 98 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 A 0.70% on the first $20 million, reducing to (effective Sept. 23, 2005) 0.60% as assets increase ------------------------------------------------------------------------------------------------------ Federated MDTA, LLC (MDTA)(a) (effective B 0.60% on the first $75 million, reducing to Sept. 23, 2005) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Turner Investment Partners, Inc. N/A 0.60% on the first $50 million, reducing to (Turner) (effective Aug. 18, 2003) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ UBS Global Asset N/A 0.55% on the first $150 million, reducing to Management (Americas) (UBS) 0.50% as assets increase (effective Aug. 18, 2003) - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive American Century Investment C 0.50% on the first $100 million, reducing to Growth Management, Inc. (American Century) 0.38% as assets increase (effective April 24, 2003) ------------------------------------------------------------------------------------------------------ Turner N/A 0.55% on the first $100 million, reducing to (effective April 24, 2003) 0.38% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Davis Selected Advisers, N/A 0.45% on the first $100 million, reducing to Value LP (Davis)(a), (b) 0.25% as assets increase (effective June 18, 2001) - --------------------------------------------------------------------------------------------------------------------------------- Partners Select Value Systematic Financial Management, D 0.50% on the first $50 million, L.P. (Systematic)(a) reducing to 0.30% as assets (effective Sept. 29, 2006) increase ------------------------------------------------------------------------------------------------------ WEDGE Capital Management N/A 0.75% on the first $10 million, L.L.P. (WEDGE)(a) reducing to 0.30% as assets (effective Sept. 29, 2006) increase - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity American Century C 0.65% on the first $25 million, reducing to (effective Dec. 12, 2003) 0.55% as assets increase ------------------------------------------------------------------------------------------------------ Jennison Associates LLC (Jennison) E 0.55% on all assets (effective Feb. 22, 2008) ------------------------------------------------------------------------------------------------------ Lord, Abbett & Co. LLC N/A 0.65% on the first $100 million, (Lord Abbett) reducing to 0.55% as assets (effective Dec. 12, 2003) increase - --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Barrow, Hanley, Mewhinney & F 1.00% on the first $10 million, Strauss (BHMS)(a) reducing to 0.30% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ Donald Smith & Co., Inc. N/A 0.60% on the first $175 million, (Donald Smith)(a) reducing to 0.55% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ MDTA(a) B 0.60% on the first $75 million, reducing to (effective June 6, 2008) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Metropolitan West Capital Management, LLC G 0.50% on all assets (MetWest Capital) (effective April 24, 2006) - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 99
PARENT FUND SUBADVISER COMPANY FEE SCHEDULE - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------------------------------------------------- Partners International Columbia Wanger Asset Management L.P. H 0.70% on the first $100 million, reducing to Select Growth (Columbia WAM) (effective Sept. 5, 2001) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Principal Global Investors, LLC N/A 0.40% on the first $250 million, reducing to (Principal) (effective April 24, 2006) 0.25% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Partners International AllianceBernstein L.P. N/A 0.65% on the first $75 million, reducing to Select Value (AllianceBernstein) 0.30% as assets increase (effective Sept. 17, 2001) ------------------------------------------------------------------------------------------------------ Mondrian Investment Partners Limited N/A 0.70% on all assets (Mondrian) (effective August 18, 2008) ------------------------------------------------------------------------------------------------------ Tradewinds Global Investors, LLC N/A 0.50% on the first $250 million, reducing to (Tradewinds) (effective August 18, 2008) 0.40 as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Partners International AIG Global Investment Corp. (AIGGIC) I 0.75% on the first $100 million, reducing to Small Cap (effective April 24, 2006) 0.70% as assets increase ------------------------------------------------------------------------------------------------------ Batterymarch Financial Management, Inc. J 0.75% on the first $100 million, reducing to (Batterymarch) (effective April 24, 2006) 0.70% as assets increase - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Threadneedle International Limited(b) K 0.45% of the first $150 million, reducing to Markets (Threadneedle) 0.30% as assets increase, and subject to a (effective July 9, 2004) performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Threadneedle(b) K 0.35% of the first $150 million, reducing to Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.35% of the first $150 million, reducing to Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.45% of the first $250 million, reducing to Equity Income (effective Aug. 1, 2008) 0.35% as assets increase, and subject to a performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.70% of the first $250 million, reducing to Extended Alpha (effective Aug. 1, 2008) 0.60% as assets increase, and subject to a performance incentive adjustment(c) - --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Threadneedle(b) K 0.35% of the first $150 million, reducing to International Opportunity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) - ---------------------------------------------------------------------------------------------------------------------------------
(a) The fee is calculated based on the combined net assets subject to the subadviser's investment management. (b) Davis is a 1940 Act affiliate of the investment manager because it owns or has owned more than 5% of the public issued securities of the investment manager's parent company, Ameriprise Financial. Threadneedle is an affiliate of the investment manager as an indirect wholly-owned subsidiary of Ameriprise Financial. (c) The adjustment for Threadneedle is based on the performance of one Class A share of the fund and the change in the PIA Index described in Table 14. The performance of the fund and the Index will be calculated using the method described above for the performance incentive adjustment paid to the investment manager under the terms of the Investment Management Services Agreement. The amount of the adjustment to Threadneedle's fee, whether positive or negative, shall be equal to 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. A - Essex is majority owned by Affiliated Managers Group. B - Federated MDTA LLC is an indirect subsidiary of Federated Investors, Inc. C - American Century Investment Management, Inc. is a direct, wholly-owned subsidiary of American Century Companies, Inc. Statement of Additional Information - April 1, 2009 Page 100 D - Systematic is an affiliate of Affiliated Managers Group. E - Jennison Associates LLC's sole member is Prudential Investments Management, Inc. which is a direct, wholly-owned subsidiary of Prudential Asset Management Holding Company LLC, which is a direct, wholly-owned subsidiary of Prudential Financial, Inc. F - BHMS is an independent-operating subsidiary of Old Mutual Asset Management. G - MetWest Capital is a majority-owned subsidiary of Evergreen Investments and Wachovia Corporation. H - Columbia WAM is an indirect wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly-owned subsidiary of Bank of America Corporation. I - AIGGIC is an indirect wholly-owned subsidiary of American International Group, Inc. (AIG). J - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason, Inc. K - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise Financial. 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 Former Subadviser: Kenwood 2,318,621 3,180,483 2,856,138 (from May 4, 1999 to Nov. 21, 2008) - ------------------------------------------------------------------------------------------------------------------------------ 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 - April 1, 2009 Page 101
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) - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------ Partners International Columbia WAM 1,557,963 1,568,158 1,264,808 Select Growth -------------------------------------------------------------------------------------------- Principal 1,849,485 1,760,150 632,882(k) -------------------------------------------------------------------------------------------- Former subadviser: American Century Global N/A N/A 821,124(l) Investment Management** (from Jan. 2005 to April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Partners International AllianceBernstein 6,268,208 7,962,307 6,022,579 Select Value -------------------------------------------------------------------------------------------- Mondrian 77,048(m) N/A N/A -------------------------------------------------------------------------------------------- Tradewinds 129,124(m) N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Partners International 355,245 Small Cap AIGGIC 425,696 201,650(k) -------------------------------------------------------------------------------------------- Batterymarch 386,194 439,593 205,659(k) -------------------------------------------------------------------------------------------- Former subadviser: Templeton Investment Counsel, N/A N/A 226,154(l) LLC (Franklin Templeton) (from Oct. 3, 2002 to April 24, 2006) -------------------------------------------------------------------------------------------- Former subadviser: Wellington Management Company, N/A N/A 243,185(l) LLP together with its affiliate Wellington Management International Ltd (from Oct. 3, 2002 to April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets Threadneedle 2,801,637 2,728,720 2,170,719 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle European Equity Threadneedle 443,279 406,594 356,308 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Threadneedle 2,269,177 2,408,387 2,358,731 - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Threadneedle 9,057(n) N/A N/A Income - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Threadneedle 11,750(n) N/A N/A Alpha - ------------------------------------------------------------------------------------------------------------------------------ Threadneedle International Threadneedle 1,907,215 1,895,712 1,948,352 Opportunity - ------------------------------------------------------------------------------------------------------------------------------
* Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource Investments is subject to a minimum annual fee of $350,000, payable to Wellington Management. ** American Century Global Investment Management managed the portion of the Fund's portfolio previously managed by American Century since Sept. 2001. The change of subadviser is the result of corporate restructuring of American Century and did not result in any modifications to the investment objective, principal investment strategies, portfolio managers, or the fees paid by the Fund. (a) For the fiscal period from 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. Statement of Additional Information - April 1, 2009 Page 102 (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. (m) For the fiscal period from Aug. 18, 2008 to Oct. 31, 2008. (n) For the fiscal period from Aug. 1, 2008 to Oct. 31, 2008. Statement of Additional Information - April 1, 2009 Page 103 PORTFOLIO MANAGERS. For funds other than money market funds, the following table provides information about the fund's portfolio managers as of the end of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 19. PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 32 RICs $9.23 billion 9 RICs ($6.78 B) None Basic Income 2 PIVs $595.75 million 15 other accounts $948.29 million --------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $948.29 million None None (9) (27) - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 32 RICs $9.26 billion 9 RICs ($6.78 B) None Enhanced Income 2 PIVs $595.75 million 15 other accounts $948.29 million --------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $981.77 million None None (9) (27) - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 32 RICs $9.06 billion 9 RICs ($6.78 B) $100,001 - Moderate Income 2 PIVs $595.75 million $500,000 15 other accounts $948.29 million --------------------------------------------------------------------------------------- Colin Lundgren 16 RICs $779.16 million None $100,001 - (9) (27) $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $10,001 - Aggressive $50,000 -------------------- ---------- David M. Joy 5 RICs $2.48 billion None None (1) (28) -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $10,001 - Conservative $50,000 -------------------- ---------- David M. Joy 5 RICs $2.64 billion None None (1) (28) -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $50,001 - Moderate $100,000 -------------------- ---------- David M. Joy 5 RICs $2.0 billion None None (1) (28) -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $10,001 - Moderate Aggressive $50,000 -------------------- ---------- David M. Joy None (1) (28) -------------------- ---------- Michelle M. 5 RICs $2.04 billion None None Keeley(c) -------------------- ---------- William F. $50,001 - Truscott(c) $100,000 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $10,001 - Moderate $50,000 Conservative -------------------- ---------- David M. Joy 5 RICs $2.51 billion None None (1) (28) -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $10,001 - Total Equity $50,000 -------------------- ---------- David M. Joy 5 RICs $2.54 billion None $100,000 - (1) (28) $500,000 -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Dimitris Bertsimas 32 RICs $9.44 billion 9 RICs ($6.78 B) None 2 PIVs $595.75 million 15 other accounts $948.29 million (2) (27) --------------------------------------------------------------------------------------- Georgios Vetoulis 2 RICs $511.99 million None None 1 PIV $586.92 million - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 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 - ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index Dimitris Bertsimas 32 RICs $9.12 billion 9 RICs ($6.78 B) None 2 PIVs $595.75 million 15 other accounts $948.29 million (2) (27) --------------------------------------------------------------------------------------- Georgios Vetoulis 2 RICs $186.05 million None None 1 PIV $586.92 million - ----------------------------------------------------------------------------------------------------------------------------------- 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) (29) 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 UBS: Cap 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) (30) 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) (31) ($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) (32) 1 PIV $144.6 million 52 other accounts $567.7 million -------------------------------------------------------------------------------------------------------------- MDTA: Daniel J. Mahr(q) -------------------- Frederick L. Konopka 10 RICs $1.1 billion 4 PIVs $225.1 million None None (7) (33) -------------------- 48 other accounts $6.85 billion Brian M. Greenberg -------------------- Douglas K. Thunen - ----------------------------------------------------------------------------------------------------------------------------------- Precious Metals Clay Hoes 1 PIV $97.2 million None $10,001 - (2),(3) (29) and Mining $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Small Cap SELIGMAN: Advantage Neil T. Eigen(j) 3 RICs $480.10 million None 2 PIVs $173.20 million 1,383 other accounts $4.05 billion ---------------------------------------------------------------------------- Richard S. Rosen(j) 3 RICs $480.10 million None None (2) (34) 2 PIVs $173.20 million 1,383 other accounts $4.01 billion - ----------------------------------------------------------------------------------------------------------------------------------- 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) (29) $500,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (27) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 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 - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (27) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.04 billion None - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (27) 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) (27) 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) (27) 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) (27) 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) (27) 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) (27) 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) (35) $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) (36) Growth Glenn A. Fogle 6 RICs $3.98 billion -------------------- Brad Eixmann 2 other accounts $148.74 million -------------------------------------------------------------------------------------------------------------- TURNER: None (5) (31) Christopher K. 15 RICs $4.4 billion 3 RICs ($885 M); McHugh 28 PIVs $586.0 million 3 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) (38) 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) (39) -------------------- Paul M. VeZolles 201 other accounts $3.0 billion - -----------------------------------------------------------------------------------------------------------------------------------
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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) (36) 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) (40) John Mullman 3 RICs $3.06 billion 3 PIVs 8 PIVs $775.81 million ($85.6 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) (41) 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) (42) 37 other accounts $2.23 billion Richard L. Greenberg -------------------------------------------------------------------------------------------------------------- MDTA: Daniel J. Mahr(r) -------------------- 10 RICs $1.13 billion 4 PIVs $240.5 million None None (7) (33) 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) (43) 16 other accounts $716.2 million John P. Harloe -------------------------------------------------------------------------------------------------------------- METWEST: Samir Sikka 4 RICs $347.8 million 3 PIVs $61.2 million None None (18) (44) 9 other accounts $54.4 million - ----------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Todd White(n) 10 RICs $9.78 billion 3 RICs ($1.01 B); Government 5 PIVs $1.66 billion 1 other account None (2) (35) 40 other accounts(d) $16.02 billion $(113.3 M) --------------------------------------------------------------------------------------- John McColley(n) None N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government Todd White(n) N/A N/A N/A N/A (2) (35) Mortgage - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ----------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Warren Spitz $500,001 - $1,000,000 -------------------- ---------- Steve Schroll 11 RICs $14.7 billion $100,001 - (2) (29) 1 PIV $26.73 million 6 RICs ($14.24 B) $500,000 -------------------- ---------- Laton Spahr 8 other accounts(d) $380.85 million $100,001 - $500,000 -------------------- ---------- Paul Stocking $50,001 - $100,000 - ----------------------------------------------------------------------------------------------------------------------------------- Real Estate Julene Melquist None None None $10,001 - (2),(3) (29) $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Dimitris Bertsimas 22 RICs $3.74 billion 5 RICs ($2.32 B) $100,001 - 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million --------------------------------------------------------------------------------------- (2) (27) Gina Mourtzinou 4 RICs $1.58 billion 4 RICs ($1.58 B) $50,001 - 5 other accounts $136.55 million $100,000 - -----------------------------------------------------------------------------------------------------------------------------------
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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 22 RICs $6.68 billion 5 RICs ($5.26 B) $100,001 - and Mid Cap Equity 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) None (2) (27) 5 other accounts $136.55 million --------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 - 1 other account $10.19 million $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.27 B) $100,001 - Cap Value 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) $10,001 - (2) (27) 5 other accounts $136.55 million $50,000 --------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 - 1 other account $10.19 million $50,000 - ----------------------------------------------------------------------------------------------------------------------------------- Floating Rate Lynn Hopton 11 PIVs $5.02 billion None -------------------- --------------- Yvonne Stevens 3 other accounts $496.12 million None --------------------------------------------------------- ---------- Steve Staver(l) 10 PIVs $4.65 billion None None (2) (45) 3 other accounts $507.57 million - ----------------------------------------------------------------------------------------------------------------------------------- Growth SELIGMAN: Erik J. Voss(l) 8 RICs $2.60 billion None None (2) (34) 20 other accounts $179.40 million - ----------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Brian Lavin 1 RIC $871.16 million $50,001 - 1 PIV $7.02 million None $100,000 (2) (35) 1 other account $608.42 million --------------------------------------------------------- ---------- Jennifer Ponce de 5 RICs $11.59 billion $10,001 - Leon 1 PIV $7.02 million $50,000 8 other accounts $2.05 billion - ----------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Margaret Brandt(n) None N/A N/A None --------------------------------------------------------------------------------------- Securities Todd White(n) 11 RICs $10.53 billion 3 RICs ($1.01 B); None (2) (35) 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Dimitris 24 RICs $5.96 billion 7 RICs ($4.62 B) None (2) (27) Bertsimas(l) 2 PIVs $21.11 million 15 other accounts $3.31 billion ---------------------------------------------------------------------------- Gina Mourtzinou(l) 6 RICs $4.04 billion 6 RICs ($4.04 B) 5 other accounts $118.86 million - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Warren Spitz(l) 12 RICs $14.57 billion -------------------- Steve Schroll(l) 2 PIVs $27.55 million 7 RICs ($14.11 B) None (2) (29) -------------------- Laton Spahr(l) -------------------- Paul Stocking(l) 8 other accounts $441.14 million - ----------------------------------------------------------------------------------------------------------------------------------- Limited Duration Tom Murphy 5 RICs $9.93 billion 3 RICs ($1.32 B) $50,001 - Bond 2 PIVs $885.02 million $100,000 14 other accounts $10.75 billion --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35) --------------------------------------------------------------------------------------- Todd White(n) 10 RICs $10.37 billion 3 RICs ($1.01 B); None 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------------------------- California Tax- 5 RICs $3.68 billion Exempt 11 other accounts $7.38 billion - -------------------- ------------------------------------ Minnesota Tax-Exempt Catherine Stienstra 5 RICs $3.55 billion None None (2) (35) 11 other accounts $7.38 billion - -------------------- ------------------------------------ New York Tax-Exempt 5 RICs $3.80 billion 11 other accounts $7.38 billion - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Tom Murphy 5 RICs $6.55 billion 3 RICs ($1.33 B) $50,001 - 2 PIVs $880.06 million $100,000 14 other accounts $10.90 billion --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35) --------------------------------------------------------------------------------------- Todd White(n) 10 RICs $7.34 billion 3 RICs ($1.01 B); None 5 PIVs $1.66 billion 1 other account 40 other accounts(d) $16.02 billion ($113.3 M) - -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUND WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Balanced Warren Spitz(l) None -------------------- ---------- Steve Schroll(l) 12 RICs $14.57 billion None -------------------- ---------- Laton Spahr(l) 2 PIVs $27.55 million 7 RICs ($14.11 B) $1 - (2) (29) $10,000 -------------------- ---------- Paul Stocking(l) 8 other accounts(d) $441.14 million None -------------------------------------------------------------------------------------------------------------- Tom Murphy 5 RICs $9.77 billion $10,001 - 2 PIVs $870.92 million 2 RICs ($996.38 M) $50,000 14 other accounts $10.19 billion --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35) --------------------------------------------------------------------------------------- Todd White(n) 10 RICs $10.32 billion 2 RICs ($801.35 None 5 PIVs $1.66 billion M); 40 other accounts(d) $16.02 billion 1 other account ($113.3 M) - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 23 RICs $5.77 million 6 RICs ($4.42 B) None Large Cap 2 PIVs $21.11 million Growth 15 other accounts $3.31 billion (2) (27) --------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $3.85 billion 5 RICs ($3.85 B) None 5 other accounts $118.86 million - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 23 RICs $5.95 million 6 RICs ($4.61 B) None Large Cap 2 PIVs $21.11 million Value 15 other accounts $3.31 billion (2) (27) --------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $4.03 billion 5 RICs ($4.03 B) None 5 other accounts $118.86 million - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Warren Spitz $50,001 - Income $100,000 -------------------- ---------- Laton Spahr 11 RICs $8.78 billion $100,001 - $500,000 -------------------- ---------- Steve Schroll 2 PIVs $27.55 million 6 RICs ($8.32 B) $50,001 - (2) (29) $100,000 -------------------- ---------- Paul Stocking 8 other accounts(d) $441.14 million $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Warren Spitz $50,001 - $100,000 -------------------- ---------- Laton Spahr 11 RICs $12.21 billion $100,001 - $500,000 -------------------- ---------- Steve Schroll 2 PIVs $27.55 million 6 RICs ($11.75 B) $50,001 - (2) (29) $100,000 -------------------- ---------- Paul Stocking 8 other accounts(d) $441.14 million $100,001 - $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Tom Murphy 5 RICs $9.47 billion 2 RICs ($699.76 M) $100,001 - Allocation 2 PIVs $870.92 million $500,000 14 other accounts $10.19 billion --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35) --------------------------------------------------------------------------------------- Todd White(n) 10 RICs $10.07 billion 2 RICs ($549.42 None 5 PIVs $1.66 billion M); 40 other accounts(d) $16.02 billion 1 other account ($113.3 M) -------------------------------------------------------------------------------------------------------------- Dimitris Bertsimas 23 RICs $4.85 billion 6 RICs ($3.5 B) Over (2) (27) 2 PIVs $21.11 million $500,000 15 other accounts $3.31 billion --------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $2.93 billion 5 RICs ($2.93 B) $100,001 - 5 other accounts $118.86 million $500,000 --------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $573.80 million 1 RIC ($573.8 M) $1 - $10,000 --------------------------------------------------------------------------------------- Steve E. Kokkotos 2 RICs $69.74 million 2 RICs ($69.74 M) $100,001 - 1 other account $9.26 million $500,000 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Income Dimitris Bertsimas 23 RICs $5.95 billion 7 RICs ($4.62 B) None Allocation 2 PIVs $21.11 million 15 other accounts $3.31 billion (2) (27) --------------------------------------------------------------------------------------- Colin Lundgren 17 RICs $1.76 billion None None - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- Absolute Return Nicholas Pifer 7 RICs $10.79 billion None $50,001 - (2) (35) Currency and 6 PIVs $284.56 million $100,000 Income 11 other accounts $3.27 billion - -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 23 RICs $4.53 billion 6 RICs ($3.35 B) $100,001 - International 2 PIVs $19.28 million $500,000 Equity 15 other accounts $2.88 billion (2) (27) --------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $837.35 million 1 RIC ($837.35 M) $1 - $10,000 - ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Nicholas Pifer 7 RICs $11.31 billion None $10,001 - (2) (35) Bond 6 PIVs $284.56 million $50,000 11 other accounts $3.27 billion --------------------------------------------------------- ---------- Jim Carlene(m) 4 PIVs $312.86 million None 3 other accounts $170.11 million - ----------------------------------------------------------------------------------------------------------------------------------- Global Bond Nicholas Pifer 7 RICs $10.85 billion None $50,001 - (2) (35) 6 PIVs $284.56 million $100,000 11 other accounts $3.27 billion - ----------------------------------------------------------------------------------------------------------------------------------- Global SELIGMAN: Technology Richard M. 4 RICs $2.40 billion 2 PIVs ($1.5B); None (2) (46) Parower(o) 5 PIVs $1.50 billion 2 other accounts 6 other accounts $186.40 ($183.7 M) million(p) --------------------------------------------------------- Paul H. Wick(o) 4 RICs $2.40 billion 5 PIVs $1.50 billion 6 other accounts $185.60 million(p) --------------------------------------------------------- Reema D. Shah(o) 4 RICs $2.40 billion 5 PIVs $1.50 billion 5 other accounts $186.40 million(p) --------------------------------------------------------- Ajay Diwan(o) 4 RICs $2.40 billion 5 PIVs $1.50 billion 5 other accounts $189.20 million(p) ---------------------------------------------------------------------------- Benjamin Lu(o) 2 RICs $204.50 million None 2 PIVs $31.20 million 1 other account $0.05 million(p) - ----------------------------------------------------------------------------------------------------------------------------------- Partners COLUMBIA WAM: International P. Zachary Egan 1 RIC $3.0 billion None None (20) (47) Select Growth --------------------------------------------------------- Louis J. Mendes 2 RICs $4.0 billion -------------------------------------------------------------------------------------------------------------- PRINCIPAL: John Pihlblad 2 RICs $1.31 billion None None (21) (48) 2 PIVs $95.93 million 9 other accounts $987.26 million --------------------------------------------------------- Steven Larson 2 RICs $1.32 billion 2 PIVs $93.40 million 9 other accounts $987.26 million - -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION - ----------------------------------------------------------------------------------------------------------------------------------- Partners ALLIANCEBERNSTEIN: International Select Kevin F. Simms 132 RICs $46.32 billion 3 RICs ($6.66 B); Value 168 PIVs $24.39 billion 9 PIVs ($1.17 B); 39,323 other $106.60 billion 139 other accounts accounts ($12.51 B) ---------------------------------------------------------------------------- Henry S. D'Auria 89 RICs $27.28 billion 2 RICs ($2.74 B); 103 PIVs $18.93 billion 7 PIVs ($563 M); 953 other $78.52 billion 131 other accounts accounts ($11.85 B) ---------------------------------------------------------------------------- Sharon E. Fay 132 RICs $46.32 billion 3 RICs ($6.66 B); 156 PIVs $21.41 billion 8 PIVs ($563 M); 39,323 other $106.60 billion 139 other accounts accounts ($12.51 B) ---------------------------------------------------------------------------- Marilyn G. Fedak 120 RICs $45.86 billion 3 RICs ($6.66 B); None (22) (49) 140 PIVs $17.32 billion 3 PIVs ($217 M); 39,230 other $89.62 billion 110 other accounts accounts ($7.76 B) ---------------------------------------------------------------------------- John P. Mahedy 119 RICs $45.62 billion 3 RICs ($6.66 B); 139 PIVs $17.20 billion 3 PIVs ($217 M); 39,211 other $88.11 billion 101 other accounts accounts ($7.55 B) ---------------------------------------------------------------------------- Giulio Martini 71 RICs $25.49 billion 2 RICs ($2.74 B); 106 PIVs $21.29 billion 8 PIVs ($1.13 B); 811 other $62.13 billion 105 other accounts accounts ($8.1 B) -------------------------------------------------------------------------------------------------------------- MONDRIAN: Ormala Krishnan 1 RIC $265.0 million None None (11) (50) 1 PIV $141.90 million 7 other accounts $528.80 million -------------------------------------------------------------------------------------------------------------- TRADEWINDS: Paul J. Hechmer 4 RICs $942.62 million 1 other account None (16) (51) 9 PIVs $560.69 million ($59.17 M) 49,903 other $11.14 billion accounts - ----------------------------------------------------------------------------------------------------------------------------------- Partners AIGGIC: International Small Chantal Brennan 2 RICs $347.0 million 3 other accounts Cap 4 PIVs $323.0 million ($90 M) 8 other accounts $255.0 million ---------------------------------------------------------------------------- Midori Katsumi 1 RIC $7.0 million 4 other accounts None (23) (52) 1 PIV $58.0 million ($200 M) 7 other accounts $269.0 million ---------------------------------------------------------------------------- Elizabeth Soon 2 RICs $69.0 million 3 other accounts 2 PIVs $53.0 million ($27 M) 7 other accounts $80.0 million -------------------------------------------------------------------------------------------------------------- BATTERYMARCH: Adam Petryk 8 RICs $2.36 billion None None (24) (53) 19 PIVs $1.45 billion 34 other accounts $3.66 billion --------------------------------------------------------- Charles F. Lovejoy 4 RICs $1.22 billion -------------------- Christopher W. 12 PIVs $669.86 million Floyd 22 other accounts $2.34 billion - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Emerging Markets Julian A.S. Thompson 1 RIC $695.16 million 1 RIC ($695.16 M) None(k) (19) (54) Jules Mort 1 PIV $26.09 million 2 other accounts $18.74 million - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: European Equity Rob Jones 1 PIV $32.78 million None None(k) (19) (54) 1 other account $184.29 million - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Global Equity Stephen Thornber 1 RIC $9.58 million 1 RIC ($9.58 M) None(k) (19) (54) 1 PIV $7.73 million 3 other accounts $346.56 million ---------------------------------------------------------------------------- Andrew Holliman 1 RIC $6.0 million 1 RIC ($6 M) 2 PIVs $404.78 million 2 other accounts $309.49 million - -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Global Equity Income Stephen Thornber 1 RIC $432.44 million 1 RIC ($432.44 M) None(k) (19) (54) 1 PIV $7.73 million 3 other accounts $346.56 million ---------------------------------------------------------------------------- Jeremy Podger 1 RIC $6.0 million 1 RIC ($6 M) 2 PIVs $10.58 million 2 other accounts $221.36 million - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Global Extended Andrew Holliman 1 RIC $432.44 million 1 RIC ($432.44 M) None(k) (19) (54) Alpha 2 PIVs $404.78 million 2 other accounts $309.49 million ---------------------------------------------------------------------------- Jeremy Podger 1 RIC $9.58 million 1 RIC ($9.58 M) 2 PIVs $10.58 million 2 other accounts $221.36 million - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: International Alex Lyle 1 RIC $9.85 billion 1 RIC ($9.85 B) None(k) (19) (54) Opportunity 28 PIVs $834.30 million 11 other accounts $415.43 million --------------------------------------------------------- Esther Perkins 1 RIC $9.85 billion 1 other account $184.29 million - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Catherine Stienstra 5 RICs $3.30 billion None None (2) (35) Tax-Exempt 11 other accounts $6.33 billion - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap John K. Schonberg 2 RICs $256.55 million 2 RICs None (2) (55) Growth 2 PIVs $15.93 million ($256.55 M) 3 other accounts $2.61 million -------------------------------------------------------------------------------------------------------------- Sam Murphy 1 RIC $246.40 million 1 RIC ($246.4 M) None (2),(3) (55) -------------------- Mike Marzolf - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Catherine Stienstra 5 RICs $2.77 billion None None (2) (36) Bond 11 other accounts $6.33 billion - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Catherine Stienstra 5 RICs $1.18 billion None None (2) (35) High Income 11 other accounts $6.33 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 the funds and for making recommendations to the Boards of Directors on changes to those subadvisers. (c) Ms. Keeley, who serves as Executive Vice President -- Equity and Fixed Income for RiverSource Investments, and Mr. Truscott, who serves as Chief Investment Officer for RiverSource Investments, oversee the portfolio managers who manage other accounts for RiverSource Investments, including the underlying funds in which the Funds-of-Funds invest, and other accounts managed by RiverSource Investments and its affiliates including institutional assets, proprietary assets and hedge funds. (d) Reflects each wrap program strategy as a single client, rather than counting each participant in the program as a separate client. (e) Wrap accounts have been counted at the sponsor level. (f) Neither Christopher Davis nor Kenneth Feinberg own any shares of RiverSource Partners Fundamental Value Fund. However, both portfolio managers have over $1 million invested in the Davis Funds, which are managed in a similar style. (g) Other accounts exclude the assets and number of accounts in wrap fee programs that are managed using model portfolios. (h) Mr. Mullman only manages a portion of the accounts subject to a performance fee. The total assets shown reflect the portion of those accounts managed by Mr. Mullman. (i) Michael T. Smith does not own any shares of RiverSource Partners Small Cap Equity Fund. However, he invests in the Lord Abbett Small Cap Blend Fund, which is managed in a similar style. (j) The portfolio manager began managing the fund after its last fiscal year end; therefore reporting information is as of Dec. 31, 2007. (k) The fund is available for sale only in the U.S. The portfolio manager(s) do not reside in the U.S. and therefore do not hold any shares of the fund. (l) The portfolio manager began managing the fund after its last fiscal year end; therefore reporting information is as of Sept. 30, 2008. (m) The portfolio manager began managing the fund after its last fiscal year end; reporting information is as of Oct. 31, 2008. (n) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of Jan. 31, 2009. (o) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of Nov. 17, 2008. (p) Includes accounts managed in a personal capacity, the amounts for which are provided as of Nov. 30, 2008. (q) The portfolio manager began managing the fund as of Jan. 1, 2009; reporting information is as of March 31, 2008. (r) The portfolio manager began managing the fund as of Jan. 1, 2009; reporting information is as of May 31, 2008. POTENTIAL CONFLICTS OF INTEREST (1) Management of Funds-of-Funds differs from that of the other funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Statement of Additional Information - April 1, 2009 Page 112 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 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. Statement of Additional Information - April 1, 2009 Page 113 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) N/A (9) Management of the Income Builder and Retirement Plus Funds-of-Funds differs from that of the other funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on proprietary, quantitative techniques and qualitative review of the quantitative output. Using these methodologies, a group of RiverSource investment professionals allocates each fund's assets within and across different asset classes in an effort to achieve the fund's objective of providing a high level of current income and growth of capital. After the initial allocation, the fund will be rebalanced monthly in an effort to maximize the level of income and capital growth, incorporating various measures of relative value subject to constraints that set minimum or maximum exposure within asset classes, as set forth in the prospectus. Within the equity and fixed income asset classes, the quantitative model establishes allocations for the funds, seeking to achieve each fund's objective by investing in defined investment categories. The target allocation range constraints are intended, in part, to promote diversification within the asset classes. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include: - In certain cases, the portfolio managers of the underlying funds are the same as the portfolio managers of the Income Builder and Retirement Plus Funds-of-Funds, and could influence the allocation of funds-of-funds assets to or away from the underlying funds that they manage. - RiverSource Investments, LLC and its affiliates may receive higher compensation as a result of allocations to underlying funds with higher fees. - RiverSource Investments, LLC monitors the performance of the underlying funds and may, from time to time, recommend to the board of directors of the funds a change in portfolio management or fund strategy or the closure or merger of an underlying fund. In addition, RiverSource Investments, LLC may believe that certain funds may benefit Statement of Additional Information - April 1, 2009 Page 114 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 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) Mondrian does not foresee any material conflicts of interest that may arise in the management of the funds and any other accounts managed with similar investment guidelines. Mondrian acts solely as an investment manager and does not engage in any other business activities. The following is a list of some potential conflicts of interest that can arise in the course of normal investment management business activities. Mondrian maintains and operates various policies and procedures which are designed to prevent or manage any of the conflicts identified below so that the interests of its clients are always put ahead of Mondrian's own interests or those of its employees and directors: Allocation of aggregated trades Mondrian may from time to time aggregate trades for a number of its clients. Mondrian's policy requires that all allocations of aggregated trades must be fair between clients. Transactions involving commingled orders are allocated in a manner deemed equitable to each account. When a combined order is executed in a series of transactions, at different prices, each account participating in the order may be allocated an average price obtained from the broker/dealer. When a trade can be allocated in a cost efficient manner to our clients, it will be prorated across all participating accounts. Mondrian may randomly allocate purchases or sales among participating Statement of Additional Information - April 1, 2009 Page 115 accounts when the amounts involved are too small to be evenly proportioned in a cost efficient manner. In performing random allocations, Mondrian will consider consistency of strategy implementation among participating accounts. Allocation of investment opportunities Mondrian is an investment manager of multiple client portfolios. As such, it has to ensure that investment opportunities are allocated fairly between clients. There is a potential risk that Mondrian may favor one client over another client in making allocations of investment opportunities. Mondrian makes security selection decisions at committee level. Those securities identified as investment opportunities are added to a list of approved securities; portfolios will hold only such approved securities. All portfolios governed by the same or a similar mandate will be structured similarly (that is, will hold the same or comparable stocks), and will exhibit similar characteristics. Sale and purchase opportunities identified at regular investment meetings will be applied to portfolios across the board, subject to the requirements of individual client mandates. See also "Side-by-side management of hedge funds" below. Allocation of IPO opportunities Initial Public Offerings ("IPO's") present a potential conflict of interest when they are priced at a discount to the anticipated secondary market price and the issuer has restricted or scaled back its allocation due to market demand. In such instances, the IPO allocation could be divided among a small select group of clients with others not receiving the allocation they would otherwise be entitled to. Mondrian clients with relevant mandates are given an equal opportunity, proportionate to the size of their portfolio, to participate in IPO trades. All IPO purchases are allocated on a strict pro-rata basis. Dealing in investments as principal in connections with the provision of seed capital A conflict of interest exists when a portfolio management firm manages its own money alongside client money. Mondrian generally does not trade for its own account. However, Mondrian and its affiliates have provided the seed capital to certain investment vehicles that have been established by Mondrian group entities. Mondrian serves as the investment manager to these investment vehicles. Mondrian operates dealing policies designed to ensure the fair and equal treatment of all clients e.g. the allocation of aggregated trades among clients. These policies ensure that any portfolios in which Mondrian has an investment interest do not receive favorable treatment relative to other client portfolios. Directorships and external arrangements Certain Mondrian staff may hold positions in external organizations. There is a potential risk that Mondrian personnel may place their own interests (resulting from outside employment/directorships) ahead of the interests of Mondrian clients. Before accepting an executive or non-executive directorship or any other appointment in another company, employees, including executive directors, must obtain the prior approval of the Chief Executive Officer. The Chief Compliance Officer must also be informed of all such appointments and changes. The CEO and CCO will only permit appointments that would not present a conflict of interest with the individual's responsibilities to Mondrian clients. Dual agency Dual Agency (also known as Cross Trading) concerns those transactions where Mondrian may act as agent for both the buyer and seller. In such circumstances there is a potential conflict of interest as it may be possible to favor one client over another when establishing the execution price and/or commission rate. Although it rarely does so, Mondrian may act as agent for both buying and selling parties with respect to transactions in investments. If Mondrian proposes to act in such capacity, the Portfolio Manager will first obtain approval from the Chief Compliance Officer. The CCO has an obligation to ensure that both parties are treated fairly in any such trade. Employee personal account dealing There are a number of potential conflicts when staff of an investment firm engage in buying and selling securities for their personal account. Mondrian has arrangements in place to ensure that none of its directors, officers or employees (or persons connected to them by way of a business or domestic relationship) effects any transaction on their own account which conflicts with client interests. Mondrian's rules which govern personal account dealing and general ethical standards are set out in the Mondrian Investment Partners Code of Ethics. Statement of Additional Information - April 1, 2009 Page 116 Gifts and entertainment (received) In the normal course of business Mondrian employees may receive gifts and entertainment from third parties e.g. brokers and other service providers. This results in a potential conflict of interest when selecting third parties to provide services to Mondrian and its clients. Mondrian has a policy which requires that gifts and entertainment received are reported to the Chief Compliance Officer (any items in excess of L100 require pre-approval). All gifts and entertainment are reviewed to ensure that they are not inappropriate and that staff have not been unduly influenced by them. Gifts and entertainment (given) In the normal course of business, Mondrian employees may provide gifts and entertainment to third parties. Excessively lavish gifts and entertainment would be inappropriate. Mondrian has a policy which requires that any gifts and entertainment provided are reported to the Chief Compliance Officer (any items in excess of L200 require pre-approval). All gifts and entertainment are reviewed to ensure that they are not inappropriate and that staff have not attempted to obtain undue influence from them. Performance fees Where an investment firm has clients with a performance fee arrangement there is a risk that those clients could be favored over clients without performance fees. Mondrian charges fees as a proportion of assets under management. In a very limited number of situations, in addition to this fee basis, certain accounts also include a performance fee basis. The potential conflict of interest arising from these fee arrangements is addressed by Mondrian's procedures for the allocation of aggregated trades among clients. Investment opportunities are allocated totally independently of fee arrangements. Side-by-side management of hedge funds (Mondrian Alpha Funds) Where an investment manager has responsibility for managing long only portfolios alongside portfolios that can take short positions there is potential for a conflict of interest to arise between the two types of portfolio. Mondrian acts as investment manager for two Fixed Income Alpha and one Equity Alpha fund. The Alpha Funds are permitted to take short positions and are also permitted to invest in some or all of the same securities that Mondrian manages for other clients. Mondrian is satisfied that the investment styles of these different products significantly reduce the likelihood of a conflict of interest arising. However, Mondrian has a number of policies and procedures in place that are designed to ensure that any potential conflicts are correctly managed and monitored so that all clients are treated fairly. Soft dollar arrangements Where an investment manager has soft dollar arrangements in place with a broker/dealer there is a potential conflict of interest as trading volumes through that broker/dealer are usually important in ensuring that soft dollar targets are met. As is typical in the investment management industry, Mondrian client funds are used to pay brokerage commissions for the execution of transactions in the client's portfolio. As part of that execution service, brokers generally provide proprietary research to their clients as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; and providing information on economic factors and trends. Proprietary research may be used by Mondrian in connection with its investment decision-making process with respect to one or more accounts managed by it, and it may or may not be used, or used exclusively, with respect to the account generating the brokerage. With the exception of the receipt of proprietary research, Mondrian has no other soft dollar or commission sharing arrangements in place with brokers. (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 Statement of Additional Information - April 1, 2009 Page 117 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 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 Statement of Additional Information - April 1, 2009 Page 118 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) Tradewinds recognizes that actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one account. More specifically, Tradewinds, because it manages multiple accounts is presented with several potential conflicts and it seeks to manage these conflicts as follows: - The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Tradewinds seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most accounts managed by a portfolio manager in a particular investment strategy are managed using the same investment models. - If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one account, an account may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible accounts. To deal with these situations, Tradewinds has adopted procedures for fairly allocating portfolio transactions across multiple accounts. - With respect to many of its clients' accounts, Tradewinds determines which broker to use to execute transaction orders, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts, Tradewinds may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Tradewinds may place separate, non-simultaneous, transactions for a Fund and other accounts which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the Fund or the other accounts. - Some clients are subject to different regulations. As a consequence of this difference in regulatory requirements, some clients may not be permitted to engage in all the investment techniques or transactions (e.g., short selling) or to engage in these transactions to the same extent as the other accounts managed by the portfolio manager. Finally, the appearance of a conflict of interest may arise where Tradewinds has an incentive, such as a performance-based management fee, which relates to the management of some accounts, with respect to which a portfolio manager has day-to-day management responsibilities. Tradewinds has adopted certain compliance procedures which are designed to address these types of conflicts common among investment managers. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises. (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. Statement of Additional Information - April 1, 2009 Page 119 (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 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 Fund's portfolio manager(s) may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The Advisor and the Funds have adopted compliance policies and procedures that attempt to address certain of the potential conflicts that portfolio managers face in this regard. Certain of these conflicts of interest are summarized below. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance (performance fee accounts), if any, may raise potential conflicts of interest for a portfolio manager by creating an incentive to favor higher fee accounts. Potential conflicts of interest also may arise when a portfolio manager has personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to the Advisor's Code of Ethics and certain limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Funds. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. The effects of this potential conflict may be more pronounced where funds and/or accounts managed by a particular portfolio manager have different investment strategies. Statement of Additional Information - April 1, 2009 Page 120 A portfolio manager may be able to select or influence the selection of the broker/dealers that are used to execute securities transactions for the Funds. A portfolio manager's decision as to the selection of broker/dealers could produce disproportionate costs and benefits among the Funds and the other accounts the portfolio manager manages. A potential conflict of interest may arise when a portfolio manager buys or sells the same securities for a Fund and other accounts. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent consistent with applicable laws and regulations, aggregate the securities to be sold or bought in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if a portfolio manager favors one account over another in allocating the securities bought or sold. "Cross trades," in which a portfolio manager sells a particular security held by a Fund to another account (potentially saving transaction costs for both accounts), could involve a potential conflict of interest if, for example, a portfolio manager is permitted to sell a security from one account to another account at a higher price than an independent third party would pay. The Advisor and the Funds have adopted compliance procedures that provide that any transactions between the Fund and another account managed by the Advisor are to be made at an independent current market price, consistent with applicable laws and regulation. Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts managed by its portfolio manager(s). Depending on another account's objectives and other factors, a portfolio manager may give advice to and make decisions for a Fund that may differ from advice given, or the timing or nature of decisions made, with respect to another account. A portfolio manager's investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a portfolio manager may buy or sell a particular security for certain accounts, and not for a Fund, even though it could have been bought or sold for the Fund at the same time. A portfolio manager also may buy a particular security for one or more accounts when one or more other accounts are selling the security (including short sales). There may be circumstances when a portfolio manager's purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts, including the Funds. A Fund's portfolio manager(s) also may have other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the Fund and other accounts. Many of the potential conflicts of interest to which the Advisor's portfolio managers are subject are essentially the same as or similar to the potential conflicts of interest related to the investment management activities of the Advisor and its affiliates. (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 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. Statement of Additional Information - April 1, 2009 Page 121 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 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 Statement of Additional Information - April 1, 2009 Page 122 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) Batterymarch recognizes that actual or potential conflicts may arise in managing multiple client accounts. A brief description of some of the potential conflicts of interest and compliance factors that may arise as a result is included below. We do not believe any of these potential conflicts of interest and compliance factors pose significant risk to any client account. Allocation of Limited Investment Opportunities If an investment team identifies a limited investment opportunity (including initial public offerings) that may be suitable for multiple client accounts, each account may not be able to take full advantage of that opportunity due to liquidity constraints or other factors. Batterymarch has adopted policies and procedures designed to ensure that allocations of limited investment opportunities are conducted in a fair and equitable manner between client accounts. Although Batterymarch strives to ensure that client accounts managed under similar investment mandates have similar portfolio characteristics, Batterymarch does not "clone" client accounts (i.e., assemble multiple client accounts with identical portfolios of securities). As a result, the portfolio of securities held in any single client account may perform better or worse than the portfolio of securities held in another similarly managed client account. Allocation of Partially-Filled Transactions in Securities Batterymarch often aggregates for execution as a single transaction orders for the purchase or sale of a particular security for multiple client accounts. If Batterymarch is unable to fill an aggregated order completely, but receives a partial fill, Batterymarch will typically allocate the transactions relating to the partially filled order to clients on a pro-rata basis with a minimum fill size. Batterymarch may make exceptions from this general policy from time to time based on factors such as the availability of cash, country/regional/sector allocation decisions, investment guidelines and restrictions, and the costs for minimal allocation actions. Opposite (i.e., Contradictory) Transactions in Securities Batterymarch provides investment advisory services for various clients and under various investment mandates and may give advice, and take action, with respect to any of those clients that may differ from the advice given, or the timing or nature of action taken, with respect to any other individual client account. In the course of providing advisory services, Batterymarch may simultaneously recommend the sale of a particular security for one client account while recommending the purchase of the same or a similar security for another account. This may occur for a variety of reasons. For example, in order to raise cash to handle a redemption/withdrawal from a client account, Batterymarch may be forced to sell a security that is ranked a "buy" by its stock selection model. Certain Batterymarch portfolio managers that manage long-only portfolios also manage portfolios that sell securities short. As such, Batterymarch may purchase or sell a security in one or more of its long-only portfolios under management during the same day it executes an opposite transaction in the same or a similar security for one or more of its portfolios under management that hold securities short, and certain Batterymarch client account portfolios may contain securities sold short that are simultaneously held as long positions in certain of the long- only portfolios managed by Batterymarch. The stock selection model(s), risk controls and portfolio construction rules used by Batterymarch to manage its clients' long-only portfolios differ from the model and rules that are used to manage client account portfolios that hold securities short. Because different stock selection models, risk controls and portfolio construction rules are used, it is possible that the same or similar securities may be ranked differently for different mandates and that the timing of trading in such securities may differ. Batterymarch has created certain compliance policies and procedures designed to minimize harm from such contradictory activities/events. Selection of Brokers/Dealers In selecting a broker or dealer, Batterymarch may choose a broker whose commission rate is in excess of that which another broker might have charged for the same transaction, based upon Batterymarch's judgment of that broker's superior execution capabilities and/or as a result of Batterymarch's perceived value of the broker's research services. Although Batterymarch does not participate in any traditional soft dollar arrangements whereby a broker purchases research from a third party on Batterymarch's behalf, Batterymarch does receive proprietary research services from brokers. Batterymarch generally seeks to achieve trade executions with brokers of the highest quality and at the lowest possible cost, although there can be no assurance that this objective will always be achieved. Batterymarch does not enter into any arrangements with brokers, formal or otherwise, regarding order flow as a result of research received. Clients should consider that there is a potential conflict of interest between their interests in obtaining best execution Statement of Additional Information - April 1, 2009 Page 123 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. Performance-Based Fee Arrangements Batterymarch manages some accounts under performance-based fee arrangements. Batterymarch recognizes that this type of incentive compensation creates the risk for potential conflicts of interest. This structure may create an incentive to allocate investments having a greater potential for higher returns to accounts of those clients paying the higher performance fee. To prevent conflicts of interest, Batterymarch generally requires portfolio decisions to be made on a product specific basis. Additionally, Batterymarch requires average pricing of all aggregated orders. Lastly, the investment performance on specific accounts is not a factor in determining the portfolio managers' compensation; performance analysis is reviewed on an aggregate product basis. Although Batterymarch believes that its policies and procedures are appropriate to prevent, eliminate or minimize the harm of many potential conflicts of interest between Batterymarch, its related persons and clients, clients should be aware that no set of policies and procedures can possibly anticipate or relieve all potential conflicts of interest. Moreover, it is possible that additional potential conflicts of interest may exist that Batterymarch has not identified in the summary above. Batterymarch's CCO conducts a review of the firm's potential conflicts of interest and a risk assessment on an annual basis. (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 Statement of Additional Information - April 1, 2009 Page 124 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, 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) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, and by the short term (typically one-year) and long-term (typically three- year, five-year and ten-year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool would also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. In addition, where portfolio managers invest in a hedge fund managed by the investment manager, they receive a cash reimbursement for the investment management fees charged on their hedge fund investments. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (28) The compensation of RiverSource Investments employees consists of (i) a base salary, (ii) an annual cash bonus, and (iii) equity incentive awards in the form of stock options and/or restricted stock. The annual cash bonus is based on management's assessment of the employee's performance relative to individual and business unit goals and objectives which, for portfolio managers Joy, Keeley and Truscott, may be based, in part, on achieving certain investment performance goals and retaining and attracting assets under management, and for portfolio manager Bergene, on developing competitive products, managing existing products, and selecting and monitoring subadvisers for funds. In addition, subject to certain vesting requirements, the compensation of portfolio managers Joy, Keeley and Truscott, includes an annual award based on the performance of Ameriprise Financial over rolling three-year periods. This program is being discontinued and the final award under this plan covers the three-year period that started in January 2007 and ends in December 2009. RiverSource Investments' portfolio managers are provided with a benefit package including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (29) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is paid from a team bonus pool that is based on the Statement of Additional Information - April 1, 2009 Page 125 performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. With the exception of Mr. Spitz, the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, plus, where applicable, a percentage of the assets of the funds they support as research analysts, and by the short term (typically one-year) and long-term (typically three-year and five-year) performance of those accounts in relation to the relevant peer group universe. Mr. Spitz receives a bonus based on management fees on one product and asset retention efforts associated with other products managed by the team. Funding for the bonus pool may also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (30) 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. (31) 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 Statement of Additional Information - April 1, 2009 Page 126 compensation, which is a multiple of base salary, is based on the performance of each individual's sector and portfolio assignments relative to appropriate market benchmarks. In addition, each employee is eligible for equity awards. Turner believes this compensation provides incentive to attract and retain highly qualified people. The objective performance criteria noted above accounts for 90% of the bonus calculation. The remaining 10% is based upon subjective, "good will" factors including teamwork, interpersonal relations, the individual's contribution to overall success of the firm, media and client relations, presentation skills, and professional development. Portfolio managers/analysts are reviewed on an annual basis. The Chief Investment Officer, Robert E. Turner, CFA, is responsible for setting base salaries, bonus targets, and making all subjective judgments related to an investment professionals' compensation. (32) 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. (33) 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. (34) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus and equity incentive awards are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, and by the short term (typically one-year) and long-term (typically three- year and five-year) performance of those accounts in relation to the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by 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 Statement of Additional Information - April 1, 2009 Page 127 their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (35) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. The bonus pool is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and by the short-term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to applicable benchmarks or the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (36) 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. 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. Statement of Additional Information - April 1, 2009 Page 128 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. (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) 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. (39) 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. (40) 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. Statement of Additional Information - April 1, 2009 Page 129 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; - 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. (41) 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. (42) 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. (43) 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. (44) 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 Statement of Additional Information - April 1, 2009 Page 130 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. (45) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool is based upon a percentage of profits generated by the institutional portfolios they manage. Lynn Hopton and Yvonne Stevens may also be paid from a bonus pool based upon the performance of the mutual fund(s) they manage. Funding for this bonus pool is determined by a percentage of the aggregate assets under management in the mutual fund(s) they manage, and by the short term (typically one-year) and long-term (typically three- year) performance of the mutual fund(s) in relation to the relevant peer group universe. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool related to mutual funds and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. Senior management of RiverSource Investments does not have discretion over the size of the bonus pool related to institutional portfolios. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (46) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus, and in some instances the base salary, are paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. The bonus pool is determined by a percentage of the management fees on the accounts managed by the portfolio managers, including the fund. The percentage of management fees that fund the bonus pool is based on the short term (typically one-year) and long-term (typically three-year and five-year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool may also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (47) As of December 31, 2007, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management. P. Zachary Egan and Louis J. Mendes each received compensation in the form of salary and bonus. Typically, a high proportion of an analyst's or portfolio manager's bonus is paid in cash with a smaller proportion going into two separate incentive plans. The first plan is a notional investment based on the performance of certain Columbia Funds, including the Columbia Acorn Funds. The second plan consists of Bank of America restricted stock and/or options. Both plans vest over three years from the date of issuance. The CWAM total bonus pool, including cash and the two incentive plans, is based on a formula, with firm wide investment performance as the primary driver. Analysts and portfolio managers are positioned in a number of compensation tiers based on cumulative performance. Excellent performance results in advancement to a higher tier 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 bonus levels. 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 performing analysts and portfolio managers. In addition, Mr. Egan received a final distribution on September 30, 2007 in connection with his association with the Advisor prior to its acquisition in September 2000 and the Advisor's performance through September 30, 2005. Mr. Mendes received a final distribution on September 30, 2007 from a supplemental pool for the Advisor's employees Statement of Additional Information - April 1, 2009 Page 131 that was established in connection with the acquisition of CWAM and was based on the Advisor's performance through September 30, 2005. (48) Principal Global Investors offers all employees a competitive salary and incentive compensation plan that is evaluated annually. Percentages of base salary versus performance bonus vary by position but are based on nationally competitive market data and are consistent with industry standards. Total cash compensation is targeted at the median of the market and benefits are targeted slightly above median. The investment staff is compensated under a base salary plus variable annual bonus (incentive compensation). The incentive compensation plan for equity portfolio managers is 90% weighted to investment performance and 10% weighted to Principal Global Investors annual performance score. The incentive bonus for equity portfolio managers ranges from 150% to 300% of actual base earnings, depending on job level. - Investment performance is based on gross performance versus a benchmark, peer group or both, depending on the client mandate. - Performance versus peers is measured for a period up to three years (shorter if the portfolio manager has managed the respective portfolio for a period less than three years). - Versus the peer group, incentive payout starts at 54th percentile and reaches 100% at the 25th percentile for the 1, 2, and 3-year periods. 3.33% of incentive payout is achieved at 54th percentile. No payout is realized if performance is at or below 55th percentile. As a wholly owned subsidiary of Principal Financial Group, all Principal Global employees are eligible to participate in our Employee Stock Purchase Plan that allows them to purchase company stock at a 15% discount each quarter. In addition, through our 401(k) plan, employees are able to contribute to an Employee Stock Ownership Plan (ESOP) through which they can buy additional company stock. (49) 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). Statement of Additional Information - April 1, 2009 Page 132 (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. (50) Mondrian has the following programs in place to retain key investment staff: 1. Competitive Salary -- All investment professionals are remunerated with a competitive base salary. 2. Profit Sharing Bonus Pool -- All Mondrian staff, including portfolio managers and senior officers, qualify for participation in an annual profit sharing pool determined by the company's profitability (approximately 30% of profits). 3. Equity Ownership -- Mondrian is ultimately controlled by a partnership of senior management and private equity funds sponsored by Hellman & Friedman LLC, an independent private equity firm. Mondrian is currently 61% owned by approximately 70 of its senior employees, including the majority of investment professionals, senior client service officers, and senior operations personnel, and 39% owned by private equity funds sponsored by Hellman & Friedman, LLC. The private equity funds sponsored by Hellman & Friedman LLC are passive, non-controlling minority investors in Mondrian and do not have day-to-day involvement in the management of Mondrian. Incentives (Bonus and Equity Programs) focus on the key areas of research quality, long-term and short-term stock performance, teamwork, client service and marketing. As an individual's ability to influence these factors depends on that individual's position and seniority within the firm, so the allocation of participation in these programs will reflect this. At Mondrian, the investment management of particular portfolios is not "star manager" based but uses a team system. This means that Mondrian's investment professionals are primarily assessed on their contribution to the team's effort and results, though with an important element of their assessment being focused on the quality of their individual research contribution. Compensation Committee In determining the amount of bonuses and equity awarded, Mondrian's Board of Directors consults with the company's Compensation Committee, who will make recommendations based on a number of factors including investment research, organization management, team work, client servicing and marketing. Defined Contribution Pension Plan All portfolio managers are members of the Mondrian defined contribution pension plan where Mondrian pays a regular monthly contribution and the member may pay additional voluntary contributions if they wish. The Plan is governed by Trustees who have responsibility for the trust fund and payments of benefits to members. In addition, the Plan provides death benefits for death in service and a spouse's or dependant's pension may also be payable. Mondrian believes that this compensation structure, coupled with the opportunities that exist within a successful and growing business, are adequate to attract and retain high caliber employees. (51) Tradewinds offers a highly competitive compensation structure with the purpose of attracting and retaining the most talented investment professionals. These professionals are rewarded through a combination of cash and long-term incentive compensation as determined by the firm's executive committee. Total cash compensation (TCC) consists of both a base salary and an annual bonus that can be a multiple of the base salary. The firm annually benchmarks TCC to prevailing industry norms with the objective of achieving competitive levels for all contributing professionals. Available bonus pool compensation is primarily a function of the firm's overall annual profitability. Individual bonuses are based primarily on the following: - Overall performance of client portfolios; - Objective review of stock recommendations and the quality of primary research; - Subjective review of the professional's contributions to portfolio strategy, teamwork, collaboration and work ethic. To further strengthen our incentive compensation package and to create an even stronger alignment to the long-term success of the firm, Tradewinds has made available to most investment professionals equity participation opportunities, the values of which are determined by the increase in profitability of Tradewinds over time. Finally, some of our investment professionals have received additional remuneration as consideration for signing employment agreements. These agreements range from retention agreements to long-term employment contracts with significant non-solicitation and, in some cases, non- compete clauses. (52) 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 - April 1, 2009 Page 133 (53) In addition to customary employee benefits (e.g., medical coverage), Batterymarch's compensation for investment professionals includes a combination of base salary, annual bonus and long-term incentive compensation, as well as a generous benefits package made available to all Batterymarch employees on a non-discretionary basis. Specifically, the package includes: - competitive base salaries; - individual performance-based bonuses based on the investment professionals' added value to the portfolios for which they are responsible measured on a one-, three- and five-year basis versus benchmarks and peer universes as well as their contributions to research, client service and new business development; - corporate profit-sharing; and - annual contribution to a non-qualified deferred compensation plan that has a cliff-vesting requirement (i.e., they must remain employed with the firm for at least 31 months to receive payment). Performance is evaluated on an aggregate product basis that the portfolio manager is responsible for and is generally not analyzed by any individual client portfolios. Portfolio manager compensation is not tied to, nor increased or decreased as the result of, any performance fees that may be earned by Batterymarch. Lastly, portfolio managers do not receive a percentage of the revenue earned on any of Batterymarch's client portfolios. (54) 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 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. (55) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. The bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, plus, where applicable, a percentage of the assets of the funds they support as research analysts, and by the short term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool may also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. Statement of Additional Information - April 1, 2009 Page 134 ADMINISTRATIVE SERVICES Each fund listed in the table below has an Administrative Services Agreement with Ameriprise Financial. Under this agreement, the fund pays Ameriprise Financial for providing administration and accounting services. The fee is calculated as follows: TABLE 20. ADMINISTRATIVE SERVICES AGREEMENT FEE SCHEDULE
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------ $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 + - ------------------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 0.080% 0.075% 0.070% 0.060% 0.050% Absolute Return Currency and Income Disciplined International Equity Disciplined Small Cap Value Emerging Markets Bond Global Bond Partners International Select Growth Partners International Select Value Partners International Small Cap Partners Small Cap Equity Partners Small Cap Growth Partners Small Cap Value Small Cap Advantage Small Company Index Strategic Allocation Threadneedle Emerging Markets Threadneedle European Equity Threadneedle Global Equity Threadneedle Global Equity Income Threadneedle Global Extended Alpha Threadneedle International Opportunity - ------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Diversified Bond Floating Rate High Yield Bond Income Opportunities Inflation Protected Intermediate Tax-Exempt Limited Duration Bond Minnesota Tax-Exempt New York Tax-Exempt Short Duration U.S. Government Strategic Income Allocation Tax-Exempt Bond Tax-Exempt High Income U.S. Government Mortgage - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 135
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------ $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 + - ------------------------------------------------------------------------------------------------------------------------------ Balanced 0.060% 0.055% 0.050% 0.040% 0.030% Cash Management Disciplined Equity Disciplined Large Cap Growth Disciplined Large Cap Value Disciplined Small and Mid Cap Equity Diversified Equity Income Dividend Opportunity Equity Value Global Technology Growth Large Cap Equity Large Cap Value Mid Cap Growth Mid Cap Value Partners Aggressive Growth Partners Fundamental Value Partners Select Value Precious Metals and Mining Real Estate 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 - April 1, 2009 Page 136 The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. Fees paid in each of the last three fiscal periods are shown in the table below. The table also shows the daily rate applied to each fund's net assets as of the last day of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 21. ADMINISTRATIVE FEES
- ---------------------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - --------------------------------------------------------------------------------------------------- APPLIED TO FUND 2009 2008 2007 FUND ASSETS - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------ Income Builder Basic Income $ 56,956 $ 38,041(a) $ 25,671 0.020% - ------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 54,275 45,848(a) 37,153 0.020 - ------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 108,149 82,229(a) 58,560 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 96,644 110,897 86,301 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 36,929 26,665 24,051 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 193,553 183,783 138,034 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 205,250 223,400 172,602 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 72,830 62,617 50,763 0.020 - ------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 84,413 101,924 76,312 0.020 - ------------------------------------------------------------------------------------------------------------ S&P 500 Index 101,230 158,059 153,231 0.060 - ------------------------------------------------------------------------------------------------------------ Small Company Index 446,427 738,676 867,030 0.080 - ------------------------------------------------------------------------------------------------------------ 2008 2007 2006 - ------------------------------------------------------------------------------------------------------------ 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(b) N/A N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 3,623 1,779(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 5,483 1,861(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 7,572 2,961(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 7,280 2,293(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 7,160 2,579(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 4,249 1,548(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 4,915 2,928(c) N/A 0.020 - ------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 1,670 586(c) 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 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------ Dividend Opportunity 1,033,158 884,333 658,242 0.055 - ------------------------------------------------------------------------------------------------------------ Real Estate 132,646 153,117 91,341 0.060 - ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 137
- ---------------------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - --------------------------------------------------------------------------------------------------- APPLIED TO FUND 2008 2007 2006 FUND ASSETS - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------ Cash Management $2,507,729 $2,141,669 $1,741,492 0.048% - ------------------------------------------------------------------------------------------------------------ Disciplined Equity 1,701,542 1,224,572 496,810 0.053 - ------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 38,114 24,904 1,143(d) 0.060 - ------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 30,592 20,681 4,615(e) 0.080 - ------------------------------------------------------------------------------------------------------------ Floating Rate 398,924 378,190 46,916(e) 0.070 - ------------------------------------------------------------------------------------------------------------ Growth 1,477,804 1,763,087 1,791,547 0.053 - ------------------------------------------------------------------------------------------------------------ Income Opportunities 202,872 242,883 253,936 0.070 - ------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 399,972 209,028 169,778 0.068 - ------------------------------------------------------------------------------------------------------------ Large Cap Equity 2,524,199 3,245,953 2,119,930 0.049 - ------------------------------------------------------------------------------------------------------------ Large Cap Value 45,929 60,574 78,248 0.060 - ------------------------------------------------------------------------------------------------------------ Limited Duration Bond 115,529 105,993 133,102 0.070 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------ California Tax-Exempt(f) 122,235 122,586 149,235 0.070 - ------------------------------------------------------------------------------------------------------------ Diversified Bond 2,012,548 1,752,212 1,698,244 0.060 - ------------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt(f) 215,249 234,353 286,050 0.070 - ------------------------------------------------------------------------------------------------------------ New York Tax-Exempt(f) 41,455 47,710 57,973 0.070 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------ Balanced 519,542 623,784 697,753 0.059 - ------------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 101,276 11,405(g) N/A 0.060 - ------------------------------------------------------------------------------------------------------------ Disciplined Large Cap Value 662(h) N/A N/A 0.060 - ------------------------------------------------------------------------------------------------------------ Diversified Equity Income 3,272,256 3,449,519 2,960,505 0.047 - ------------------------------------------------------------------------------------------------------------ Mid Cap Value 1,335,281 1,196,773 854,082 0.053 - ------------------------------------------------------------------------------------------------------------ Strategic Allocation 1,505,894 1,340,234 948,662 0.074 - ------------------------------------------------------------------------------------------------------------ Strategic Income Allocation 115,139 21,493(g) N/A 0.070 - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 373,454 79,761 15,823(i) 0.079 - ------------------------------------------------------------------------------------------------------------ Disciplined International Equity 549,173 209,295 14,739(j) 0.080 - ------------------------------------------------------------------------------------------------------------ Emerging Markets Bond 131,334 78,549 21,248(k) 0.080 - ------------------------------------------------------------------------------------------------------------ Global Bond 572,976 388,646 412,783 0.079 - ------------------------------------------------------------------------------------------------------------ Global Technology 83,820 103,335 101,197 0.060 - ------------------------------------------------------------------------------------------------------------ Partners International Select Growth 511,522 490,174 347,819 0.080 - ------------------------------------------------------------------------------------------------------------ Partners International Select Value 1,395,090 1,759,221 1,306,775 0.078 - ------------------------------------------------------------------------------------------------------------ Partners International Small Cap 79,183 92,062 83,383 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets 498,019 503,279 406,991 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle European Equity 96,107 105,886 89,350 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 549,601 611,621 532,772 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Income 1,528(l) N/A N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Alpha 1,256(l) N/A N/A 0.080 - ------------------------------------------------------------------------------------------------------------ Threadneedle International Opportunity 460,205 540,718 470,847 0.080 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 52,367 57,618 74,912 0.070 - ------------------------------------------------------------------------------------------------------------ Mid Cap Growth 471,791 652,889 946,943 0.060 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 463,150 525,515 544,894 0.069 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 1,603,416 1,823,812 2,064,819 0.063 - ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 138
- ---------------------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE - --------------------------------------------------------------------------------------------------- APPLIED TO FUND 2008 2007 2006 FUND ASSETS - ---------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market $ 84,396 $ 73,957 $ 69,922 0.060% - ------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (d) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (e) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (f) 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. (g) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (h) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (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. (l) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Third parties with which Ameriprise Financial contracts to provide services for the fund or its shareholders may pay a fee to Ameriprise Financial to help defray the cost of providing administrative and accounting services. The amount of any such fee is negotiated separately with each service provider and does not constitute compensation for investment advisory, distribution, or other services. Payment of any such fee neither increases nor reduces fees or expenses paid by shareholders of the fund. TRANSFER AGENCY SERVICES Each fund has a Transfer Agency Agreement with RiverSource Service Corporation (the "transfer agent") located at 734 Ameriprise Financial Center, Minneapolis, MN 55474. This agreement governs RiverSource Service Corporation's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the fund's shares. CLASS A, CLASS B, CLASS C AND CLASS D. For Class A, Class B, Class C and Class D, RiverSource Service Corporation will earn a fee from the fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The fund will pay on the basis of the relative percentage of net assets of each class of shares, first allocating the base fee (equal to Class A shares) across share classes, and then allocating the incremental per share class fee, based on the number of shareholder accounts. The fee varies depending on the investment category of the fund. You can find your fund's investment category in Table 1. BALANCED, EQUITY, FUNDS-OF-FUNDS - EQUITY FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C Class D ------- ------- ------- ------- $19.50 $20.50 $20.00 $19.50
FUNDS-OF-FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME, TAXABLE FIXED INCOME, TAX-EXEMPT FIXED INCOME FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C ------- ------- ------- $20.50 $21.50 $21.00
Statement of Additional Information - April 1, 2009 Page 139 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., a wholly-owned subsidiary of Ameriprise Financial, Inc., and RiverSource Fund Distributors, Inc., an indirect wholly- owned subsidiary of RiverSource Investments, LLC (collectively the "distributor") each at 50611 Ameriprise Financial Center, Minneapolis, MN 55474, serve as the funds' principal underwriters. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as principal underwriter and distributor to the funds. The fund's shares are offered on a continuous basis. Under a Distribution Agreement, sales charges deducted for distributing fund shares are paid to the distributor daily. The following table shows the sales charges paid to the distributor and the amount retained by the distributor after paying commissions and other expenses for each of the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 22. SALES CHARGES PAID TO DISTRIBUTOR
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 466,216 $ 688,587(a)$ 1,155,448 $ (21,562) $ (56,086)(a)$ 6,089 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 296,977 831,981(a) 1,678,918 (533) 176,661(a) 287,006 - ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 654,937 1,279,681(a) 2,955,938 77,641 34,001(a) 435,561 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 2,081,242 2,848,037 3,260,693 552,795 799,417 1,029,231 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 528,590 384,348 455,765 16,829 4,989 94,296 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 3,277,766 3,944,827 4,127,743 661,689 702,939 1,084,978 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 4,181,445 5,635,597 6,845,238 1,125,393 1,613,677 2,326,266 Aggressive - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 982,012 1,088,559 1,084,727 153,386 140,630 252,979 Conservative - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 1,561,130 2,257,735 2,414,356 319,114 471,536 594,766 - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 140
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- FUND 2009 2008 2007 2009 2008 2007 - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index $ 365,094 $ 563,878 $ 973,579 $ 317,088 $ 117,897 $ 220,620 - ----------------------------------------------------------------------------------------------------------------------------------- 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(b) N/A N/A 46,196(b) N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 32,694 2,283(c) N/A 11,266 (6,048)(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 70,298 35,493(c) N/A 50,360 27,942(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 41,850 35,121(c) N/A 21,519 23,828(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 49,187 38,880(c) N/A 25,003 25,335(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 51,530 29,205(c) N/A 28,063 15,221(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 31,469 21,303(c) N/A 19,162 13,718(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 39,332 14,822(c) N/A 21,208 7,670(c) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 23,890 10,606(c) N/A 12,087 5,832(c) 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 1,648,530 2,653,148 1,665,096 206,622 266,495 207,486 - ----------------------------------------------------------------------------------------------------------------------------------- Real Estate 211,915 813,437 598,431 63,306 218,298 180,632 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Management 339,219 437,392 718,247 339,111 423,832 714,638 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 412,821 661,751 322,731 85,890 140,529 67,609 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap 26,228 55,865 1,760(d) 7,923 9,445 852(d) Equity - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 6,647 15,644 6,304(e) 1,943 1,960 1,708(e) - ----------------------------------------------------------------------------------------------------------------------------------- Floating Rate 380,143 1,282,342 364,914(e) (174,369) (554,729) (118,354)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Growth 2,003,496 3,028,179 4,553,722 372,658 548,978 955,528 - ----------------------------------------------------------------------------------------------------------------------------------- Income Opportunities 135,655 320,351 486,593 (11,090) (6,952) 108,764 - ----------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 407,706 105,703 326,780 51,044 18,732 47,098 - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 3,342,608 4,596,427 3,400,059 610,479 641,330 629,348 - ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Value 64,134 102,472 123,212 20,999 26,452 37,908 - ----------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 92,255 136,687 220,446 9,475 28,890 28,711 - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 141
- ----------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ----------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt $ 91,928 $ 150,760 $ 212,157(f) $ 5,945 $ 46,117 $ 77,373(f) - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond 1,992,222 2,340,251 2,757,988 176,513 419,415 788,192 - ----------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 463,447 338,160 480,402(f) 37,217 12,594 102,088(f) - ----------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 29,401 43,518 89,560(f) 8,217 6,984 19,641(f) - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Balanced 287,586 474,702 400,884 36,359 32,524 59,347 - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 87,685 20,834(g) N/A 30,621 5,197(g) N/A - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0(h) N/A N/A 0(h) N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 6,331,545 9,553,810 12,904,884 1,204,186 1,407,616 2,114,315 - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 2,444,490 3,538,910 4,477,119 898,395 862,120 1,010,224 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 5,371,458 8,570,846 3,667,041 1,321,113 1,738,063 739,852 - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 400,285 267,319(g) N/A 28,302 26,129(g) N/A - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and 288,047 10,519 0(i) 52,383 3,448 0(i) Income - ----------------------------------------------------------------------------------------------------------------------------------- Disciplined International 168,692 130,761 4,700(j) 36,899 14,894 434(j) Equity - ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 41,906 25,743 11,348(k) 10,486 1,421 2,036(k) - ----------------------------------------------------------------------------------------------------------------------------------- Global Bond 391,577 314,002 447,007 118,930 215,442 320,724 - ----------------------------------------------------------------------------------------------------------------------------------- Global Technology 190,722 212,774 242,177 39,408 16,670 29,861 - ----------------------------------------------------------------------------------------------------------------------------------- Partners International Select 560,302 885,940 810,514 118,125 226,007 234,619 Growth - ----------------------------------------------------------------------------------------------------------------------------------- Partners International Select 1,584,444 4,085,674 3,895,267 235,164 641,699 815,331 Value - ----------------------------------------------------------------------------------------------------------------------------------- Partners International Small 88,479 164,026 173,659 20,053 19,649 37,954 Cap - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 780,872 886,062 1,075,586 (4,109,358) (7,004,024) (9,848,080) - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 124,828 226,464 107,816 35,391 90,745 29,463 - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 800,774 896,578 1,272,084 114,011 99,098 218,974 - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 18,558(l) N/A N/A 4,340(l) N/A N/A Income - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 1,795(l) N/A N/A 307(l) N/A N/A Alpha - ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle International 319,850 501,090 563,174 49,744 56,669 107,305 Opportunity - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 59,348 62,985 115,280 (792) (10,183) 29,590 - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 360,393 608,683 1,388,577 59,123 115,052 346,497 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 319,831 313,115 346,932 64,831 (19,725) 79,024 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,042,555 1,182,244 1,485,792 151,444 181,059 389,650 - ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market N/A N/A N/A N/A N/A N/A - -----------------------------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (d) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (e) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (f) 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. (g) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (h) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (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. (l) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - April 1, 2009 Page 142 Part of the sales charge may be paid to selling dealers who have agreements with the distributor. The distributor will retain the balance of the sales charge. At times the entire sales charge may be paid to selling dealers. PLAN AND AGREEMENT OF DISTRIBUTION To help defray the cost of distribution and servicing not covered by the sales charges received under the Distribution Agreement, each fund listed in Table 24. 12b-1 Fees, approved a Plan of Distribution (the "Plan") and entered into an agreement under the Plan pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the type known as a reimbursement plan, the fund pays the distributor a fee up to actual expenses incurred at an annual rate as follows: FOR FUNDS OTHER THAN MONEY MARKET FUNDS: The fee is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class:
Class A Class B Class C Class D Class R2 Class R3 Class W - ------- ------- ------- ------- -------- -------- ------- 0.25% 1.00% 1.00% 0.25% 0.50% 0.25% 0.25%
For Class B and Class C, 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 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 Statement of Additional Information - April 1, 2009 Page 143 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 who are not interested persons of the fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested Board members is the responsibility of the other disinterested Board members. No Board member who is not an interested person has any direct or indirect financial interest in the operation of the Plan or any related agreement. For its most recent fiscal period, each fund paid 12b-1 fees as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 23. 12B-1 FEES
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 593,211 $ 362,603 $ 112,193 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced 580,823 278,815 110,421 N/A N/A N/A N/A Income - ------------------------------------------------------------------------------------------------------------------- Income Builder Moderate 1,158,585 587,094 185,812 N/A N/A N/A N/A Income - ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 969,765 809,179 142,465 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Portfolio Builder 328,254 434,092 99,134 N/A N/A N/A N/A Conservative - ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 1,870,904 1,818,537 374,530 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 2,048,240 1,742,740 319,656 N/A N/A N/A N/A Aggressive - ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 687,072 724,001 168,921 N/A N/A N/A N/A Conservative - ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total 850,481 691,958 125,500 N/A N/A N/A N/A Equity - ------------------------------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A 91,928 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Small Company Index 1,166,038 914,171 N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------- Equity Value 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(a) 27,941 6,806 2,020 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 - -------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 144
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 3,563,045 2,220,149 257,746 N/A N/A N/A 13 - ------------------------------------------------------------------------------------------------------------------- Real Estate 276,727 189,408 17,500 N/A N/A N/A 9 - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------- Cash Management 4,969,177 714,712 45,638 N/A N/A N/A 154,441 - ------------------------------------------------------------------------------------------------------------------- Disciplined Equity 3,199,228 550,860 31,395 N/A 22 11 3,483,017 - ------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid 44,049 12,319 1,632 N/A N/A N/A 54,372 Cap Equity - ------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 31,837 4,226 546 N/A 20 11 N/A - ------------------------------------------------------------------------------------------------------------------- Floating Rate 795,373 357,536 206,462 N/A N/A N/A 11 - ------------------------------------------------------------------------------------------------------------------- Growth 5,186,203 3,166,050 179,547 N/A 24 12 12 - ------------------------------------------------------------------------------------------------------------------- Income Opportunities 389,032 363,715 41,252 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Inflation Protected 319,398 259,775 51,658 N/A N/A N/A 205,664 Securities - ------------------------------------------------------------------------------------------------------------------- Large Cap Equity 10,775,702 7,098,566 270,367 N/A 22 11 N/A - ------------------------------------------------------------------------------------------------------------------- Large Cap Value 123,733 118,887 8,842 N/A 19 9 N/A - ------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 155,586 94,180 16,366 N/A N/A N/A 14 - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 417,044 57,189 20,845 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Diversified Bond 4,896,633 3,027,276 237,190 N/A 36 18 1,101,584 - ------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 705,661 176,620 75,716 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 135,961 41,064 7,302 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------- Balanced 1,987,290 415,034 46,083 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 35,017 16,268 10,920 N/A 47 24 2 - ------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap 32 29 16 N/A 8 4 4 Value(b) - ------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 14,226,095 9,229,184 1,111,495 N/A 25,252 280,029 11 - ------------------------------------------------------------------------------------------------------------------- Mid Cap Value 4,837,635 2,497,777 514,655 N/A 27,209 40,679 11 - ------------------------------------------------------------------------------------------------------------------- Strategic Allocation 4,342,136 2,269,489 693,509 N/A 24 12 N/A - ------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 362,627 149,282 45,011 N/A 5 2 N/A - -------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 145
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and $ 268,339 $ 11,267 $ 58,825 N/A N/A N/A $ 368,846 Income - ------------------------------------------------------------------------------------------------------------------- Disciplined International 188,884 135,656 14,024 N/A $ 6 $ 3 1,073,689 Equity - ------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 21,289 14,432 2,267 N/A N/A N/A 125,465 - ------------------------------------------------------------------------------------------------------------------- Global Bond 704,343 522,781 40,466 N/A N/A N/A 442,005 - ------------------------------------------------------------------------------------------------------------------- Global Technology 266,728 297,356 31,112 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Partners International 850,640 586,365 55,865 N/A N/A N/A N/A Select Growth - ------------------------------------------------------------------------------------------------------------------- Partners International 3,573,831 2,701,274 272,384 N/A N/A N/A N/A Select Value - ------------------------------------------------------------------------------------------------------------------- Partners International Small 157,129 124,919 9,633 N/A N/A N/A N/A Cap - ------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging 1,283,814 701,567 62,513 N/A N/A N/A N/A Markets - ------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 239,284 225,941 17,814 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,507,084 814,247 73,244 N/A 25 13 13 - ------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,812 818 157 N/A 11 6 N/A Income(c) - ------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 1,067 508 207 N/A 11 5 N/A Alpha(c) - ------------------------------------------------------------------------------------------------------------------- Threadneedle International 1,036,236 541,184 30,802 N/A 25 12 N/A Opportunity - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 166,850 57,473 23,235 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 1,589,639 958,780 48,434 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 1,613,863 236,766 50,563 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 6,157,145 713,646 137,909 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 140,660 N/A N/A N/A N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------
(a) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (c) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - April 1, 2009 Page 146 FOR FUNDS WITH CLASS B AND CLASS C SHARES: The following table provides the amount of distribution expenses, as a dollar amount and as a percentage of net assets, incurred by the distributor and not yet reimbursed ("unreimbursed expense") for Class B and Class C shares. These amounts are based on the most recent information available as of Jan. 31, 2009 and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. TABLE 24. UNREIMBURSED DISTRIBUTION EXPENSES
PERCENTAGE OF PERCENTAGE OF CLASS B CLASS C FUND CLASS B NET ASSETS CLASS C NET ASSETS - ------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $ 77,000 5.34% $ 16,000 1.54% - ------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 190,000 4.22% 46,000 0.43% - ------------------------------------------------------------------------------------------------------- Balanced 831,000 4.44% 29,000 1.04% - ------------------------------------------------------------------------------------------------------- California Tax-Exempt 97,000 2.46% 18,000 0.76% - ------------------------------------------------------------------------------------------------------- Cash Management 7,314,000 5.65% 82,000 0.68% - ------------------------------------------------------------------------------------------------------- Disciplined Equity 794,000 3.99% 24,000 1.32% - ------------------------------------------------------------------------------------------------------- Disciplined International Equity 438,000 5.77% 13,000 1.44% - ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 170,000 5.92% 13,000 0.85% - ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 6,000 8.50% -- 0.00% - ------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 55,000 6.56% 3,000 1.18% - ------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 17,000 5.57% 1,000 1.64% - ------------------------------------------------------------------------------------------------------- Diversified Bond 7,196,000 3.17% 230,000 0.69% - ------------------------------------------------------------------------------------------------------- Diversified Equity Income 19,234,000 4.88% 677,000 1.12% - ------------------------------------------------------------------------------------------------------- Dividend Opportunity 3,686,000 4.32% 147,000 1.15% - ------------------------------------------------------------------------------------------------------- Emerging Markets Bond 60,000 4.84% 19,000 9.28% - ------------------------------------------------------------------------------------------------------- Equity Value 1,765,000 3.34% 46,000 1.42% - ------------------------------------------------------------------------------------------------------- Floating Rate 992,000 7.26% 89,000 0.71% - ------------------------------------------------------------------------------------------------------- Global Bond 1,310,000 3.22% 37,000 0.87% - ------------------------------------------------------------------------------------------------------- Global Technology 461,000 3.55% 25,000 1.46% - ------------------------------------------------------------------------------------------------------- Growth 4,680,000 4.79% 113,000 1.76% - ------------------------------------------------------------------------------------------------------- High Yield Bond 3,532,000 3.78% 142,000 1.03% - ------------------------------------------------------------------------------------------------------- Income Builder Basic Income 1,855,000 6.63% 56,000 0.61% - ------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 1,327,000 6.98% 50,000 0.63% - ------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 2,675,000 6.53% 74,000 0.53% - ------------------------------------------------------------------------------------------------------- Income Opportunities 852,000 4.27% 62,000 1.02% - ------------------------------------------------------------------------------------------------------- Inflation Protected Securities 1,325,000 3.79% 72,000 0.67% - ------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 134,000 2.56% 26,000 0.91% - ------------------------------------------------------------------------------------------------------- Large Cap Equity 11,663,000 5.04% 169,000 1.50% - ------------------------------------------------------------------------------------------------------- Large Cap Value 204,000 4.89% 5,000 1.17% - ------------------------------------------------------------------------------------------------------- Limited Duration Bond 289,000 4.01% 14,000 0.81% - ------------------------------------------------------------------------------------------------------- Mid Cap Growth 1,789,000 4.07% 30,000 1.13% - ------------------------------------------------------------------------------------------------------- Mid Cap Value 5,299,000 5.33% 329,000 1.00% - ------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 266,000 2.06% 66,000 0.79% - ------------------------------------------------------------------------------------------------------- New York Tax-Exempt 65,000 1.97% 6,000 0.85% - ------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 985,000 3.46% 21,000 1.25% - ------------------------------------------------------------------------------------------------------- Partners Fundamental Value 2,943,000 4.53% 101,000 1.37% - ------------------------------------------------------------------------------------------------------- Partners International Select Growth 1,142,000 4.59% 36,000 1.36% - ------------------------------------------------------------------------------------------------------- Partners International Select Value 4,671,000 5.19% 147,000 1.45% - ------------------------------------------------------------------------------------------------------- Partners International Small Cap 250,000 5.81% 5,000 1.28% - ------------------------------------------------------------------------------------------------------- Partners Select Value 1,489,000 4.49% 39,000 1.13% - -------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 147
PERCENTAGE OF PERCENTAGE OF CLASS B CLASS C FUND CLASS B NET ASSETS CLASS C NET ASSETS - ------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 531,000 4.56% 18,000 1.51% - ------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 505,000 3.91% 24,000 1.38% - ------------------------------------------------------------------------------------------------------- Partners Small Cap Value 2,191,000 3.87% 72,000 1.40% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 3,348,000 5.88% 118,000 1.04% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 2,103,000 5.04% 101,000 0.95% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 7,972,000 5.51% 317,000 0.95% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 7,254,000 5.58% 258,000 0.98% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 3,262,000 5.36% 140,000 0.89% - ------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 2,857,000 6.28% 107,000 1.15% - ------------------------------------------------------------------------------------------------------- Precious Metals and Mining 391,000 3.30% 15,000 0.72% - ------------------------------------------------------------------------------------------------------- Real Estate 472,000 7.56% 11,000 1.47% - ------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 4,363,000 3.53% 106,000 0.90% - ------------------------------------------------------------------------------------------------------- Small Cap Advantage 868,000 4.23% 29,000 1.20% - ------------------------------------------------------------------------------------------------------- Small Company Index 1,820,000 3.58% N/A N/A - ------------------------------------------------------------------------------------------------------- Strategic Allocation 7,451,000 5.92% 347,000 0.79% - ------------------------------------------------------------------------------------------------------- Strategic Income Allocation 749,000 4.62% 35,000 0.66% - ------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 449,000 2.17% 49,000 0.75% - ------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,208,000 2.23% 117,000 0.90% - ------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 1,010,000 4.25% 40,000 1.33% - ------------------------------------------------------------------------------------------------------- Threadneedle European Equity 208,000 2.41% 11,000 1.30% - ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,638,000 4.51% 60,000 1.44% - ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 79,000 6.04% 3,000 1.57% - ------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 27,000 10.46% 2,000 1.97% - ------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 933,000 4.06% 28,000 1.53% - ------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 970,000 3.91% 34,000 0.87% - -------------------------------------------------------------------------------------------------------
PAYMENTS TO FINANCIAL INTERMEDIARIES The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the funds) to financial intermediaries, including inter-company allocation of resources or payment to affiliated broker-dealers, in connection with agreements between the distributor and financial intermediaries pursuant to which these financial intermediaries sell fund shares and provide services to their clients who are shareholders of the funds. These payments 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 intermediaries for the distribution of fund shares and the servicing of fund shareholders, or paid by the funds to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial intermediaries for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial intermediary to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the funds. These payments are typically made pursuant to an agreement between the distributor and the financial intermediary, and are typically made in support of marketing and sales support efforts or program and shareholder servicing, as further described below. These payments are usually calculated based on a percentage of fund assets owned through the financial intermediary and/or as a percentage of fund sales attributable to the financial intermediary. Certain financial intermediaries require flat fees instead of or in addition to these asset-based fees as compensation for including or maintaining funds on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial intermediary charges its representatives for effecting transactions in the funds. The amount of payment varies by financial intermediary, and often is 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. Statement of Additional Information - April 1, 2009 Page 148 Asset-based payments generally will be made in a range of up to 0.25% of assets or 0.25% of sales or some combination thereof. Exceptions to these general ranges will be considered on a case-by-case basis. Flat fees or annual minimum fees required by a financial intermediary in addition to such asset-based fees, are considered on a case-by-case basis. MARKETING AND SALES SUPPORT Payments may be paid in support of retail, institutional, plan or other fee- based advisory program distribution efforts. These payments are typically made by the distributor in its efforts to advertise to and/or educate the financial intermediary's personnel, including its registered representatives, about the fund. As a result of these payments, the distributor may obtain a higher profile and greater visibility for the fund within the financial intermediary's organization, including placement of the fund on the financial intermediary's preferred or recommended list. The distributor may also obtain greater access to sales meetings, sales representatives, and management representatives of the financial intermediary, including potentially having increased opportunity for fund representatives to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and their clients and other events sponsored by the financial intermediary. PROGRAM AND SHAREHOLDER SERVICING Payments may be made in support of recordkeeping, reporting, transaction processing, and other plan administration services provided by a financial intermediary to or through retirement plans, 529 plans, Health Savings Account plans, or other plans or fee-based advisory programs but may also be made in support of certain retail advisory programs, including wrap programs. A financial intermediary may perform program services itself or may arrange with a third party to perform program services. These payments may also include services rendered in connection with fund selection and monitoring, employee enrollment and education, plan balance rollover or separation, or other similar services. OTHER PAYMENTS The distributor and its affiliates may separately pay financial intermediaries in order to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other financial intermediary employees, client and investor events and other financial intermediary-sponsored events, and for travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, asset retention and due diligence trips. The amount of these payments varies depending upon the nature of the event. The distributor and its affiliates make payments for such events as they deem appropriate, subject to internal guidelines and applicable law. From time to time, to the extent permitted by SEC and NASD rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payment to financial intermediaries or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial intermediaries and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial intermediary to the extent the cost of such services was less than the actual expense of the service. FINANCIAL INTERMEDIARY ARRANGEMENTS The financial intermediary through which you are purchasing or own shares of funds has been authorized directly or indirectly by the distributor to sell funds and/or to provide services to you as a shareholder of funds. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial intermediary may receive from the distributor or its affiliates related to your purchase or ownership of funds, please contact your financial intermediary. CUSTODIAN SERVICES The funds' securities and cash are held pursuant to a custodian agreement with JPMorgan Chase Bank, N.A. (JPMorgan), 1 Chase Manhattan Plaza, 19th Floor, New York, NY 10005. The custodian is permitted to deposit some or all of their securities in central depository systems as allowed by federal law. For its services, each fund pays its custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of JPMorgan or in other financial institutions as permitted by law and by the fund's custodian agreement. Statement of Additional Information - April 1, 2009 Page 149 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 - April 1, 2009 Page 150 fund, each shareholder shall be expressly held to have assented to and agreed to be bound by the provisions of the Declaration of Trust. TABLE 25. FUND HISTORY TABLE FOR RIVERSOURCE FAMILY OF FUNDS
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE BOND SERIES, 4/29/81, 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) - ----------------------------------------------------------------------------------------------------------------------- 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) - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 151
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- 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 Recovery and 2/19/09 No Infrastructure Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2010 Fund - ----------------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 152
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- RiverSource Minnesota Tax- 8/18/86 No Exempt Fund - ----------------------------------------------------------------------------------------------------------------------- RiverSource New York Tax- 8/18/86 No Exempt Fund - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE STRATEGIC 10/9/84 Corporation MN 9/30 ALLOCATION SERIES, INC.(2) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Strategic 1/23/85 Yes Allocation Fund(4) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Strategic Income 5/17/07 Yes Allocation Fund - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE STRATEGY SERIES, 1/24/84 Corporation MN 3/31 INC. - ----------------------------------------------------------------------------------------------------------------------- RiverSource Equity Value Fund 5/14/84 Yes - ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 1/24/01 Yes Cap Growth Fund(11) - ----------------------------------------------------------------------------------------------------------------------- RiverSource Small Cap 5/4/99 Yes Advantage Fund - ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT INCOME 12/21/78; 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 - ----------------------------------------------------------------------------------------------------------------------- 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) - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 153
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** - ----------------------------------------------------------------------------------------------------------------------- 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 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 - April 1, 2009 Page 154 BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees a fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of each fund's Board members. The RiverSource Family of Funds each member oversees consists of 162 funds, which includes 104 RiverSource funds and 58 Seligman funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. TABLE 26. BOARD MEMBERS INDEPENDENT BOARD MEMBERS
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS - ---------------------------------------------------------------------------------------------------------------------- Kathleen Blatz 901 S. Board member Chief Justice, Minnesota None Board Governance, Marquette Ave. since 2006 Supreme Court, 1998-2006; Compliance, Minneapolis, MN 55402 Attorney Investment Review, Age 54 Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Arne H. Carlson 901 S. Board member Chair, RiverSource Family of None Board Governance, Marquette Ave. since 1999 Funds, 1999-2006; former Compliance, Minneapolis, MN 55402 Governor of Minnesota Contracts, Age 74 Executive, Investment Review - ---------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton 901 Board member President, Springboard-Partners None Distribution, S. Marquette Ave. since 2007 in Cross Cultural Leadership Investment Review, Minneapolis, MN 55402 (consulting company) Joint Audit Age 54 - ---------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn 901 Board member Trustee Professor of Economics None Board Governance, S. Marquette Ave. since 2004 and Management, Bentley Contracts, Minneapolis, MN 55402 College; former Dean, McCallum Investment Review Age 58 Graduate School of Business, Bentley College - ---------------------------------------------------------------------------------------------------------------------- Anne P. Jones 901 S. Board member Attorney and Consultant None Board Governance, Marquette Ave. since 1985 Compliance, Minneapolis, MN 55402 Executive, Age 74 Investment Review, Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, American Progressive Distribution, 901 S. Marquette Ave. since 2005 Shikiar Asset Management Insurance Executive, Minneapolis, MN 55402 Investment Review, Age 73 Joint Audit - ---------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Chair of the President Emeritus and Valmont Industries, Board Governance, 901 S. Marquette Ave. Board since Professor of Economics, Inc. (manufactures Compliance, Minneapolis, MN 55402 2007, Board Carleton College irrigation systems) Contracts, Age 70 member since Executive, 2002 Investment Review - ---------------------------------------------------------------------------------------------------------------------- John F. Maher Board member Retired President and Chief None Distribution, 901 S. Marquette Ave. since 2008 Executive Officer and former Investment Review, Minneapolis, MN 55402 Director, Great Western Joint Audit Age 64 Financial Corporation (financial services), 1986-1997 - ---------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None Board Governance, 901 S. Marquette Ave. since 2004 Management, Inc. (private real Compliance, Minneapolis, MN 55402 estate and asset management Contracts, Age 56 company) Executive, Investment Review - ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 155
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS - ---------------------------------------------------------------------------------------------------------------------- Leroy C. Richie Board member Counsel, Lewis & Munday, P.C. Digital Ally, Inc. Contracts, 901 S. Marquette Ave. since 2008 since 1987; Vice President and (digital imaging); Distribution, Minneapolis, MN 55402 General Counsel, Automotive Infinity, Inc. (oil Investment Review Age 66 Legal Affairs, Chrysler and gas exploration Corporation, 1990-1997 and production); OGE Energy Corp. (energy and energy services) - ---------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer and Idera Pharmaceuticals, Contracts, 901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Inc. (biotechnology); Distribution, Minneapolis, MN 55402 2003 (biotechnology); former Healthways, Inc. Executive, Age 64 President, Forester Biotech (health management Investment Review programs) - ----------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS MEMBERSHIPS - -------------------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member President - U.S. Asset Management and None None 53600 Ameriprise Financial since 2001, Vice Chief Investment Officer, Ameriprise Center President since Financial, Inc. since 2005; President, Minneapolis, MN 55474 2002 Chairman of the Board and Chief Age 48 Investment Officer, RiverSource Investments, LLC since 2001; Director, President and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board and Chief Executive Officer, RiverSource Distributors, Inc. since 2006 and of RiverSource Fund Distributors, Inc. since 2008; and Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc., 2001-2005 - --------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments or Ameriprise Financial. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the fund's other officers are: TABLE 27. FUND OFFICERS
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since Director and Senior Vice President - Asset 172 Ameriprise Financial Center 2006 Management, Products and Marketing, Minneapolis, MN 55474 RiverSource Investments, LLC and Director and Age 43 Vice President - Asset Management, Products and Marketing, RiverSource Distributors, Inc. since 2006 and of RiverSource Fund Distributors, Inc. since 2008; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - -------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed 172 Ameriprise Financial Center since 2004 Income, Ameriprise Financial, Inc. and Minneapolis, MN 55474 RiverSource Investments, LLC since 2006; Vice Age 44 President - Investments, Ameriprise Certificate Company since 2003; Senior Vice President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - --------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 156
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------- 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 43 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 53 Inc. since 2006 - -------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, Vice President and Chief Counsel - Asset 5228 Ameriprise Financial Center General Counsel Management, Ameriprise Financial, Inc. since Minneapolis, MN 55474 and Secretary 2005; Chief Counsel, RiverSource Distributors, Age 49 since 2006 Inc. and Chief Legal Officer and Assistant Secretary, RiverSource Investments, LLC since 2006; Chief Counsel, RiverSource Fund Distributors, Inc. since 2008; Vice President, General Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President - Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - -------------------------------------------------------------------------------------------------- Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource 100 Park Avenue Officer since Investments, LLC, Kenwood Capital Management New York, NY 10010 2009 LLC, Ameriprise Certificate Company, Age 57 RiverSource Service Corporation and Seligman Data Corp. since 2009; Chief Compliance Officer for each of the Seligman funds since 2004 and all funds in the RiverSource Family of Funds since 2009; Anti Money Laundering Prevention Officer and Identity Theft Prevention Officer for each of the Seligman funds since 2008; Managing Director, J. & W. Seligman & Co. Incorporated and Vice-President for each of the Seligman funds, 2004-2008. - -------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering 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 45 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 Family of Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. The committee also makes recommendations to the Board regarding responsibilities and duties of the Board, oversees proxy voting and supports the work of the Board Chair in relation to furthering the interests of the Funds and their shareholders on external matters. Statement of Additional Information - April 1, 2009 Page 157 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, internal controls over financial reporting and independent audits. The committee also makes recommendations regarding the selection of the Funds' independent auditor and reviews and evaluates the qualifications, independence and performance of the auditor. This table shows the number of times the committees met during each fund's most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 28. COMMITTEE MEETINGS
BOARD INVESTMENT JOINT GOVERNANCE COMPLIANCE CONTRACTS DISTRIBUTION EXECUTIVE REVIEW AUDIT FISCAL PERIOD COMMITTEE COMMITTEE COMMITTEE COMMITTEE* COMMITTEE COMMITTEE COMMITTEE - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 3 3 5 5 January 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 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 7 6 7 1 1 6 6 June 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 1 1 5 5 July 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 1 1 5 5 August 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 2 1 5 5 September 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 2 2 5 5 October 31 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 3 2 5 5 November 30 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 5 6 3 3 5 5 December 31 - -----------------------------------------------------------------------------------------------------------------------
* Committee established April 2008. Statement of Additional Information - April 1, 2009 Page 158 BOARD MEMBER HOLDINGS The following table shows the Board members' dollar range of equity securities beneficially owned on Dec. 31, 2008 of each individual fund owned by a Board member, and the aggregate dollar range of equity securities of all funds overseen by the Board members. TABLE 29. BOARD MEMBER HOLDINGS Based on net asset values as of Dec. 31, 2008:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Absolute Return Currency and Income $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Partners Small Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Precious Metals and Mining $10,001-$50,000 ------------------------------------------------------------------------ Real Estate $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity $50,001-$100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Cash Management $10,001-$50,000 Over $100, 000 ------------------------------------------------------------------------ Disciplined Equity $10,001-$50,000 ------------------------------------------------------------------------ Disciplined International Equity $10,001-$50,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Value $0-$10,000 ------------------------------------------------------------------------ Portfolio Builder Moderate $50,001-$100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton Absolute Return Currency and Income $0-$10,000 $50,001-$100,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Short Duration U.S. Government $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 159
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Growth* $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive* $50,001-$100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation* Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $10,001-$50,000 - --------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Disciplined Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Diversified Bond $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Growth $0-$10,000 ------------------------------------------------------------------------ High Yield Bond Over $100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Short Duration U.S. Government Over $100,000 ------------------------------------------------------------------------ Small Company Index Over $100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity $10,001-$50,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Cash Management Over $100,000 Over $100,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - --------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 120/20 Contrarian Equity $10,001-$50,000 Over $100,000** ------------------------------------------------------------------------ Absolute Return Currency and Income $10,001-$50,000 ------------------------------------------------------------------------ Disciplined Large Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Growth $0-$10,000 ------------------------------------------------------------------------ Portfolio Builder Total Equity $10,001-$50,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Global Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity $50,001-$100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 160
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- John F. Maher Equity Value $0-$10,000 Over $100,000** ------------------------------------------------------------------------ Seligman Capital $10,001-$50,000 ------------------------------------------------------------------------ Seligman Common Stock $0-$10,000 ------------------------------------------------------------------------ Seligman Communications and Information $10,001-$50,000 ------------------------------------------------------------------------ Seligman Core Fixed Income $0-$10,000 ------------------------------------------------------------------------ Seligman Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Seligman Frontier $10,001-$50,000 ------------------------------------------------------------------------ Seligman Global Growth $0-$10,000 ------------------------------------------------------------------------ Seligman Global Smaller Companies $0-$10,000 ------------------------------------------------------------------------ Seligman Global Technology $0-$10,000 ------------------------------------------------------------------------ Seligman Growth $0-$10,000 ------------------------------------------------------------------------ Seligman High-Yield $0-$10,000 ------------------------------------------------------------------------ Seligman Income and Growth $0-$10,000 ------------------------------------------------------------------------ Seligman International Growth $10,001-$50,000 ------------------------------------------------------------------------ Seligman Large-Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle Global Real Estate $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman LaSalle Monthly Dividend Real $0-$10,000 Estate ------------------------------------------------------------------------ Seligman National Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Smaller-Cap Value $0-$10,000 ------------------------------------------------------------------------ Seligman U.S. Government Securities $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation $50,001-$100,000 - --------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Cash Management Over $100,000 Over $100,000** ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 161
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- Leroy C. Richie Seligman Capital $0-$10,000 Over $100,000 ------------------------------------------------------------------------ Seligman Common Stock $0-$10,000 ------------------------------------------------------------------------ Seligman Communications and Information $0-$10,000 ------------------------------------------------------------------------ Seligman Core Fixed Income $0-$10,000 ------------------------------------------------------------------------ Seligman Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Seligman Frontier $0-$10,000 ------------------------------------------------------------------------ Seligman Global Growth $0-$10,000 ------------------------------------------------------------------------ Seligman Global Smaller Companies $0-$10,000 ------------------------------------------------------------------------ Seligman Global Technology $0-$10,000 ------------------------------------------------------------------------ Seligman Growth $0-$10,000 ------------------------------------------------------------------------ Seligman High-Yield $0-$10,000 ------------------------------------------------------------------------ Seligman Income and Growth $0-$10,000 ------------------------------------------------------------------------ Seligman International Growth $0-$10,000 ------------------------------------------------------------------------ Seligman Large-Cap Value $0-$10,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Michigan Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Seligman Smaller-Cap Value $0-$10,000 ------------------------------------------------------------------------ Seligman U.S. Government Securities $0-$10,000 ------------------------------------------------------------------------ Tri-Continental Corporation Over $100,000 - --------------------------------------------------------------------------------------------------------------------------------- Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $50,001-$100,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Growth $50,001-$100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over 100,000 ------------------------------------------------------------------------ Mid Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Growth $50,001-$100,000 ------------------------------------------------------------------------ Partners Small Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $1-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $1-$10,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $50,001-$100,000 ------------------------------------------------------------------------ Tri Continental Corporation $1-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 162
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER - --------------------------------------------------------------------------------------------------------------------------------- William F. Truscott 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $50,001-$100,000 ------------------------------------------------------------------------ Cash Management $0-$10,000 ------------------------------------------------------------------------ Disciplined Equity Over $100,000 ------------------------------------------------------------------------ Disciplined International Equity Over $100,000 ------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity $10,001-$50,000 ------------------------------------------------------------------------ Diversified Bond Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Emerging Markets Bond $10,001-$50,000 ------------------------------------------------------------------------ Floating Rate Over $100,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Global Technology $10,001-$50,000 ------------------------------------------------------------------------ Growth $50,001- $100,000 ------------------------------------------------------------------------ High Yield Bond $10,001-$50,000 ------------------------------------------------------------------------ Income Opportunities $50,001- $100,000 ------------------------------------------------------------------------ Inflation Protected Securities $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Select Value $10,001-$50,000 ------------------------------------------------------------------------ Partners Small Cap Equity Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $50,001-$100,000 ------------------------------------------------------------------------ Retirement Plus 2035 $10,001-$50,000 ------------------------------------------------------------------------ Seligman LaSalle International Real Estate $0-$10,000 ------------------------------------------------------------------------ Seligman Select Municipal $0-$10,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Strategic Income Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 ------------------------------------------------------------------------ Tri-Continental Corporation $0-$10,000 - ---------------------------------------------------------------------------------------------------------------------------------
* Deferred compensation invested in share equivalents: A. Flynn Growth............................... $10,001-$50,000 Portfolio Builder Moderate $50,001-$100,000 Aggressive........................... Strategic Allocation................. Over $100,000 B. Lewis Absolute Return Currency and Income.. $10,001-$50,000 Disciplined Large Cap Growth......... $10,001-$50,000 Diversified Equity Income............ $50,001-$100,000 Portfolio Builder Total Equity....... $10,001-$50,000 Threadneedle Emerging Markets........ $10,001-$50,000 Threadneedle International $50,001-$100,000 Opportunity..........................
Statement of Additional Information - April 1, 2009 Page 163 C. Maher Equity Value......................... $0-$10,000 Seligman Capital..................... $0-$10,000 Seligman Communications & $10,001-$50,000 Information.......................... Seligman Frontier.................... $10,001-$50,000 Seligman International Growth........ $0-$10,000 Seligman Large-Cap Value............. $10,001-$50,000 Seligman LaSalle Global Real Estate.. $0-$10,000 Tri-Continental Corporation.......... $10,001-$50,000 D. Paglia Threadneedle Global Equity........... Over $100,000
** Total includes deferred compensation invested in share equivalents. As of 30 days prior to the date of this SAI, the Board members and officers as a group owned 1.54% of RiverSource Retirement Plus 2035 Fund Class A. The Board members and officers as a group owned less than 1% of the outstanding shares of any class of any other fund in the RiverSource Family of Funds. Statement of Additional Information - April 1, 2009 Page 164 COMPENSATION OF BOARD MEMBERS TOTAL COMPENSATION. The following table shows the total compensation paid to independent Board members from all the funds in the last fiscal period. TABLE 30. BOARD MEMBER COMPENSATION - ALL FUNDS
TOTAL CASH COMPENSATION FROM BOARD MEMBER(a) FUNDS PAID TO BOARD MEMBER - ---------------------------------------------------------------------------------------------- Kathleen Blatz $177,500 - ---------------------------------------------------------------------------------------------- Arne H. Carlson 180,000 - ---------------------------------------------------------------------------------------------- Pamela G. Carlton 165,000(b) - ---------------------------------------------------------------------------------------------- Patricia M. Flynn 167,500(b) - ---------------------------------------------------------------------------------------------- Anne P. Jones 177,500 - ---------------------------------------------------------------------------------------------- Jeffrey Laikind 165,000 - ---------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 400,000(b) - ---------------------------------------------------------------------------------------------- John F. Maher 30,833(c) - ---------------------------------------------------------------------------------------------- Catherine James Paglia 170,000(b) - ---------------------------------------------------------------------------------------------- Leroy Richie 48,750 - ---------------------------------------------------------------------------------------------- Alison Taunton-Rigby 167,500 - ----------------------------------------------------------------------------------------------
(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. Carlson, 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 $7,167, $78,625, $60,000, and $146,250 respectively. Amount deferred by fund is set forth in Table 31. Additional information regarding the deferred compensation plan is described below. (c) The total compensation shown for Mr. Maher through Jan. 31, 2009 is for both RiverSource and Seligman funds, however the portion he elected to defer, in the amount of $19,208 was for Seligman funds only. The independent Board members determine the amount of compensation that they receive, including the amount paid to the Chair of the Board. In determining compensation for the independent Board members, the independent Board members take into account a variety of factors including, among other things, their collective significant work experience (e.g., in business and finance, government or academia). The independent Board members also recognize that these individuals' advice and counsel are in demand by other organizations, that these individuals may reject other opportunities because the time demands of their duties as independent Board members, and that they undertake significant legal responsibilities. The independent Board members also consider the compensation paid to independent board members of other mutual fund complexes of comparable size. In determining the compensation paid to the Chair, the independent Board members take into account, among other things, the Chair's significant additional responsibilities (e.g., setting the agenda for Board meetings, communicating or meeting regularly with the Funds' Chief Compliance Officer, Counsel to the independent Board members, and the Funds' service providers) which result in a significantly greater time commitment required of the Board Chair. The Chair's compensation, therefore, has generally been set at a level between 2.5 and 3 times the level of compensation paid to other independent Board members. Effective Jan. 1, 2008, independent Board members will be paid an annual retainer of $95,000. Committee and sub- committee Chairs will each receive an additional annual retainer of $5,000. In addition, independent Board members will be paid the following fees for attending Board and committee meetings: $5,000 per day of in-person Board meetings and $2,500 per day of in-person committee or sub-committee meetings (if such meetings are not held on the same day as a Board meeting). Independent Board members are not paid for special telephonic meetings. In 2008, the Board's Chair will receive total annual cash compensation of $400,000. The independent Board members may elect to defer payment of up to 100% of the compensation they receive in accordance with a Deferred Compensation Plan (the Deferred Plan). Under the Deferred Plan, a Board member may elect to have his or her deferred compensation treated as if they had been invested in shares of one or more funds in the RiverSource Family of Funds and the amount paid to the Board member under the Deferred Plan will be determined based on the performance of such investments. Distributions may be taken in a lump sum or over a period of years. The Deferred Plan will remain unfunded for federal income tax purposes under the Internal Revenue Code of 1986, as amended. It is anticipated that deferral of Board member compensation in accordance with the Deferred Plan will have, at most, a negligible impact on Fund assets and liabilities. Statement of Additional Information - April 1, 2009 Page 165 COMPENSATION FROM EACH FUND. The following table shows the compensation paid to independent Board members from each fund during its last fiscal period. TABLE 31. BOARD MEMBER(A) COMPENSATION -- INDIVIDUAL FUNDS
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - --------------------------------------------------------------------------------------- Income Builder Basic * * * * * * Income - --------------------------------------------------------------------------------------- Income Builder Enhanced * * * * * * Income - --------------------------------------------------------------------------------------- Income Builder Moderate * * * * * * Income - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Aggressive - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Conservative - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Moderate - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Moderate Aggressive - --------------------------------------------------------------------------------------- Portfolio Builder * * * * * * Moderate Conservative - --------------------------------------------------------------------------------------- Portfolio Builder Total * * * * * * Equity - --------------------------------------------------------------------------------------- S&P 500 Index -- total $ 391 $ 398 $ 366 $ 375 $ 391 $ 364 Amount deferred 0 0 14 180 0 0 - --------------------------------------------------------------------------------------- Small Company 1,310 1,331 1,225 1,254 1,310 1,220 Index -- total Amount deferred 0 0 44 604 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------------- Equity Value -- total 2,226 2,074 1,485 2,150 2,118 2,085 Amount deferred 0 0 0 906 0 0 - --------------------------------------------------------------------------------------- Partners Small Cap 365 340 244 352 347 341 Growth -- total Amount deferred 0 0 0 149 0 0 - --------------------------------------------------------------------------------------- Precious Metals and 238 225 167 231 228 223 Mining -- total Amount deferred 0 0 0 99 0 0 - --------------------------------------------------------------------------------------- Small Cap 826 760 515 793 783 773 Advantage -- total Amount deferred 0 0 0 331 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - --------------------------------------------------------------------------------------- 120/20 Contrarian 38 39 35 37 38 35 Equity -- total Amount deferred 0 0 0 17 0 0 - --------------------------------------------------------------------------------------- Retirement Plus 2010 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2015 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2020 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2025 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2030 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2035 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2040 * * * * * * - --------------------------------------------------------------------------------------- Retirement Plus 2045 * * * * * * - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------- High Yield 3,058 2,945 2,563 2,957 2,957 2,867 Bond -- total Amount deferred 0 0 0 1,292 0 0 - --------------------------------------------------------------------------------------- Partners Aggressive 1,110 1,075 944 1,075 1,075 1,040 Growth -- total Amount deferred 0 0 0 474 0 0 - --------------------------------------------------------------------------------------- Partners Fundamental 1,939 1,870 1,629 1,875 1,876 1,817 Value -- total Amount deferred 0 0 0 822 0 0 - --------------------------------------------------------------------------------------- Partners Select 929 893 776 898 898 871 Value -- total Amount deferred 0 0 0 392 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - --------------------------------------------------------------------------------- Income Builder Basic * * * * * Income - --------------------------------------------------------------------------------- Income Builder Enhanced * * * * * Income - --------------------------------------------------------------------------------- Income Builder Moderate * * * * * Income - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Aggressive - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Conservative - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Moderate - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Moderate Aggressive - --------------------------------------------------------------------------------- Portfolio Builder * * * * * Moderate Conservative - --------------------------------------------------------------------------------- Portfolio Builder Total * * * * * Equity - --------------------------------------------------------------------------------- S&P 500 Index -- total $ 903 $ 58 $ 380 $ 90 $ 371 Amount deferred 138 36 337 0 0 - --------------------------------------------------------------------------------- Small Company 3,024 181 1,273 287 1,241 Index -- total Amount deferred 462 111 1,140 0 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------- Equity Value -- total 5,423 N/A 2,182 N/A 2,042 Amount deferred 1,436 N/A 2,182 N/A 0 - --------------------------------------------------------------------------------- Partners Small Cap 891 N/A 358 N/A 335 Growth -- total Amount deferred 235 N/A 358 N/A 0 - --------------------------------------------------------------------------------- Precious Metals and 590 N/A 235 N/A 221 Mining -- total Amount deferred 151 N/A 235 N/A 0 - --------------------------------------------------------------------------------- Small Cap 1,992 N/A 802 N/A 750 Advantage -- total Amount deferred 541 N/A 802 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - --------------------------------------------------------------------------------- 120/20 Contrarian 91 N/A 39 N/A 36 Equity -- total Amount deferred 17 N/A 39 N/A 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 7,494 N/A 3,047 N/A 2,856 Bond -- total Amount deferred 1,811 N/A 3,047 N/A 0 - --------------------------------------------------------------------------------- Partners Aggressive 2,740 N/A 1,110 N/A 1,040 Growth -- total Amount deferred 645 N/A 1,110 N/A 0 - --------------------------------------------------------------------------------- Partners Fundamental 4,759 N/A 1,933 N/A 1,811 Value -- total Amount deferred 1,139 N/A 1,933 N/A 0 - --------------------------------------------------------------------------------- Partners Select 2,278 N/A 925 N/A 867 Value -- total Amount deferred 554 N/A 925 N/A 0 - ---------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 166
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- Partners Small Cap $ 479 $ 460 $ 399 $ 462 $ 462 $ 449 Equity -- total Amount deferred 0 0 0 202 0 0 - --------------------------------------------------------------------------------------- Partners Small Cap 1,311 1,254 1,079 1,267 1,265 1,231 Value -- total Amount deferred 0 0 0 548 0 0 - --------------------------------------------------------------------------------------- Short Duration U.S. Government -- total 1,483 1,441 1,262 1,437 1,438 1,389 Amount deferred 0 0 0 637 0 0 - --------------------------------------------------------------------------------------- U.S. Government Mortgage -- total 764 740 647 740 739 715 Amount deferred 0 0 0 326 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------------- Dividend Opportunity -- total 3,796 3,733 3,404 3,690 3,679 3,520 Amount deferred 0 0 0 1,647 0 0 - --------------------------------------------------------------------------------------- Real Estate -- total 441 433 394 428 428 409 Amount deferred 0 0 0 191 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------------- Cash 9,805 9,820 9,158 9,484 9,649 9,158 Management -- total Amount deferred 0 0 0 4,371 0 0 - --------------------------------------------------------------------------------------- Disciplined 6,153 6,157 5,746 5,947 6,054 5,746 Equity -- total Amount deferred 0 0 0 2,740 0 0 - --------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity -- total 105 104 99 103 103 99 Amount deferred 0 0 0 45 0 0 - --------------------------------------------------------------------------------------- Disciplined Small Cap 70 70 65 68 69 65 Value -- total Amount deferred 0 0 0 31 0 0 - --------------------------------------------------------------------------------------- Floating Rate -- total 1,044 1,041 976 1,009 1,025 976 Amount deferred 0 0 0 461 0 0 - --------------------------------------------------------------------------------------- Growth -- total 5,085 5,077 4,763 4,936 4,995 4,763 Amount deferred 0 0 0 2,246 0 0 - --------------------------------------------------------------------------------------- Income 528 529 494 511 520 494 Opportunities -- total Amount deferred 0 0 0 234 0 0 - --------------------------------------------------------------------------------------- Inflation Protected 1,126 1,138 1,049 1,085 1,114 1,049 Securities -- total Amount deferred 0 0 0 515 0 0 - --------------------------------------------------------------------------------------- Large Cap 9,660 9,637 9,051 9,370 9,489 9,050 Equity -- total Amount deferred 0 0 0 4,259 0 0 - --------------------------------------------------------------------------------------- Large Cap 136 136 128 132 134 128 Value -- total Amount deferred 0 0 0 60 0 0 - --------------------------------------------------------------------------------------- Limited Duration 307 308 286 296 302 287 Bond -- total Amount deferred 0 0 0 137 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - --------------------------------------------------------------------------------------- California Tax- Exempt -- total 339 340 318 329 335 318 Amount deferred 0 0 0 154 0 0 - --------------------------------------------------------------------------------------- Diversified Bond -- total 6,444 6,465 6,040 6,237 6,356 6,040 Amount deferred 0 0 0 2,931 0 0 - --------------------------------------------------------------------------------------- Minnesota Tax- Exempt -- total 595 596 558 577 586 558 Amount deferred 0 0 0 269 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- Partners Small Cap $ 1,175 N/A $ 476 N/A $ 447 Equity -- total Amount deferred 286 N/A 476 N/A 0 - --------------------------------------------------------------------------------- Partners Small Cap 3,207 N/A 1,301 N/A 1,220 Value -- total Amount deferred 796 N/A 1,301 N/A 0 - --------------------------------------------------------------------------------- Short Duration U.S. Government -- total 3,670 N/A 1,486 N/A 1,392 Amount deferred 851 N/A 1,486 N/A 0 - --------------------------------------------------------------------------------- U.S. Government Mortgage -- total 1,879 N/A 764 N/A 716 Amount deferred 442 N/A 764 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------- Dividend Opportunity -- total 8,773 N/A 3,652 N/A 3,573 Amount deferred 1,990 N/A 3,652 N/A 0 - --------------------------------------------------------------------------------- Real Estate -- total 1,011 N/A 420 N/A 414 Amount deferred 230 N/A 420 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------- Cash 25,060 N/A 9,340 N/A 9,328 Management -- total Amount deferred 5,222 N/A 9,340 N/A 0 - --------------------------------------------------------------------------------- Disciplined 15,698 N/A 5,862 N/A 5,849 Equity -- total Amount deferred 3,272 N/A 5,862 N/A 0 - --------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity -- total 275 N/A 101 N/A 100 Amount deferred 65 N/A 101 N/A 0 - --------------------------------------------------------------------------------- Disciplined Small Cap 180 N/A 67 N/A 66 Value -- total Amount deferred 38 N/A 67 N/A 0 - --------------------------------------------------------------------------------- Floating Rate -- total 2,660 N/A 988 N/A 991 Amount deferred 572 N/A 988 N/A 0 - --------------------------------------------------------------------------------- Growth -- total 13,062 N/A 4,879 N/A 4,846 Amount deferred 2,836 N/A 4,879 N/A 0 - --------------------------------------------------------------------------------- Income 1,349 N/A 502 N/A 503 Opportunities -- total Amount deferred 286 N/A 502 N/A 0 - --------------------------------------------------------------------------------- Inflation Protected 2,926 N/A 1,043 N/A 1,073 Securities -- total Amount deferred 549 N/A 1,043 N/A 0 - --------------------------------------------------------------------------------- Large Cap 24,802 N/A 9,269 N/A 9,199 Equity -- total Amount deferred 5,411 N/A 9,269 N/A 0 - --------------------------------------------------------------------------------- Large Cap 351 N/A 131 N/A 130 Value -- total Amount deferred 78 N/A 131 N/A 0 - --------------------------------------------------------------------------------- Limited Duration 787 N/A 290 N/A 292 Bond -- total Amount deferred 161 N/A 290 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - --------------------------------------------------------------------------------- California Tax- Exempt -- total 839 N/A 322 N/A 324 Amount deferred 163 N/A 322 N/A 0 - --------------------------------------------------------------------------------- Diversified Bond -- total 16,009 N/A 6,093 N/A 6,149 Amount deferred 3,064 N/A 6,093 N/A 0 - --------------------------------------------------------------------------------- Minnesota Tax- Exempt -- total 1,470 N/A 566 N/A 568 Amount deferred 289 N/A 566 N/A 0 - ---------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 167
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- New York Tax- $ 114 $ 114 $ 107 $ 110 $ 112 $ 107 Exempt -- total Amount deferred 0 0 0 51 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------------- Balanced -- total 1,763 1,761 1,628 1,684 1,734 1,628 Amount deferred 0 0 0 799 0 0 - --------------------------------------------------------------------------------------- Disciplined Large Cap 354 356 327 335 350 327 Growth -- total Amount deferred 0 0 0 162 0 0 - --------------------------------------------------------------------------------------- Disciplined Large Cap 4 3 3 3 4 3 Value -- total Amount deferred 0 0 0 2 0 0 - --------------------------------------------------------------------------------------- Diversified Equity 14,237 14,230 13,153 13,595 14,013 13,153 Income -- total Amount deferred 0 0 0 6,460 0 0 - --------------------------------------------------------------------------------------- Mid Cap Value -- total 5,051 5,051 4,667 4,811 4,979 4,666 Amount deferred 0 0 0 2,296 0 0 - --------------------------------------------------------------------------------------- Strategic 4,049 4,048 3,740 3,865 3,986 3,740 Allocation -- total Amount deferred 0 0 0 1,838 0 0 - --------------------------------------------------------------------------------------- Strategic Income 340 342 314 324 336 314 Allocation -- total Amount deferred 0 0 0 156 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------- Absolute Return Currency and Income -- total 1,151 1,164 1,080 1,102 1,147 1,080 Amount deferred 0 0 0 544 0 0 - --------------------------------------------------------------------------------------- Disciplined International Equity -- total 1,523 1,530 1,413 1,457 1,504 1,413 Amount deferred 0 0 0 705 0 0 - --------------------------------------------------------------------------------------- Emerging Markets 386 385 360 369 381 360 Bond -- total Amount deferred 0 0 0 178 0 0 - --------------------------------------------------------------------------------------- Global Bond -- total 1,646 1,654 1,532 1,571 1,630 1,531 Amount deferred 0 0 0 765 0 0 - --------------------------------------------------------------------------------------- Global 299 299 278 287 294 278 Technology -- total Amount deferred 0 0 0 137 0 0 - --------------------------------------------------------------------------------------- Partners International Select Growth -- total 1,405 1,405 1,303 1,344 1,384 1,303 Amount deferred 0 0 0 646 0 0 - --------------------------------------------------------------------------------------- Partners International Select Value -- total 3,980 3,969 3,683 3,815 3,909 3,683 Amount deferred 0 0 0 1,821 0 0 - --------------------------------------------------------------------------------------- Partners International Small Cap -- total 210 209 194 201 206 194 Amount deferred 0 0 0 96 0 0 - --------------------------------------------------------------------------------------- Threadneedle Emerging Markets -- total 1,338 1,337 1,239 1,280 1,317 1,238 Amount deferred 0 0 0 0 0 0 - --------------------------------------------------------------------------------------- Threadneedle European Equity -- total 258 258 239 248 254 239 Amount deferred 0 0 0 119 0 0 - --------------------------------------------------------------------------------------- Threadneedle Global 1,514 1,514 1,404 1,450 1,491 1,404 Equity -- total Amount deferred 0 0 0 696 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- New York Tax- $ 281 N/A $ 109 N/A $ 109 Exempt -- total Amount deferred 56 N/A 109 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------- Balanced -- total 4,277 N/A 1,688 N/A 1,656 Amount deferred 806 N/A 1,688 N/A 0 - --------------------------------------------------------------------------------- Disciplined Large Cap 848 N/A 334 N/A 332 Growth -- total Amount deferred 147 N/A 334 N/A 0 - --------------------------------------------------------------------------------- Disciplined Large Cap 7 N/A 3 N/A 3 Value -- total Amount deferred 1 N/A 3 N/A 0 - --------------------------------------------------------------------------------- Diversified Equity 34,529 N/A 13,599 N/A 13,370 Income -- total Amount deferred 6,484 N/A 13,599 N/A 0 - --------------------------------------------------------------------------------- Mid Cap Value -- total 12,194 N/A 4,804 N/A 4,739 Amount deferred 2,251 N/A 4,804 N/A 0 - --------------------------------------------------------------------------------- Strategic 9,812 N/A 3,866 N/A 3,802 Allocation -- total Amount deferred 1,836 N/A 3,866 N/A 0 - --------------------------------------------------------------------------------- Strategic Income 817 N/A 324 N/A 320 Allocation -- total Amount deferred 147 N/A 324 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------- Absolute Return Currency and Income -- total 2,634 N/A 1,104 N/A 1,097 Amount deferred 417 N/A 1,104 N/A 0 - --------------------------------------------------------------------------------- Disciplined International Equity -- total 3,511 N/A 1,447 N/A 1,439 Amount deferred 599 N/A 1,447 N/A 0 - --------------------------------------------------------------------------------- Emerging Markets 856 N/A 374 N/A 364 Bond -- total Amount deferred 149 N/A 374 N/A 0 - --------------------------------------------------------------------------------- Global Bond -- total 3,754 N/A 1,563 N/A 1,555 Amount deferred 626 N/A 1,563 N/A 0 - --------------------------------------------------------------------------------- Global 682 N/A 286 N/A 282 Technology -- total Amount deferred 121 N/A 286 N/A 0 - --------------------------------------------------------------------------------- Partners International Select Growth -- total 3,222 N/A 1,338 N/A 1,323 Amount deferred 564 N/A 1,338 N/A 0 - --------------------------------------------------------------------------------- Partners International Select Value -- total 9,121 N/A 3,815 N/A 3,744 Amount deferred 1,637 N/A 3,815 N/A 0 - --------------------------------------------------------------------------------- Partners International Small Cap -- total 482 N/A 201 N/A 198 Amount deferred 86 N/A 201 N/A 0 - --------------------------------------------------------------------------------- Threadneedle Emerging Markets -- total 3,080 N/A 1,271 N/A 1,259 Amount deferred 545 N/A 1,271 N/A 0 - --------------------------------------------------------------------------------- Threadneedle European Equity -- total 592 N/A 247 N/A 243 Amount deferred 104 N/A 247 N/A 0 - --------------------------------------------------------------------------------- Threadneedle Global 3,461 N/A 1,448 N/A 1,427 Equity -- total Amount deferred 608 N/A 1,448 N/A 0 - ---------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 168
AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND - --------------------------------------------------------------------------------------- Threadneedle Global Equity Income -- total $ 7 $ 7 $ 7 $ 6 $ 7 $ 6 Amount deferred 0 0 0 3 0 0 - --------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha -- total 5 5 5 5 5 5 Amount deferred 0 0 0 2 0 0 - --------------------------------------------------------------------------------------- Threadneedle International Opportunity -- total 1,258 1,256 1,166 1,204 1,238 1,166 Amount deferred 0 0 0 578 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------------- Intermediate Tax- 176 179 164 166 176 164 Exempt -- total Amount deferred 0 0 0 81 0 0 - --------------------------------------------------------------------------------------- Mid Cap Growth -- total 1,781 1,807 1,657 1,683 1,781 1,657 Amount deferred 0 0 0 822 0 0 - --------------------------------------------------------------------------------------- Tax-Exempt 1,561 1,582 1,451 1,472 1,561 1,451 Bond -- total Amount deferred 0 0 0 718 0 0 - --------------------------------------------------------------------------------------- Tax-Exempt High 5,855 5,939 5,442 5,525 5,855 5,442 Income -- total Amount deferred 0 0 0 2,696 0 0 - --------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------------- Tax-Exempt Money 340 344 317 325 340 317 Market -- total Amount deferred 0 0 0 161 0 0 - --------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------- TAUNTON- FUND LEWIS MAHER PAGLIA RICHIE RIGBY - --------------------------------------------------------------------------------- Threadneedle Global Equity Income -- total $ 13 N/A $ 7 N/A $ 6 Amount deferred 2 N/A 7 N/A 0 - --------------------------------------------------------------------------------- Threadneedle Global Extended Alpha -- total 10 N/A 5 N/A 4 Amount deferred 1 N/A 5 N/A 0 - --------------------------------------------------------------------------------- Threadneedle International Opportunity -- total 2,874 N/A 1,202 N/A 1,184 Amount deferred 507 N/A 1,202 N/A 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------- Intermediate Tax- 393 N/A 169 $ 21 166 Exempt -- total Amount deferred 63 N/A 167 0 0 - --------------------------------------------------------------------------------- Mid Cap Growth -- total 4,103 N/A 1,702 128 1,683 Amount deferred 672 N/A 1,687 0 0 - --------------------------------------------------------------------------------- Tax-Exempt 3,497 N/A 1,497 172 1,472 Bond -- total Amount deferred 564 N/A 1,477 0 0 - --------------------------------------------------------------------------------- Tax-Exempt High 13,163 N/A 5,610 623 5,525 Income -- total Amount deferred 2,121 N/A 5,539 0 0 - --------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------- Tax-Exempt Money 757 25 333 69 321 Market -- total Amount deferred 116 0 326 0 0 - ---------------------------------------------------------------------------------
(a) Mr. Richie and Mr. Maher were not Board members as of the last fiscal period, and therefore are not included in the table. * Funds-of-Funds do not pay additional compensation to the Board members for attending meetings. Compensation is paid directly from the underlying funds in which each Fund-of-Funds invests. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES The following table identifies those investors who, as of 30 days after the end of the fund's fiscal period, owned 5% or more of any class of a fund's shares and those investors who owned 25% or more of a fund's shares (all share classes taken together). Investors who own more than 25% of a fund's shares are presumed to control the fund and would be able to determine the outcome of most issues that are submitted to shareholders for vote. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 32. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of 30 days after the end of the fund's fiscal period:
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Charles Schwab & Co., Inc. (Charles Class A 29.57% -- Schwab) a brokerage firm in San Francisco, CA ------------------------------------------------------------------------------------------ RiverSource Investments, LLC Class R4 100.00% -- (RiverSource Investments), Minneapolis, MN - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Charles Schwab Class A 34.70% 29.83% Class R4 92.71% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 7.29% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 169
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Charles Schwab Class A 35.06% 30.11% Class R4 47.05% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 52.95% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Charles Schwab Class R4 90.68% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 9.32% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class A 6.23% -- Conservative Class R4 59.37% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 40.63% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Charles Schwab Class R4 90.34% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 9.66% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 84.07% -- Moderate Aggressive ------------------------------------------------------------------------------------------ Fifth Third Bank TTEE, Cincinnati, OH Class R4 14.67% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 64.94% -- Moderate Conservative ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 35.06% -- - -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 91.86% -- Total Equity ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 8.14% -- - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Charles Schwab Class D 100.00% -- Class E 19.56% ------------------------------------------------------------------------------------------ Wachovia Bank NA (Wachovia Bank), Class E 80.41% 65.12% Charlotte, NC - -------------------------------------------------------------------------------------------------------------------------------- Small Company Index Charles Schwab Class A 6.62% -- Class R4 6.67% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.66% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - -------------------------------------------------------------------------------------------------------------------------------- Equity Value Charles Schwab Class A 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 - April 1, 2009 Page 170
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% - -------------------------------------------------------------------------------------------------------------------------------- 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 Class Y 99.20% -- - -------------------------------------------------------------------------------------------------------------------------------- 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% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 171
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MAY 31 - -------------------------------------------------------------------------------------------------------------------------------- High Yield Bond RiverSource Investments Class R2 52.98% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.94% -- Inc. (American Enterprise Investment Services) Minneapolis, MN ------------------------------------------------------------------------------------------ Charles Schwab Class A 9.51% -- Class R4 79.90% ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R4 20.05% -- ------------------------------------------------------------------------------------------ ING Life Insurance and Annuity (ING), 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% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 172
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth RiverSource Investments Class R2 5.96% -- Class R3 100.00% Class R4 12.33% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class R4 82.97% -- ------------------------------------------------------------------------------------------ GWFS Equities (GWFS Equities), Greenwood Class R2 94.04% -- Village, CO ------------------------------------------------------------------------------------------ MLP Fenner & Smith, Inc. (MLP Fenner & Class C 11.01% -- Smith), Jacksonville, 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 RiverSource Investments 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 RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.52% -- Class R4 8.69% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.97% -- - -------------------------------------------------------------------------------------------------------------------------------- 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% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R3 56.42% -- ------------------------------------------------------------------------------------------ Hartford Life Insurance Company Class R2 99.11% -- (Hartford Life), Weatogue, CT Class R3 43.58% ------------------------------------------------------------------------------------------ JPMorgan Chase Bank, Kansas City, MO Class R5 99.96% -- - --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Charles Schwab Class A 11.76% -- ------------------------------------------------------------------------------------------ Government GWFS Equities 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 31.76% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 81.54% -- ------------------------------------------------------------------------------------------ RiverSource Investments 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 R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.09% -- Class R4 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 13.95% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 14.25% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 34.77% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.91% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 8.28% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 11.66% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 7.46% -- - -------------------------------------------------------------------------------------------------------------------------------- Real Estate RiverSource Investments Class R4 10.36% 53.84%(a) Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.17% -- Class R4 89.64% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 7.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 13.20% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 25.18% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 27.58% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.33% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 11.69% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 174
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - -------------------------------------------------------------------------------------------------------------------------------- Cash Management Charles Schwab Class A 5.96% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R5 100.00% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.94% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 33.15% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 27.47% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 12.00% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 11.40% -- Fund ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.65% -- ------------------------------------------------------------------------------------------ Russell P. and Janice K. Costanza, Class C 6.42% -- Sodus, MI ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 94.86% -- ------------------------------------------------------------------------------------------ GWFS Equities Class Y 5.14% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 7.06% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 10.50% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.53% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 16.15% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.23% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.44% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and RiverSource Investments Class A 45.76% 57.55%(a) Mid Cap Equity Class R4 83.04% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 11.38% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 13.93% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 19.04% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 12.18% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2025 Class I 6.06% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2030 Class I 5.69% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.79% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.42% -- Class R4 16.96% ------------------------------------------------------------------------------------------ Deanna L. Rose, Punta Gorda, Fl Class C 8.49% -- ------------------------------------------------------------------------------------------ William E. and MaryLou K. Carroll, Punta Class C 11.48% -- Gorda, Fl ------------------------------------------------------------------------------------------ Mary Ruth Neal, Sacramento, CA Class C 5.38% -- ------------------------------------------------------------------------------------------ Don M. and Barbara A. Warner, Fair Oaks, Class C 5.06% -- CA ------------------------------------------------------------------------------------------ Antim G. and Sonal A Shah, Springfield, Class C 5.01% -- VA - --------------------------------------------------------------------------------------------------------------------------------
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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 67.37% 86.60% Class C 9.20% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Joanne and David J. Thorpe, Lakeville, Class B 8.77% -- MA ------------------------------------------------------------------------------------------ John A. and Dawn M. Gettman, Beaumont, Class B 7.50% -- CA ------------------------------------------------------------------------------------------ Neil Van Slyke, Rochester, NY Class B 5.08% -- ------------------------------------------------------------------------------------------ Sanford A. Greentree, Westlake VLG, CA Class C 28.37% -- ------------------------------------------------------------------------------------------ Keith and Sandra Crowell, Huntersville, Class C 19.41% -- NC ------------------------------------------------------------------------------------------ Bea Vande Merwe, Salt Lake City, UT Class C 12.96% -- ------------------------------------------------------------------------------------------ Richard T. Castiano, Fort Myers, FL Class C 11.18% -- ------------------------------------------------------------------------------------------ Matthew M. Harrison, Richmond, IN Class C 6.92% -- ------------------------------------------------------------------------------------------ Timothy E. Releford, New York, NY Class C 6.06% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 34.91% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 26.71% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 38.34% -- - -------------------------------------------------------------------------------------------------------------------------------- Floating Rate RiverSource Investments Class W 100.00% 37.41%(a) Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 11.75% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 29.59% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 47.73% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 46.63% -- Class R4 95.13% ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 6.46% -- - -------------------------------------------------------------------------------------------------------------------------------- Growth RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 5.99% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.62% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.40% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.53% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.08% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 42.87% -- ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R4 51.99% -- - -------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Charles Schwab Class A 14.09% -- Class R4 93.46% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 14.67% 25.94%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 41.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 35.94% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.21% -- Fund ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company Class R4 6.54% -- - --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities RiverSource Life Insurance Company Class R4 26.67% 42.88%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 11.24% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.50% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.68% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 26.84% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 29.28% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.17% -- Fund ------------------------------------------------------------------------------------------ Charles Schwab Class A 35.37% -- Class R4 26.55% ------------------------------------------------------------------------------------------ GWFS Equities Class R4 5.02% -- ------------------------------------------------------------------------------------------ Matrix Capital Bank MSCS (Matrix Class R4 41.76% -- Capital), Denver, Co ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.98% -- - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.58% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.41% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.61% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.77% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.03% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.85% -- - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Value RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 39.10% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.18% -- Class R4 60.90% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.52% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.76% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.69% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.77% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.56% -- ------------------------------------------------------------------------------------------ Patricia J. King Graham, Lakeview, AR Class C 5.11% -- ------------------------------------------------------------------------------------------ Columbia 529 Plan, Boston, MA Class A 5.07% -- - -------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond RiverSource Investments Class R4 100.00% 60.07%(a) Class W 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 56.50% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 43.50% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 18.86% -- ------------------------------------------------------------------------------------------ John W. and Cecelia E. Kramar, Hacienda Class C 17.03% -- Heights, CA ------------------------------------------------------------------------------------------ Mary Loretta Jacobsmeyer, Riverside, CA Class C 7.78% -- ------------------------------------------------------------------------------------------ Michael N. Stanley, Palm Springs, CA Class C 8.16% -- ------------------------------------------------------------------------------------------ Rita R. and Lawrence E. Dale, Barstow, Class C 6.50% -- CA ------------------------------------------------------------------------------------------ Bernard C. and Denise M. Asbell, Class C 5.70% -- Riverside, CA - --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - -------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Linda A. Wochnik, Sierra Madre, CA Class B 5.01% -- - -------------------------------------------------------------------------------------------------------------------------------- Diversified Bond RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.97% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.72% -- ------------------------------------------------------------------------------------------ Citigroup Global Markets, Owings Mills, Class C 26.98% -- MD ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 5.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 40.79% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.02% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 12.46% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 96.96% -- Minnesota Tax-Exempt None None N/A -- - -------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Charles Schwab Class A 8.47% -- ------------------------------------------------------------------------------------------ Joan Sabbatini, E. Northport, NY Class B 8.19% -- ------------------------------------------------------------------------------------------ Ena S. Ryan, Brooklyn, NY Class C 8.64% -- ------------------------------------------------------------------------------------------ Ottoviano Asarese, Buffalo, NY Class C 6.00% -- - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------------------------------- Balanced MLP Fenner & Smith Class C 9.91% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.96% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth RiverSource Investments Class R2 100.00% 84.96%(a) Class R3 100.00% Class R4 34.24% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 16.76% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.85% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 27.61% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.59% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.18% -- ------------------------------------------------------------------------------------------ Matrix Capital Class R4 65.76% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 8.85% -- ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 66.35% -- - --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value RiverSource Investments Class B 36.84% 98.09(a) Class C 100.00% Class I 17.75% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 30.20% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 29.87% -- ------------------------------------------------------------------------------------------ Disciplined Asset Allocation Portfolios Class I 6.06% -- Moderate ------------------------------------------------------------------------------------------ Paul W. Eastman, Dublin, OH Class A 25.80% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.18% -- ------------------------------------------------------------------------------------------ Ronald E. and Patricia S. Leithe, Cary, Class A 12.12% -- NC ------------------------------------------------------------------------------------------ Josph E. and Sonya M. Landholm, Sedona, Class A 10.08% -- AZ ------------------------------------------------------------------------------------------ Ralph and Carol Sievert, Appleton, WI Class A 7.62% -- ------------------------------------------------------------------------------------------ Tseng-Yen Yen, Fullerton, CA Class B 42.60% -- ------------------------------------------------------------------------------------------ Rita S. Mall, Wyncote, PA Class B 20.56% -- - -------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Charles Schwab Class A 25.97% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.19% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.08% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.33% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.07% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.37% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 74.50% -- ------------------------------------------------------------------------------------------ Hartford Securities Distribution Company Class R2 6.00% -- Inc., Hartford, CT ------------------------------------------------------------------------------------------ GWFS Equities Class R3 84.53% -- Class R4 11.39% ------------------------------------------------------------------------------------------ Wachovia Bank Class R2 13.87% -- Class R3 8.11% Class R4 35.07% Class R5 22.97% ------------------------------------------------------------------------------------------ Wells Fargo Bank Class R4 27.91% -- ------------------------------------------------------------------------------------------ American Century Investments, Kansas Class R4 6.24% -- City, MO ------------------------------------------------------------------------------------------ ING Class R4 13.19% -- Class R5 39.87% ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R5 11.76% -- ------------------------------------------------------------------------------------------ Taynik & Co., Boston, MA Class R5 9.07% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- - --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Charles Schwab Class A 34.32% -- Class R5 8.42% ------------------------------------------------------------------------------------------ Prudential Investment Management Class A 12.85% -- Services LLC, Newark, NJ ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 18.24% -- ------------------------------------------------------------------------------------------ Citigroup Global Markets, Owings Mills, Class C 5.56% -- MD ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.10% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.36% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.01% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.14% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.35% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 81.55% -- Class R3 12.83% ------------------------------------------------------------------------------------------ JP Morgan Chase Bank, New York NY Class R3 15.80% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R3 34.97% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 9.90% -- Class R4 18.81% ------------------------------------------------------------------------------------------ ING Class R3 8.27% -- Class R4 20.24% Class R5 17.33% ------------------------------------------------------------------------------------------ John Hancock Life Insurance Company, Class R4 25.79% -- Buffalo, NY ------------------------------------------------------------------------------------------ NFS LLC FEBO, Chicago, IL Class R5 28.65% -- ------------------------------------------------------------------------------------------ PIMS/Prudential Retirement, Greenville, Class R5 16.80% -- SC ------------------------------------------------------------------------------------------ Standard Insurance Company, Portland, OR Class R5 10.61% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- - -------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Charles Schwab Class A 11.51% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 59.42% -- ------------------------------------------------------------------------------------------ Charles Schwab Class R4 39.07% -- - -------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Charles Schwab Class A 26.98% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class A 14.28% -- Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% - --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - -------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency Income RiverSource Investments Class R4 46.97% 28.54%(a) Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 8.72% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.93% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 21.85% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.69% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 8.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.61% -- Fund ------------------------------------------------------------------------------------------ American Enterprise Class W 99.96% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 70.04% -- Class R4 53.03% ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 5.79% -- - -------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 8.27% Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 9.01% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 10.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.80% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 16.42% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.56% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.96% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.93% -- Class R4 91.73% ------------------------------------------------------------------------------------------ Daniel and Linda Miklovic, St. Louis, MO Class C 5.17% -- - -------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Income Builder Enhanced Income Class I 34.35% 35.11%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 35.29% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 9.81% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 46.85% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.98% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.44% -- Class R4 27.12% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 26.03% -- ------------------------------------------------------------------------------------------ Muhammad A. Ali, Twn and Cntry, MO Class C 6.62% -- ------------------------------------------------------------------------------------------ Brenda L. Ruiz, Lake Mary, FL Class C 5.77% -- - -------------------------------------------------------------------------------------------------------------------------------- Global Bond Income Builder Enhanced Income Class I 5.55% 32.63%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 5.64% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 34.08% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.07% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 9.23% -- Fund ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.94% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.23% -- Class R4 100.00% - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 181
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Global Technology RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.08% -- Class R4 99.65% - -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth Charles Schwab Class A 15.31% 41.23% Class R4 82.82% ------------------------------------------------------------------------------------------ New York Life Trust Company Class R4 13.64% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.58% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.88% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.47% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.57% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.79% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Value Charles Schwab Class A 17.27% -- Class R4 99.14% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.71% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.73% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.10% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.64% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.12% -- - -------------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap Portfolio Builder Aggressive Fund Class I 19.06% 30.16%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.14% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.63% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 18.64% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.66% ------------------------------------------------------------------------------------------ Massachusetts Mutual Life Insurance Co. Class R4 96.79% -- Springfield, MA - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Charles Schwab Class A 13.95% -- Class R4 87.24% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 12.76% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity RiverSource Investments Class I 100.00% -- Class R4 17.97% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.98% -- Class R4 82.03% ------------------------------------------------------------------------------------------ Marilyn O. Matthews, Pasadena, CA Class C 5.31% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity RiverSource Investments Class I 100.00% -- Class R2 98.46% Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.95% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R4 5.35% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.82% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 182
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income RiverSource Investments Class C 6.40% 29.58%(a) Class I 100.00% Class R2 100.00% Class R3 100.00% Class R4 83.38% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 20.16% -- Class R4 16.62% ------------------------------------------------------------------------------------------ Janet K. Zimmer, Warsaw, IN Class C 24.03% -- ------------------------------------------------------------------------------------------ Michael A. Streiber, Mount Airy, MD Class C 11.24% -- ------------------------------------------------------------------------------------------ Alfred T. Hockenmaier, North Hills, CA Class C 9.72% -- ------------------------------------------------------------------------------------------ Sandra H. Norene, Rio Oso, CA Class C 7.99% -- ------------------------------------------------------------------------------------------ Steven A. and Melissa D. Stiles, Class C 7.05% -- Roanoke, VA ------------------------------------------------------------------------------------------ Louis M. and Shirli A. Nagy, Ventura, CA Class C 5.93% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha RiverSource Investments Class C 7.38% 57.92%(a) Class I 100.00% Class R2 100.00% Class R3 100.00% Class R4 30.07% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 66.08% -- Class R4 69.93% ------------------------------------------------------------------------------------------ Michael and Marissa Jenkinson, Burke, VA Class C 17.59% -- ------------------------------------------------------------------------------------------ Michael Selig, Arlington, VA Class C 11.38% -- ------------------------------------------------------------------------------------------ Poonam and Pradeep Singh, McLean, VA Class C 10.72% -- ------------------------------------------------------------------------------------------ Michael and Kristin L. Elder, Class C 9.76% -- Alexandria, VA ------------------------------------------------------------------------------------------ Steven R. and Wendy L. Person, Atlanta, Class C 9.53% -- GA ------------------------------------------------------------------------------------------ Jennifer S. Carter, Washington, D.C. Class C 8.76% -- - -------------------------------------------------------------------------------------------------------------------------------- Threadneedle International RiverSource Investments Class R2 100.00% -- Opportunity Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.09% -- Class R4 84.55% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 14.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.90% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.66% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.25% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.70% -- - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - April 1, 2009 Page 183
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - -------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax Exempt Charles Schwab Class A 7.21% -- - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Portfolio Builder Aggressive Fund Class I 18.26% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.37% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.84% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.00% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.56% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 78.73% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 12.28% -- - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Lawrence Garner, Woodstock, GA and Class A 6.67% -- Ronald J. Garner, Wyckoff, NJ ------------------------------------------------------------------------------------------ Charles Schwab Class A 6.25% -- - --------------------------------------------------------------------------------------------------------------------------------
(a) Combination of all share classes of RiverSource Investments initial capital and affiliated funds-of-funds' investments in Class I shares. A fund may serve as an underlying investment of funds-of-funds that principally invest in shares of other funds in the RiverSource Family of Funds (the underlying funds). The underlying funds and the funds-of-funds share the same officers, Board members, and investment manager, RiverSource Investments. The funds-of-funds do not invest in an underlying fund for the purpose of exercising management or control; however, from time to time, investments by the funds-of- funds in a fund may represent a significant portion of a fund. Because the funds-of-funds may own a substantial portion of the shares of a fund, procedures have been put into place to assure that public shareholders will determine the outcome of all actions taken at underlying fund shareholder meetings. In proxy voting, the funds-of-funds will vote on each proposal in the same proportion that other shareholders vote on the proposal. In addition, RiverSource Investments or an affiliate may own shares of a fund as a result of an initial capital investment at the inception of the fund or class. To the extent RiverSource Investments, as manager of the funds-of-funds, may be deemed a beneficial owner of the shares of an underlying fund held by the funds- of-funds, and such shares, together with any initial capital investment by RiverSource Investments or an affiliate, represent more than 25% of a fund, RiverSource Investments and its affiliated companies may be deemed to control the fund. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company 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 Statement of Additional Information - April 1, 2009 Page 184 of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Family of Fund's Board of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J.&W. Seligman & Co., Inc. ("Seligman"). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the "Seligman Funds"); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York ("NYAG"). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., (which is now known as RiverSource Fund Distributor Inc.,) relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that the Seligman Parties permitted various persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. On March 13, 2009, without admitting or denying any violations of law or wrongdoing, the Seligman Parties entered into a stipulation of settlement with the NYAG and settled the claims made by the NYAG. Under the terms of the settlement, Seligman will pay $11.3 million to four Seligman Funds. This settlement resolved all outstanding matters between the Seligman Parties and the NYAG. In addition to the foregoing matter, the New York staff of the SEC indicated in September 2005 that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and Seligman Advisors, Inc. relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. There have been no further developments with the SEC on this matter. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements for the fiscal years ended July 31, 2007 or later contained in a fund's Annual Report were audited by the independent registered public accounting firm, Ernst & Young LLP, 220 South 6th Street, Suite 1400, Minneapolis, Statement of Additional Information - April 1, 2009 Page 185 MN 55402. The information for periods ended on or before June 30, 2007 was audited by other auditors. The independent registered public accounting firm also provides other accounting and tax-related services as requested by the funds. Statement of Additional Information - April 1, 2009 Page 186 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 - April 1, 2009 A-1 Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. MOODY'S LONG-TERM DEBT RATINGS Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements - their future cannot be considered as well- assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. FITCH'S LONG-TERM DEBT RATINGS Fitch's bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. INVESTMENT GRADE AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Statement of Additional Information - April 1, 2009 A-2 AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. SPECULATIVE GRADE BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements. B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C: Bonds are in imminent default in payment of interest or principal. DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery. SHORT-TERM RATINGS STANDARD & POOR'S COMMERCIAL PAPER RATINGS A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. STANDARD & POOR'S MUNI BOND AND NOTE RATINGS An S&P municipal bond or note rating reflects the liquidity factors and market- access risks unique to these instruments. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Statement of Additional Information - April 1, 2009 A-3 Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Municipal bond rating symbols and definitions are as follows: Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest. Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest. MOODY'S SHORT-TERM RATINGS Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. MOODY'S SHORT-TERM MUNI BONDS AND NOTES Short-term municipal bonds and notes are rated by Moody's. The ratings reflect the liquidity concerns and market access risks unique to notes. Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group. Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. FITCH'S SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The Statement of Additional Information - April 1, 2009 A-4 short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned F-1+ and F-1 ratings. F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade. F-S: Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D: Default. Issues assigned this rating are in actual or imminent payment default. Statement of Additional Information - April 1, 2009 A-5 APPENDIX B STATE TAX-EXEMPT FUNDS STATE RISK FACTORS California Tax-Exempt Fund, Minnesota Tax-Exempt Fund and New York Tax-Exempt Fund invest primarily in the municipal securities issued by a single state and political sub-divisions that state. Each Fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax- exempt investments will be significantly greater than that of more geographically diversified funds, which may result in greater losses and volatility. Because of the relatively small number of issuers of tax-exempt securities, the Fund may invest a higher percentage of assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the Fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. In addition, a Fund may concentrate in a segment of the tax-exempt debt market, such as revenue bonds for health care facilities, housing or airports. These investments may cause the value of a fund's shares to change more than the values of funds' shares that invest in more diversified investments. The yields on the securities in which the Fund invests generally are dependent on a variety of factors, including the financial condition of the issuer or other obligor, the revenue source from which the debt service is payable, general economic and monetary conditions, conditions in the relevant market, the size of a particular issue, the maturity of the obligation, and the rating of the issue. In addition to such factors, geographically concentrated securities will experience particular sensitivity to local conditions, including political and economic changes, adverse conditions to an industry significant to the area, and other developments within a particular locality. Because many tax-exempt bonds may be revenue or general obligations of local governments or authorities, ratings on tax-exempt bonds may be different from the ratings given to the general obligation bonds of a particular state. Certain events may adversely affect all investments within a particular market segment of the market. Examples include litigation, legislation or court decisions, concerns about pending or contemplated litigation, legislation or court decisions, or lower demand for the services or products provided by a particular market segment. Investing mostly in state-specific tax-exempt investments makes the Fund more vulnerable to that state's economy and to factors affecting tax-exempt issuers in that state than would be true for more geographically diversified funds. These risks include, among others: - the inability or perceived inability of a government authority to collect sufficient tax or other revenues to meet its payment obligations; - natural disasters and ecological or environmental concerns; - the introduction of constitutional or statutory limits on a tax-exempt issuer's ability to raise revenues or increase taxes; - the inability of an issuer to pay interest on or repay principal or securities in which the funds invest during recessionary periods; and - economic or demographic factors that may cause a decrease in tax or other revenues for a government authority or for private operators of publicly financed facilities. More information about state specific risks may be available from official state resources. Statement of Additional Information - April 1, 2009 B-1 APPENDIX C S&P 500 INDEX FUND ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX The fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund's shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of Fund shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Statement of Additional Information - April 1, 2009 C-1 APPENDIX D SELIGMAN FUNDS SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Emerging Markets Fund Seligman Global Smaller Companies Fund Seligman Global Growth Fund Seligman Global Technology Fund Seligman International Growth Fund SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman U.S. Government Securities Fund Seligman High-Yield Fund SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. Seligman LaSalle Global Real Estate Fund Seligman LaSalle Monthly Dividend Real Estate Fund SELIGMAN MUNICIPAL FUND SERIES, INC. Seligman National Municipal Class Seligman Colorado Municipal Class Seligman Georgia Municipal Class Seligman Louisiana Municipal Class Seligman Maryland Municipal Class Seligman Massachusetts Municipal Class Seligman Michigan Municipal Class Seligman Minnesota Municipal Class Seligman Missouri Municipal Class Seligman New York Municipal Class Seligman Ohio Municipal Class Seligman Oregon Municipal Class Seligman South Carolina Municipal Class SELIGMAN MUNICIPAL SERIES TRUST Seligman California Municipal High Yield Series Seligman California Municipal Quality Series Seligman Florida Municipal Series Seligman North Carolina Municipal Series SELIGMAN NEW JERSEY MUNICIPAL FUND, INC. SELIGMAN PENNSYLVANIA MUNICIPAL FUND SERIES SELIGMAN PORTFOLIOS, INC. Seligman Capital Portfolio Seligman Cash Management Portfolio Seligman Common Stock Portfolio Seligman Communications and Information Portfolio Seligman Global Technology Portfolio Seligman International Growth Portfolio Seligman Investment Grade Fixed Income Portfolio Seligman Large-Cap Value Portfolio Seligman Smaller-Cap Value Portfolio SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. Seligman TargETFund 2045 Seligman TargETFund 2035 Seligman TargETFund 2025 Seligman TargETFund 2015 Seligman TargETFund Core SELIGMAN ASSET ALLOCATION SERIES, INC. Seligman Asset Allocation Aggressive Growth Fund Seligman Asset Allocation Balanced Fund Seligman Asset Allocation Growth Fund Seligman Asset Allocation Moderate Growth Fund SELIGMAN VALUE FUND SERIES, INC. Seligman Large-Cap Value Fund Seligman Smaller-Cap Value Fund SELIGMAN LASALLE INTERNATIONAL REAL ESTATE FUND, INC. SELIGMAN SELECT MUNICIPAL FUND, INC. TRI-CONTINENTAL CORPORATION
S-6500 AW (4/09) Statement of Additional Information - April 1, 2009 D-1 EX-99.17.K 7 n49430cexv99w17wk.txt SUPPLEMENT DATED APRIL 3, 2009 TO THE PROSPECTUSES DATED MARCH 2, 2009 OF SELIGMAN GLOBAL FUND SERIES, INC. (ON BEHALF OF SELIGMAN EMERGING MARKETS FUND AND SELIGMAN GLOBAL GROWTH FUND) Exhibit 99(17)(k) SUPPLEMENT DATED APRIL 3, 2009 TO THE PROSPECTUS DATED MAY 1, 2008 OF SELIGMAN U.S. GOVERNMENT SECURITIES FUND (THE "SELIGMAN FUND"), A SERIES OF SELIGMAN HIGH INCOME FUND SERIES (THE "SERIES") At a Special Meeting of Shareholders scheduled to be held on June 2, 2009, shareholders who owned shares of the Seligman Fund on April 3, 2009 will vote on the merger of the Seligman Fund into RiverSource Short Duration U.S. Government Fund (the "RiverSource Fund"), a fund that 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. For more information about the RiverSource Fund, please call 1-888-791-3380 for a prospectus. EX-99.17(D) 10 dex9917dusgpro08.txt Supplement, dated March 25, 2009 to the Prospectus, dated May 1, 2008, for Seligman U.S. Government Securities Fund (the "Fund"), a series of Seligman High Income Fund Series (the "Series") Effective March 25, 2009, this prospectus supplement supersedes and replaces the prospectus supplement dated November 25, 2008. Effective immediately, John G. McColley is a portfolio manager of the Fund, and Jamie Jackson no longer serves as a portfolio manager. Other than changes to the information under the sub-caption "Portfolio Manager(s)" under the caption "Management", the changes set forth herein are substantially identical to those set forth in the supplement dated November 25, 2008. On November 7, 2008, RiverSource Investments, LLC ("RiverSource Investments"), a wholly owned subsidiary of Ameriprise Financial, Inc., announced the closing of its acquisition (the "Acquisition") of J. & W. Seligman & Co. Incorporated ("Seligman"). With the Acquisition completed and shareholders of the Fund having previously approved (at a Special Meeting held on November 3, 2008) a new investment management services agreement between the Series (on behalf of the Fund) and RiverSource Investments, RiverSource Investments is the new investment manager of the Fund effective November 7, 2008. In connection with the Acquisition, the Fund's portfolio managers have been changed. This change also results in modification to the investment process used for the Fund. The foregoing changes are reflected in the revised Principal Investment Strategies, Principal Risks and Management sections of the prospectus as set forth below. Effective November 7, 2008, the following changes are hereby made to the Fund's prospectus: The information under the caption "Principal Investment Strategies" is hereby superseded and replaced with the following information: The Fund uses the following principal investment strategies to seek its investment objective: The Fund will invest at least 80% of its net assets in US government securities which are debt securities issued or guaranteed by the US government, its agencies or instrumentalities, or government sponsored enterprises. Although certain of the securities in which the Fund may invest are backed by the full faith and credit of the US government (and thus involve minimal credit risk), other securities in which the Fund may invest are backed only by the credit of a US federal agency, instrumentality or government sponsored enterprise that issued the security (and thus may have increased credit risk). Securities backed by the full faith and credit of the US government include direct obligations of the US Treasury (including bills, notes, and bonds) and mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA). Examples of securities not backed by the full faith and credit of the US government include securities issued by the Student Loan Marketing Association (Sallie Mae), the Federal Home Loan Banks (FHLBs), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae). 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. In evaluating whether to sell a security, the investment manager considers, among other factors, whether: .. 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 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. The Fund may, from time to time, take temporary defensive positions that are inconsistent with its principal strategies in seeking to minimize extreme volatility caused by adverse market, economic, political or other conditions. This could prevent the Fund from achieving its objective. The Fund's investment objective may be changed only with shareholder approval. The principal investment strategies may be changed without shareholder approval. Any changes to these strategies, however, must be approved by the Board of Trustees of the Series, of which the Fund is a separate series. Shareholders will be provided with at least 60 days prior written notice of any change to the "80%" investment policy described above. There is no guarantee that the Fund will achieve its objective. The information under the caption "Management" (including the sub-caption "Portfolio Manager(s)" and the information thereunder) is hereby superseded and replaced with the following information (caption headings have been restated for your convenience): On November 7, 2008, RiverSource Investments, LLC ("RiverSource Investments") announced the closing of its acquisition (the "Acquisition") of J. & W. Seligman & Co. Incorporated ("Seligman"), 100 Park Avenue, New York, New York 10017. With the Acquisition completed and shareholders having previously approved (at a Special Meeting held on November 3, 2008) a new investment management services agreement between the Series (on behalf of the Fund) and RiverSource Investments (the "Agreement"), RiverSource Investments is the new investment manager of the Fund effective November 7, 2008. RiverSource Investments, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is also the investment manager of the other funds in the Seligman Group of Funds, and is a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for the Seligman Group of Funds, RiverSource Investments manages investments for the RiverSource funds, 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. Effective November 7, 2008, the Fund will pay RiverSource Investments a fee for managing its assets (Seligman will no longer receive a management fee effective November 7, 2008). The fee paid to RiverSource Investments will be the same annual fee rate that was paid to Seligman prior to November 7, 2008, which is equal to an annual rate of 0.50% of the Fund's average daily net assets. For the year ended December 31, 2007, the management fee paid by the Fund to Seligman (the Fund's manager prior to November 7, 2008) was equal to an annual rate of 0.50% of the Fund's average daily net assets. On July 29, 2008, the Fund's Board met to discuss, prior to shareholder approval, the Agreement between the Series (on behalf of the Fund) and RiverSource Investments. A discussion regarding the basis for the Board approving the Agreement on behalf of the Fund was included in the Fund's proxy statement, dated August 27, 2008, and will be made available in the Fund's upcoming annual shareholder report. Portfolio Manager(s). The portfolio managers responsible for the day-to-day management of the Fund are: Todd White, Portfolio Manager .. Managed the Fund since 2008. .. Leader of the liquid assets sector team. .. Joined RiverSource Investments in 2008. .. Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass-Through and Options, Lehman Brothers, 2000 to 2004. .. Began investment career in 1986. .. BS, Indiana University. John G. McColley, Portfolio Manager .. Managed the Fund since 2009. .. Sector Manager, liquid assets sector team. .. Joined RiverSource Investments in 1985. .. Began investment career in 1984. .. BS, Carlson School of Management, University of Minnesota. The Series' Statement of Additional Information provides additional information about the compensation of the Portfolio Manager, other accounts managed by the Portfolio Manager, and the Portfolio Manager's ownership of securities of the Fund. The following information is added to the section entitled "Shareholder Information" under the sub-caption "How to Exchange Shares Among the Seligman Mutual Funds": The Seligman Mutual Funds are part of the RiverSource complex of funds which, in addition to RiverSource funds, includes RiverSource Partners funds and Threadneedle funds. Each of the funds in the RiverSource complex shares the same Board of Directors/Trustees. However, the Seligman Mutual Funds do not share the same policies and procedures, as set forth in the Shareholder Information section of this prospectus, as the other funds in the RiverSource complex and may not be exchanged for shares of RiverSource funds, RiverSource Partners funds or Threadneedle funds. SUPPLEMENT DATED MARCH 16, 2009 TO THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION OF EACH OF THE FOLLOWING FUNDS: Prospectuses, each dated February 2, 2009, for Seligman Core Fixed Income Fund, Inc., Seligman Municipal Fund Series, Inc., Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series and Seligman TargetHorizon ETF Portfolios, Inc. Prospectuses, each dated May 1, 2008, for Seligman Asset Allocation Series, Inc., Seligman Cash Management Fund, Inc., Seligman Capital Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Growth Fund, Inc., Seligman High Income Fund Series, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Portfolios, Inc., Seligman Value Fund Series, Inc. and Tri-Continental Corporation (each, a "Fund", and collectively, the "Funds") On March 13, 2009, without admitting or denying any violations of law or wrongdoing, J. & W. Seligman & Co. Incorporated (Seligman), Seligman Advisors, Inc. (now known as RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties") entered into a stipulation of settlement with the Office of the Attorney General of the State of New York ("NYAG") and settled the claims made by the NYAG in September 2006 relating to allegations of frequent trading in certain Seligman Funds. Under the terms of the settlement, Seligman will pay $11.3 million to four Seligman Funds as follows: $150,000 to Seligman Global Growth Fund, $550,000 to Seligman Global Smaller Companies Fund, $7.7 million to Seligman Communications and Information Fund and $2.9 million to Seligman Global Technology Fund. These settlement payments are reflected in the net asset values of these four Seligman Funds. This settlement resolves all outstanding matters between the Seligman Parties and the NYAG. SUPPLEMENT DATED MARCH 3, 2009 TO THE PROSPECTUSES (EXCLUDING THE CLASS I PROSPECTUSES) OF EACH OF THE FOLLOWING FUNDS: Prospectuses, each dated February 2, 2009, for Seligman Municipal Fund Series, Inc., Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series, Seligman Core Fixed Income Fund, Inc. and Seligman TargetHorizon ETF Portfolios, Inc. Prospectuses, each dated May 1, 2008, for Seligman Asset Allocation Series, Inc., Seligman High Yield Fund, Seligman Income and Growth Fund, Inc. and Seligman U.S. Government Securities Fund (each, a "Fund" and collectively, the "Funds") The section entitled "Check Redemption Service" under "Shareholder Information - -- How to Sell Shares" in the Prospectus of each Fund is hereby superseded and replaced with the following information: Check Redemption Service. The Check Redemption Service is being terminated. Effective March 6, 2009, the Fund will not establish the Check Redemption Service for any Fund accounts. For Fund accounts currently utilizing the Check Redemption Service, this service will be terminated effective May 1, 2009. Seligman Data Corp. (SDC) will continue to honor check redemptions provided that SDC receives the intermediary's request for payment on or before April 30, 2009. After April 30, 2009, SDC will reject an intermediary's request for payment. Neither SDC nor the Fund(s) can guarantee that SDC will receive the request for payment on any checks you write against your Fund account by April 30, 2009. Please note that if you own Class A shares that were bought at net asset value (NAV) because of the size of your purchase, or if you own Class B shares, check redemptions may be subject to a contingent deferred sales charge (CDSC). If you own Class C or Class R shares, you may use this service only with respect to shares that you have held for at least one year. SUPPLEMENT DATED FEBRUARY 4, 2009 TO THE PROSPECTUSES OF EACH OF THE FOLLOWING FUNDS: Prospectuses, each dated March 3, 2008, for Seligman Frontier Fund, Inc. and Seligman Global Fund Series, Inc. Prospectuses, each dated May 1, 2008, for Seligman Asset Allocation Series, Inc., Seligman Cash Management Fund, Inc., Seligman Capital Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Growth Fund, Inc., Seligman High Yield Fund, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman U.S. Government Securities Fund, and Seligman Value Fund Series, Inc. (collectively, the "Funds"). The following change to the Funds' Prospectuses (not applicable to a Fund's Class I Prospectus) is effective February 4, 2009. The section entitled "Reinstatement Privilege" under "Shareholder Information - -- Important Policies That May Affect Your Account" in each Fund's Prospectus is hereby superseded and replaced with the following information (the section is renamed "Repurchases"): Repurchases. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of the Fund or any other Seligman mutual fund. The following applies to shareholders who sold Fund shares on or after February 4, 2009 and wish to repurchase shares (the "New Repurchase Policy"): If your original purchase was in Class A or Class B shares, you may use all or part of the sale proceeds to purchase new Class A shares in any Seligman fund account linked together for Rights of Accumulation purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be made in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C shares, you will be allowed to reinvest in the same Class C account and fund you originally purchased. In a Class C share repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. The following applies to shareholders who sold Fund shares on or before February 3, 2009 and wish to repurchase shares: You have the option of taking advantage of the New Repurchase Policy described above, or you may use all or part of the sale proceeds to purchase shares of the Fund or any other Seligman mutual fund without paying an initial sales charge or, if you paid a CDSC when you sold your shares, receiving a credit for the applicable CDSC (the "Former Repurchase Policy"). If you sold Fund shares on or after February 4, 2009 and wish to take advantage of the New Repurchase Policy, you must notify your financial advisor or SDC within 90 days of the date your sale request was processed. If you sold Fund shares on or before February 3, 2009 and wish to take advantage of either the New Repurchase Policy or the Former Repurchase Policy, you must notify your financial advisor or SDC within 120 days of the date your sale request was processed (e.g., if you sold Fund shares on February 3, 2009, you must notify your financial advisor or SDC by June 3, 2009). Contact your financial advisor or SDC for information on required documentation. The repurchase privileges may be modified or discontinued at any time and use of this option may have tax consequences. SUPPLEMENT DATED JANUARY 28, 2009 TO THE PROSPECTUS (OTHER THAN THE CLASS I PROSPECTUS) OF EACH OF THE FOLLOWING FUNDS: Prospectus, each dated March 3, 2008, for Seligman Frontier Fund, Inc. and Seligman Global Fund Series, Inc. Prospectus, each dated May 1, 2008, for Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Growth Fund, Inc., Seligman High-Yield Fund, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman U.S. Government Securities Fund, Seligman Value Fund Series, Inc., and Tri-Continental Corporation (each, together with any series thereof, a "Fund" and all Funds collectively, the "Funds") The Board of Directors/Trustees of each Fund has approved RiverSource Service Corporation ("RSC") as the Fund's new transfer and shareholder service agent, and the termination of each Fund's relationship with Seligman Data Corp. ("SDC"), the current transfer and shareholder service agent for the Funds, effective on or about May 9, 2009. RSC is an affiliate of the Funds' investment manager, RiverSource Investments, LLC. The fees and expenses expected to be charged to each Fund by RSC are generally lower than the fees and expenses charged to each Fund by SDC. Nevertheless, as a result of the termination of the relationship with SDC, each Fund will incur non-recurring charges that would in the aggregate approximate 0.16% of that Fund's net assets as of January 23, 2009 (the "Non-Recurring Charges"). These Non-Recurring Charges will be incurred over the next several months in accordance with generally accepted accounting principles. RSC's relatively lower fees and expenses are expected, in the long run, to offset the Non-Recurring Charges. Fund shareholders would bear their proportionate share of a Fund's expenses, including the Non-Recurring Charges, up to any contractual limit agreed upon by RiverSource Investments (if applicable) on a Fund's "other expenses." Supplement dated January 13, 2009 to the prospectus dated May 1, 2008 of Seligman U.S. Government Securities Fund (the "Seligman Fund"), a series of Seligman High Income Fund Series (the "Series") On January 8, 2009, the Series' Board of Trustees approved in principle the merger of the Seligman Fund into RiverSource Short Duration U.S. Government Fund (the "RiverSource Fund"), a fund that 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. More information about the RiverSource Fund and the proposed merger will be included in proxy materials. Completion of the merger is subject to approval by shareholders of the Seligman Fund. It is currently anticipated that proxy materials regarding the merger will be distributed to shareholders during the first or second quarter of 2009, and that a meeting of shareholders to consider the merger will be scheduled for the second quarter of 2009. PROSPECTUS May 1, 2008 Seligman U.S. Government Securities Fund Seeking a High Level of Current Income Consistent with Prudent Investment Risk by Investing in US Government Securities The Securities and Exchange Commission has neither approved nor disapproved this Fund, and it has not determined this Prospectus to be accurate or adequate. Any representation to the contrary is a criminal offense. An investment in this Fund or any other fund cannot provide a complete investment program. The suitability of an investment in the Fund should be considered based on the investment objective, strategies and risks described in this Prospectus, considered in light of all of the other investments in your portfolio, as well as your risk tolerance, financial goals and time horizons. We recommend that you consult an authorized dealer or your financial advisor to determine if this Fund is suitable for you. TXUSGI 5/2008 [LOGO] SELIGMAN INVESTMENTS -------------------------------- EXPERIENCE . INSIGHT . SOLUTIONS Table of Contents This Prospectus contains information about Seligman U.S. Government Securities Fund (the "Fund"), a series of Seligman High Income Fund Series (the "Series"). THE FUND Investment Objective........................................ 1 Principal Investment Strategies............................. 1 Principal Risks............................................. 2 Portfolio Holdings.......................................... 3 Past Performance............................................ 3 Fees and Expenses........................................... 5 Management.................................................. 6 SHAREHOLDER INFORMATION Deciding Which Class of Shares to Buy....................... 8 Pricing of Fund Shares...................................... 14 Opening Your Account........................................ 14 How to Buy Additional Shares................................ 15 How to Exchange Shares Among the Seligman Mutual Funds...... 16 How to Sell Shares.......................................... 16 Important Policies That May Affect Your Account............. 18 Dividends and Capital Gain Distributions.................... 20 Taxes....................................................... 21 The Seligman Mutual Funds................................... 22 FINANCIAL HIGHLIGHTS.............................................. 25 HOW TO CONTACT US................................................. 28
FOR MORE INFORMATION.. back cover
The Fund Investment Objective The Fund's investment objective is to provide a high level of current income consistent with prudent investment risk. Principal Investment Strategies The Fund uses the following principal investment strategies to seek its investment objective: The Fund will invest at least 80% of its net assets in US government securities which are debt securities issued or guaranteed by the US government, its agencies or instrumentalities, or government sponsored enterprises. Although certain of the securities in which the Fund may invest are backed by the full faith and credit of the US government (and thus involve minimal credit risk), other securities in which the Fund may invest are backed only by the credit of a US federal agency, instrumentality or government sponsored enterprise that issued the security (and thus may have increased credit risk). Securities backed by the full faith and credit of the US government include direct obligations of the US Treasury (including bills, notes, and bonds) and mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA). Examples of securities not backed by the full faith and credit of the US government include securities issued by the Student Loan Marketing Association (Sallie Mae), the Federal Home Loan Banks (FHLBs), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae). When selecting individual securities for purchase by the Fund, the investment manager: .. seeks to determine long-term trends in interest rates and purchase portfolio securities of certain maturities accordingly. For example, if the investment manager believes interest rates will decline or remain flat, the Fund will seek to purchase securities with longer maturities, and if the investment manager expects rates to rise, the Fund will seek to purchase securities with shorter maturities. .. after determining the appropriate maturity, the investment manager seeks to identify securities that offer higher yields, which will provide more income to the Fund. In identifying potential investments, the investment manager utilizes a bottom-up approach and focuses on an individual issuer's ability to repay principal and interest when due (i.e., its credit quality) as well as the structure of the particular security (e.g., maturity, coupon and call features). The Fund generally sells securities in response to the investment manager's belief in the changing direction of long-term interest rates. The Fund may sell securities with longer maturities when yield spreads become exceedingly narrow and the investment manager believes that the Fund is not being amply rewarded for buying securities with longer maturities (which generally offer higher yields but are subject to more price volatility than securities with shorter maturities). The Fund may sell securities with shorter maturities when yield spreads widen and the investment manager believes that it would be prudent to purchase securities with longer maturities. The Fund may also sell securities when it must meet cash requirements. The Fund may, from time to time, take temporary defensive positions that are inconsistent with its principal strategies in seeking to minimize extreme volatility caused by adverse market, economic, political or other conditions. This could prevent the Fund from achieving its objective. The Fund's investment objective may be changed only with shareholder approval. The principal investment strategies may be changed without shareholder approval. Any changes to these strategies, however, must be approved by the 1 Board of Trustees of the Series, of which the Fund is a separate series. Shareholders will be provided with at least 60 days prior written notice of any change to the "80%" investment policy described above. There is no guarantee that the Fund will achieve its objective. Principal Risks The US government does not guarantee the market value or the current yield of government securities. The Fund's net asset value, yield, and total return will fluctuate and are not guaranteed by the US government. Securities backed by the full faith and credit of the US government involve minimal credit risk. These securities in which the Fund invests are considered among the safest of fixed-income investments. However, the market value of such securities (and the market value of those securities backed only by the credit of the US federal agency or instrumentality or government sponsored enterprise that issued the security in which the Fund also invests), like those of other debt securities, will fluctuate with changes, real or anticipated, in the level of interest rates. The Fund's net asset value per share will fluctuate with changes in the market value of the securities held in its portfolio. Additionally, the Fund's yield will vary based on the yield of its portfolio securities. Securities backed only by the credit of the US federal agency or instrumentality or government sponsored enterprise that issued the security may have increased credit risk, including, but not limited to, the risk of non-payment of principal and/or interest. Some of these securities are supported by the credit of the government sponsored enterprise itself and the discretionary authority of the US Treasury to purchase the enterprise's obligations (e.g., securities of the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and the Federal Home Loan Bank). Others are supported only by the credit of the government sponsored enterprise itself (e.g., the Federal Farm Credit Bank). There is no assurance that the US government will provide financial support to government sponsored enterprises that are not supported by the full faith and credit of the US government. Generally, as interest rates rise, the value of the securities held by the Fund will decline. Conversely, if interest rates decline, the value of the securities held by the Fund will increase. This effect is usually more pronounced for longer-term securities. Longer-term securities generally tend to produce higher yields but are subject to greater market fluctuations as a result of changes in interest rates than fixed-income securities with shorter maturities. Mortgage-backed securities in which the Fund invests may benefit less than other fixed-income securities from declining interest rates because of the risk of prepayment. Mortgage prepayments generally increase during a period of declining interest rates. Prepayments increase the cash amounts available to the Fund for investment and these amounts would have to be reinvested at lower interest rates. In addition, prepayments on underlying mortgages result in a loss of anticipated interest, and, therefore, the actual yield to the Fund may be different from the quoted yield on the securities. As a result, when interest rates are declining, mortgage-backed securities may not increase as much as other fixed-income securities of comparable maturities, although they may have a similar risk of decline when interest rates rise. The value and related income of these securities is sensitive to changes in economic conditions, including delinquencies and/or defaults. Shifts in the market's perception of credit quality on securities backed by commercial and residential mortgage loans and other financial assets may result in increased volatility of market price and periods of illiquidity that can negatively impact the valuation of certain issuers held by the Fund. The Fund may purchase securities on a when-issued or forward commitment basis, in which case delivery and payment take place after the date of the commitment to purchase the securities. Because the price to be paid and the interest rate that will be received on the securities are each fixed at the time the Fund enters into the commitment, there is a risk that yields available in the market when delivery takes place may be higher than the yields obtained on the securities. This would tend to reduce the value of these securities. In addition, the market value of these securities may fluctuate between the time the Fund commits to purchase the securities and the time of delivery of the securities. 2 Repurchase agreements in which the Fund invests could involve certain risks in the event of the default by the seller, including possible delays and expenses in liquidating the securities underlying the agreement, decline in the value of the underlying securities and loss of interest. The Fund may actively and frequently trade securities in its portfolio to carry out its principal strategies. A high portfolio turnover rate increases transaction costs, which may increase the Fund's expenses. Frequent and active trading may cause adverse tax consequences for investors in the Fund due to an increase in short-term capital gains. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Website References The website references in this Prospectus are inactive textual references and information contained in or otherwise accessible through these websites does not form a part of this Prospectus. Portfolio Holdings A description of the Series' policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Series' Statement of Additional Information. Past Performance The performance information on the following page provides some indication of the risks of investing in the Fund by showing how the performance of Class A shares has varied from year to year, as well as how the performance of certain of the Fund's Classes compares to three measures of market performance (one of which is a blended index created by the investment manager), as further described below. The following performance information is designed to assist you in comparing the returns of the Fund with the returns of other mutual funds. How the Fund has performed in the past (before and after taxes), however, is not necessarily an indication of how the Fund will perform in the future. Total returns will vary between each Class of shares due to differing fees and expenses. The Class A annual total returns presented in the bar chart on the following page do not reflect the effect of any sales charges. If sales charges were included, the returns would be lower. The Fund's average annual total returns presented in the table below the chart do reflect the effect of the applicable sales charges. Effective January 7, 2008, the maximum initial sales charge on investments in Class A shares of less than $100,000 is 4.50%. Although for all periods presented the Fund's Class A share returns reflect the 4.50% maximum initial sales charge, the actual returns for periods prior to January 7, 2008 would have been lower if a 4.75% maximum initial sales charge then in effect was incurred. Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares. Although for all periods presented in the table the Fund's Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. Both the bar chart and table assume that all dividends and capital gain distributions, if any, were reinvested. Effective at the close of business on May 16, 2008, the Fund will no longer offer Class D shares. For additional information, see "Deciding Which Class of Shares to Buy--Class C or Class D." After-tax returns presented in the table are for Class A shares only. After-tax returns for Class B, Class C, Class D and Class R shares will vary due to differing fees and expenses. After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts (IRAs). These returns after taxes on distributions and sale of Fund shares may be greater than other returns presented for the same periods due to tax benefits from losses realized on the sale of Fund shares. 3 CLASS A ANNUAL TOTAL RETURNS - CALENDAR YEARS [CHART] Best quarter return: 6.54% - quarter ended 9/30/02. Worst quarter return: (2.87)% - quarter ended 6/30/04. AVERAGE ANNUAL TOTAL RETURNS - PERIODS ENDED 12/31/07
CLASS C CLASS R SINCE SINCE ONE FIVE TEN INCEPTION INCEPTION YEAR YEARS YEARS 5/27/99 4/30/03 - ------------------------------------------------------------------------------------------------------- CLASS A - ------------------------------------------------------------------------------------------------------- Return before taxes 1.32% 1.05% 3.77% n/a n/a - ------------------------------------------------------------------------------------------------------- Return after taxes on distributions 0.02 (0.07) 2.20 n/a n/a - ------------------------------------------------------------------------------------------------------- Return after taxes on distributions and sale of Fund shares 0.83 0.23 2.24 n/a n/a - ------------------------------------------------------------------------------------------------------- CLASS B 0.15 0.87 3.63/(1)/ n/a n/a - ------------------------------------------------------------------------------------------------------- CLASS C 4.15 1.25 n/a 3.53% n/a - ------------------------------------------------------------------------------------------------------- CLASS D 4.15 1.23 3.47 n/a n/a - ------------------------------------------------------------------------------------------------------- CLASS R 4.63 n/a n/a n/a 1.77% - ------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS GOVERNMENT BOND INDEX* 8.66 4.10 5.92 6.02 4.06 - ------------------------------------------------------------------------------------------------------- BLENDED INDEX* 7.81 4.30 5.92 6.00 4.30 - ------------------------------------------------------------------------------------------------------- LIPPER GENERAL US GOVERNMENT FUNDS AVERAGE* 6.33 3.16 4.98 4.97 3.09 - -------------------------------------------------------------------------------------------------------
- ------------- * The Lehman Brothers Government Bond Index (the "Lehman Index"), the Lipper General US Government Funds Average (the "Lipper Average") and the Blended Index, are unmanaged benchmarks that assume reinvestment of dividends, if any, and exclude the effect of fees, taxes and sales charges. The Lehman Index and the Blended Index also exclude the effect of expenses. The Lehman Index is a benchmark index made up of the Treasury Bond Index and the Agency Bond Index as well as the 1-3 Year Government Index and 20+ Year Treasury Index. The Lipper Average includes funds that invest at least 65% of their assets in US government and government agency issues. The Blended Index is an index created by J. & W. Seligman & Co. Incorporated, the Fund's manager ("Seligman"). The Blended Index consists of a fifty percent equal weighting in the Lehman Index and the Lehman Brothers Fixed-Rate Mortgage Backed Securities Index (the "Lehman MBS Index"), which covers the fixed-rate agency mortgage-backed pass-through securities of the GNMA, Fannie Mae and Freddie Mac. In Seligman's view, the Blended Index better represents the securities in which the Fund expects to invest since Fund shareholders approved amendments to the Fund's principal investment strategies in October 2005. The Fund's holdings, however, may not be evenly weighted among the securities covered by the Lehman Index and Lehman MBS Index, and the weighting of the Fund's holdings may vary significantly among such securities. The Fund is actively managed and its holdings are subject to change. Investors cannot invest directly in an average or an index. (1)The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. 4 Fees and Expenses The table below summarizes the fees and expenses that you may pay as a shareholder of the Fund. Each Class of shares has its own sales charge schedule and is subject to different ongoing 12b-1 fees. Shareholder fees are charged directly to your account. Annual fund operating expenses are deducted from Fund assets and are therefore paid indirectly by you and other shareholders of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS C CLASS D* CLASS R - --------------------------------------------------------------------------------------------------------------------------- Total Maximum Sales Charge (Load) 4.50% 5% 1% 1% 1% - --------------------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) on Purchases (as a % of offering price) 4.50%/(1)/ none none none none - --------------------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) (CDSC) on Redemptions (as a % of original purchase price or current net asset value, whichever is less) none/(1)/ 5% 1% 1% 1% - --------------------------------------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------------------------------------------------- (as a percentage of average net assets) - --------------------------------------------------------------------------------------------------------------------------- Management Fees 0.50% 0.50% 0.50% 0.50% 0.50% - --------------------------------------------------------------------------------------------------------------------------- Distribution and/or Service (12b-1) Fees 0.25% 1.00% 1.00% 1.00% 0.50% - --------------------------------------------------------------------------------------------------------------------------- Other Expenses 0.77% 0.78% 0.78% 0.78% 0.78% - --------------------------------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.52% 2.28% 2.28% 2.28% 1.78% - ---------------------------------------------------------------------------------------------------------------------------
- ------------- (1)Certain investors who do not pay an initial sales charge (e.g., purchases of $1,000,000 or more, and purchases through certain retirement plans) may be subject to a 1% CDSC if shares are sold within 18 months of purchase. *Effective at the close of business on May 16, 2008, Class D shares will no longer be available. For more details, please see "Deciding Which Class of Shares to Buy--Class C or Class D". EXAMPLE This example is intended to help you compare the costs of investing in the Fund with the costs of investing in other mutual funds. It assumes (1) you invest $10,000 in the Fund for each period and then sell all of your shares at the end of that period, (2) your investment has a 5% return each year, and (3) the Fund's total annual 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 $598 $ 909 $1,242 $2,181 ---------------------------------------------------------------------- Class B 731 1,012 1,420 2,425+ ---------------------------------------------------------------------- Class C 331 712 1,220 2,615 ---------------------------------------------------------------------- Class D 331 712 1,220 2,615 ---------------------------------------------------------------------- Class R 281 560 964 2,095 ---------------------------------------------------------------------- If you did not sell your shares at the end of each period, your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------------------------------------------------------------------- Class A $598 $ 909 $1,242 $2,181 ---------------------------------------------------------------------- Class B 231 712 1,220 2,425+ ---------------------------------------------------------------------- Class C 231 712 1,220 2,615 ---------------------------------------------------------------------- Class D 231 712 1,220 2,615 ---------------------------------------------------------------------- Class R 181 560 964 2,095 ----------------------------------------------------------------------
- ------------- + Class B shares will automatically convert to Class A shares approximately eight years after purchase. MANAGEMENT FEES: Fees paid out of Fund assets to the investment manager to compensate it for managing the Fund. 12B-1 FEES: Fees paid by each Class, pursuant to a plan adopted by the Fund under Rule 12b-1 of the Investment Company Act of 1940. The plan allows each Class to pay distribution and/or service fees for the sale and distribution of its shares and for providing services to shareholders. OTHER EXPENSES: Miscellaneous expenses of running the Fund, including such things as shareholder account services, registration, custody, auditing and legal fees. 5 Management The Series' Board of Trustees provides broad supervision over the affairs of the Fund. J. & W. Seligman & Co. Incorporated (Seligman), 100 Park Avenue, New York, New York 10017, is the investment manager of the Fund. Seligman manages the investment of the Fund's assets, including making purchases and sales of portfolio securities consistent with the Fund's investment objective and strategies, and administers the Fund's business and other affairs. Established in 1864, Seligman currently serves as manager to 22 US registered investment companies, which offer 59 investment portfolios with approximately $10.1 billion in assets as of March 31, 2008. Seligman also provides investment management or advice to institutional or other accounts having an aggregate value at March 31, 2008 of approximately $7.8 billion. The Fund pays Seligman a fee for its management services. For the year ended December 31, 2007, the management fee paid by the Fund to Seligman was equal to an annual rate of 0.50% of the Fund's average daily net assets. A discussion regarding the basis for the Series' Board of Trustees' approval of the continuance of the investment management agreement between the Series (on behalf of the Fund) and Seligman is available in the Fund's Annual Report, dated December 31, 2007. PORTFOLIO MANAGEMENT The Fund is managed by Seligman's Investment Grade Team. The Investment Grade Team is headed by Mr. Francis L. Mustaro. Mr. Mustaro, a Managing Director of Seligman, is Vice President of the Series and Portfolio Manager of the Fund. In addition to his responsibilities in respect of the Fund, Mr. Mustaro is Vice President and Portfolio Manager of Seligman Cash Management Fund, Inc. and Seligman Core Fixed Income Fund, Inc. and Vice President of Seligman Portfolios, Inc. and Portfolio Manager of its Seligman Cash Management Portfolio and Seligman Investment Grade Fixed Income Portfolio. He is also Vice President and Co-Portfolio Manager of Seligman Income and Growth Fund, Inc. Mr. Mustaro Joined Seligman in April 2006. Prior to joining Seligman, Mr. Mustaro was a Senior Portfolio Manager, Core Fixed Income Group of Citigroup Asset Management ("CAM") since 1995, a Managing Director of CAM since 2004 and, prior thereto, a Director of CAM since 2000. The Series' Statement of Additional Information provides additional information about the compensation of the Portfolio Manager, other accounts managed by the Portfolio Manager, and the Portfolio Manager's ownership of securities of the Fund. AFFILIATES OF SELIGMAN: Seligman Advisors, Inc. ("Seligman Advisors"): The Fund's distributor; responsible for accepting orders for purchases and sales of Fund shares. Seligman Services, Inc.: A limited purpose broker/dealer; acts as the broker/dealer of record for shareholder accounts that do not have a designated broker or financial advisor. Seligman Data Corp. ("SDC"): The Fund's shareholder service agent; provides shareholder account services to the Fund at cost. 6 Regulatory Matters In late 2003, J. & W. Seligman & Co. Incorporated (Seligman) conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the "Seligman Funds"); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the Securities and Exchange Commission (the "SEC") and the Office of the Attorney General of the State of New York ("NYAG"). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and Seligman Advisors relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, SDC and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. 7 Shareholder Information Deciding Which Class of Shares to Buy Each of the Fund's Classes represent an interest in the same portfolio of investments. However, each Class has its own sales charge schedule, and its ongoing 12b-1 fees may differ from other Classes. When deciding which Class of shares to buy, you should consider, among other things: .. The amount you plan to invest. .. How long you intend to remain invested in the Fund, or another Seligman mutual fund. .. If you would prefer to pay an initial sales charge and lower ongoing 12b-1 fees, or be subject to a CDSC (i.e., a contingent deferred sales charge) and pay higher ongoing 12b-1 fees, or in the case of employee benefit plans eligible to purchase Class R shares, be subject to CDSC for a shorter period of time and pay higher ongoing 12b-1 fees. .. Whether you may be eligible for reduced or no sales charges when you buy or sell shares. An authorized dealer or your financial advisor will be able to help you decide which Class of shares best meets your needs. CLASS A - -------------------------------------------------------------------------------- .. Initial sales charge on Fund purchases, as set forth below:
SALES CHARGE AS A % OF SALES CHARGE AS A % OF REGULAR DEALER DISCOUNT AMOUNT OF YOUR INVESTMENT OFFERING PRICE/(1)/ NET AMOUNT INVESTED AS A % OF OFFERING PRICE - ------------------------------------------------------------------------------------------------- Less than $100,000 4.50% 4.71% 4.00% - ------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50 3.63 3.00 - ------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50 2.56 2.25 - ------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00 2.04 1.75 - ------------------------------------------------------------------------------------------------- $1,000,000 and over/(2)/ 0.00 0.00 0.00 - -------------------------------------------------------------------------------------------------
- ------------- (1)"Offering Price" is the amount that you actually pay for Fund shares; it includes the initial sales charge. (2)You will not pay an initial sales charge on purchases of $1 million or more, but you will be subject to a 1% CDSC if you sell your shares within 18 months. .. Annual 12b-1 fee (for shareholder services) of up to 0.25%. .. No initial sales charge on reinvested dividends or capital gain distributions. Please consult your financial advisor for assistance in selecting the appropriate class of shares. INFORMATION REGARDING BREAKPOINT DISCOUNTS FOR CLASS A SHARES Purchases of Class A shares by a "single person" may be eligible for the reduced initial sales charges ("Breakpoint Discounts") that are described above. For the purpose of the Breakpoint Discount thresholds described above, "single persons" includes individuals and immediate family members (i.e., husband, wife, 8 and minor children), as well as designated fiduciaries, certain employee benefit plans and certain tax-exempt organizations. For more information about what constitutes a "single person", please consult the Series' Statement of Additional Information. "Single persons" may be eligible for Breakpoint Discounts under the following circumstances: Discounts and Rights of Accumulation. Breakpoint Discounts contemplated above are also available under a Seligman Group of Funds program referred to as "Rights of Accumulation." Under this program, reduced sales charges will apply if the sum of (i) the current amount being invested by a "single person" in Class A shares of the Fund and in Class A shares of other Seligman mutual funds (excluding Seligman Cash Management Fund), (ii) the current net asset value of the Class A shares and Class B shares of other Seligman mutual funds already owned by the "single person" other than Seligman Cash Management Fund (except as provided in (iii)) and (iii) the current net asset value of Class A shares of Seligman Cash Management Fund which were acquired by a "single person" through an exchange of Class A shares of another Seligman mutual fund, exceeds the Breakpoint Discount thresholds described for Class A shares above. The value of the shares contemplated by items (ii) and (iii) above (collectively, the "Prior Owned Shares") will be taken into account only if SDC or the financial intermediary (if you are purchasing through a financial intermediary) is notified that there are holdings eligible for aggregation to meet the applicable Breakpoint Discount thresholds. If you are purchasing shares through a financial intermediary, you should consult with your intermediary to determine what information you will need to provide them in order to receive the Breakpoint Discounts to which you may be entitled. This information may include account records regarding shares eligible for aggregation that are held at any financial intermediary, as well as a social security or tax identification number. You may need to provide this information each time you purchase shares. In addition, certain financial intermediaries may prohibit you from aggregating investments in the Seligman Group of mutual funds if those investments are held in your accounts with a different intermediary or with SDC. If you are dealing directly with SDC, you should provide SDC with account information for any shares eligible for aggregation. This information includes account records and a social security or tax identification number. You may need to provide this information each time you purchase shares. Letter of Intent. A letter of intent allows you to purchase Class A shares over a 13-month period with the benefit of the Breakpoint Discounts discussed above, based on the total amount of Class A shares of the Fund that the letter states that you intend to purchase plus the current net asset value of the Prior Owned Shares. Reduced sales charges may be applied to purchases made within a 13-month period starting from the date of receipt from you of a letter of intent. In connection with such arrangement, a portion of the shares you initially purchase will be held in escrow to provide for any sales charges that might result if you fail to purchase the amount of shares contemplated by the letter of intent assuming your purchases would not otherwise be eligible for Breakpoint Discounts. These shares will be released upon completion of the purchases contemplated by the letter of intent. Eligible Employee Benefit Plans. Eligible employee benefit plans which have at least $2 million in plan assets at the time of investment in the Fund may purchase Class A shares at net asset value, but, in the event of plan termination, will be subject to a CDSC of 1% on shares purchased within 18 months prior to plan termination. Ascensus (formerly, BISYS) Plans. Plans that (i) own Class B shares of any Seligman mutual fund and (ii) participate in Seligman Growth 401(k) through Ascensus' third-party administration platform may, with 9 new contributions, purchase Class A shares at net asset value. Class A shares purchased at net asset value are subject to a CDSC of 1% on shares purchased within 18 months prior to plan termination. CDSCs. Purchases of Class A shares of $1 million or more under any of the programs discussed above are subject to a CDSC of 1% on redemptions made within 18 months of purchase, subject to certain limited exceptions set forth in the Series' Statement of Additional Information. Additional Information. For more information regarding Breakpoint Discounts, please consult the Series' Statement of Additional Information. This information can also be found at www.seligman.com via a hyperlink that is designed to facilitate access to the information. INFORMATION REGARDING SALES OF CLASS A SHARES AT NET ASSET VALUE Class A shares of the Fund may be issued without a sales charge to present and former directors, trustees, officers, employees (and their respective family members) of the Fund, the other investment companies in the Seligman Group of mutual funds, Seligman, SDC and Seligman's affiliates. Class A shares may also be issued without an initial sales charge to the following entities as further described in the Series' Statement of Additional Information: certain registered unit investment trusts; separate accounts established and maintained by certain insurance companies; registered representatives and employees (and their spouses and minor children) of any dealer or bank that has a sales agreement with the Fund's distributor; financial institution trust departments; certain registered investment advisers; accounts of certain financial institutions, authorized dealers or investment advisors that charge account management fees; pursuant to certain sponsored arrangements with organizations that make recommendations or permit solicitations of its employees, members or participants; other investment companies in the Seligman Group in connection with a deferred fee arrangement for outside Trustees, or pursuant to a "fund of funds" arrangement; certain "eligible employee benefit plans"; those partners and employees of outside counsel to the Fund or its directors or trustees who regularly provide advice and services to the Fund, to other funds managed by Seligman, or to their directors or trustees; in connection with sales pursuant to retirement plan alliance programs that have a written agreement with the Fund's distributor; and to participants in certain retirement and deferred compensation plans and trusts for which certain entities act as broker-dealer, trustee, or recordkeeper. For more information about those who can purchase shares of the Fund without a sales charge, and other relevant information, please consult the Series' Statement of Additional Information. In addition, this information can be found at www.seligman.com via a hyperlink that is designed to facilitate access to the information. If you are eligible to purchase Class A shares without a sales charge, you should inform your financial intermediary or SDC of such eligibility and be prepared to provide proof thereof. 10 CLASS B - -------------------------------------------------------------------------------- .. No initial sales charge on purchases. .. A declining CDSC on shares sold within 6 years of purchase:
YEARS SINCE PURCHASE CDSC ------------------------------------------- Less than 1 year 5% ------------------------------------------- 1 year or more but less than 2 years 4 ------------------------------------------- 2 years or more but less than 3 years 3 ------------------------------------------- 3 years or more but less than 4 years 3 ------------------------------------------- 4 years or more but less than 5 years 2 ------------------------------------------- 5 years or more but less than 6 years 1 ------------------------------------------- 6 years or more 0 -------------------------------------------
Your purchase of Class B shares must be for less than $250,000, because if you invest $250,000 or more, you will pay less in fees and charges if you buy another Class of shares. Please consult your financial advisor for assistance in selecting the appropriate class of shares .. Annual 12b-1 fee (for distribution and shareholder services) of 1.00%. .. Automatic conversion to Class A shares approximately eight years after purchase, resulting in lower ongoing 12b-1 fees. If you intend to hold your Class B shares for less than six years, you should consider purchasing Class C or Class D shares due to the shorter CDSC typically applicable to Class C and Class D shares. Additionally, if you are eligible to purchase Class R shares, you should consider purchasing that Class, which has lower ongoing fees and a typically shorter CDSC. .. No CDSC when you sell shares purchased with reinvested dividends or capital gain distributions. CLASS C OR CLASS D* - -------------------------------------------------------------------------------- Effective at the close of business (4:00 p.m. EST) on May 16, 2008, the Fund's Class D shares will be combined with Class C shares. This will be effected by the automatic conversion of Class D shares into Class C shares. Class D shares will no longer be available. Purchase orders for Class D shares to be effective on or after May 9, 2008 through May 16, 2008 may, in the Fund's discretion, be rejected due to operational reasons relating to the combination; if you are considering purchasing Class D shares during such period, you should consider Class C shares instead (consult your financial advisor as necessary). Any orders for exchange or redemption of the Fund's Class D shares to be effective through May 16, 2008 will continue to be accepted in accordance with this Prospectus. All orders (i.e., purchases, exchanges and redemptions) for Class D shares to be effective after the close of business on May 16, 2008 cannot be processed because no Class D shares will be outstanding or offered. Class D shares are identical in their terms to Class C shares (which are described below), and the value of your investment in the Fund will not change as a result of a Class D shareholder becoming a Class C shareholder. After Class D shares are combined with Class C shares, former Class D shareholders of the Fund will receive a confirmation detailing the change. The change described above will take place automatically. Shareholders need not take any action. .. No initial sales charge on purchases. .. A 1% CDSC on shares sold within one year of purchase. 11 - ------------- *Class D shares are not available to all investors. You may purchase Class D shares only (1) if you already own Class D shares of the Fund or another Seligman mutual fund, (2) if your financial advisor of record maintains an omnibus account at SDC, or (3) pursuant to a 401(k) or other retirement plan program for which Class D shares are already available or for which the sponsor requests Class D shares because the sales charge structure of Class D shares is comparable to the sales charge structure of the other funds offered under the program. CLASS R** - -------------------------------------------------------------------------------- .. No initial sales charge on purchases. .. Annual 12b-1 fee (for distribution and shareholder services) of 0.50%. .. A 1% CDSC on shares sold within one year of the plan's initial purchase of Class R shares of the Fund. .. No automatic conversion to Class A shares, so you will be subject to higher ongoing 12b-1 fees indefinitely. .. No CDSC when you sell shares purchased with reinvested dividends or capital gain distributions. Please consult your financial advisor for assistance in selecting the appropriate class of shares. - ------------- **Class R shares are not available to all investors. You may purchase Class R shares only if you are a qualified or non-qualified employee benefit plan or arrangement (other than a Section 403(b) plan sponsored by public educational institutions) that provides for the purchase of Fund shares and has (1) less than $20 million in assets (determined at the time of initial investment in the Seligman Group of mutual funds); and (2) at least (a) $500,000 invested in the Seligman Group of mutual funds or (b) 50 eligible employees to whom such plan is made available. Seligman Advisors may waive the requirements described in (2) above in connection with sales pursuant to a retirement plan alliance program which has a written agreement with Seligman Advisors. Seligman (as well as the Fund's distributor) may provide cash payments out of its own resources to financial intermediaries that sell shares of the Fund or otherwise provide services to the Fund. For more details regarding such payments, please consult the Series' Statement of Additional Information. The Series has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940 that allows each Class of the Fund to pay 12b-1 fees for the sale and distribution of its shares and/or for providing services to shareholders. Because the Fund's 12b-1 fees are paid out of each Class's assets on an ongoing basis, over time these fees will increase your investment expenses and may cost you more than other types of charges. The Series' Board of Trustees believes that no conflict of interest currently exists between the Fund's Classes of shares. On an ongoing basis, the Trustees, in the exercise of their fiduciary duties under the Investment Company Act of 1940 and applicable state law, will seek to ensure that no such conflict arises. 12 HOW CDSCS ARE CALCULATED To minimize the amount of the CDSC you may pay when you sell your shares, the Fund assumes that shares acquired through reinvested dividends and capital gain distributions (which are not subject to a CDSC) are sold first. Shares that have been in your account long enough so they are not subject to a CDSC are sold next. After these shares are exhausted, shares will be sold in the order they were purchased (earliest to latest). The amount of any CDSC that you pay will be based on the shares' original purchase price or current net asset value, whichever is less. You will not pay a CDSC when you exchange shares of the Fund to buy the same class of shares of any other Seligman mutual fund or when you exchange shares of another Seligman mutual fund to buy the same class of shares of the Fund. For the purpose of calculating the CDSC, when you exchange shares of the Fund for the same class of another Seligman mutual fund, it will be assumed that you held the shares of the other Seligman mutual fund since the date you originally purchased the shares of the Fund. Similarly, when you exchange shares of another Seligman mutual fund for shares of the Fund, it will be assumed that you held the shares of the Fund since the date you originally purchased shares of the other Seligman mutual fund. The CDSC on Class A, Class B, Class C, Class D and Class R shares may be waived or reduced in the following instances: on redemptions following death or disability; in connection with certain distributions from certain retirement plans, 403(b) plans, 401(k) plans and IRAs; in connection with shares sold to current and retired Trustees of the Fund; in connection with shares sold to a governmental entity which is prohibited by applicable laws from paying sales charges and related fees; in connection with systematic withdrawals; in connection with participation in certain 401(k) and retirement programs; on incidental redemptions to cover administrative expenses; on redemptions of shares initially purchased by an eligible employee benefit plan that are not in connection with a plan-level termination; and in the case of Class A shares purchased by certain institutional investors. The CDSC may also be waived on any redemption of Class A shares that are purchased by an eligible employee benefit plan that is a separate account client of Seligman at the time of initial investment (or within the prior 30 days) in a Seligman mutual fund. For more information, please consult the Series' Statement of Additional Information or www.seligman.com. 13 Pricing of Fund Shares When you buy or sell shares, you do so at the Class's net asset value ("NAV") next calculated after Seligman Advisors or SDC, as the case may be, accepts your request. However, in some cases, the Fund has authorized certain financial intermediaries (and other persons designated by such financial intermediaries) to receive purchase and redemption orders on behalf of the Fund. In such instances, customer orders will be priced at the Class's NAV next calculated after the authorized financial intermediary (or other persons designated by such financial intermediary) receives the request. Any applicable sales charge will be added to the purchase price for Class A shares. However, Seligman Advisors may reject any request to purchase Fund shares under the circumstances discussed later in this Prospectus under the captions "Important Policies That May Affect Your Account" and "Frequent Trading of Fund Shares." Authorized financial intermediaries or their designees are responsible for forwarding your order in a timely manner. NAV: Computed separately for each Class by dividing that Class's share of the net assets of the Fund (i.e., its assets less liabilities) by the total number of outstanding shares of the Class. If your buy or sell order is received by an authorized financial intermediary or its designee after the close of regular trading on the New York Stock Exchange ("NYSE"), the order will be executed at the Class's NAV calculated as of the close of regular trading on the next NYSE trading day, subject to any applicable sales charge. When you sell shares, you receive the Class's per share NAV, less any applicable CDSC. The NAV of the Fund's shares is determined each day, Monday through Friday, on days that the NYSE is open for trading. Because of their higher 12b-1 fees, the NAV of Class B, Class C, Class D and Class R shares will generally be lower than the NAV of the Class A shares of the Fund. Securities owned by the Fund are valued at current market prices. If Seligman concludes that the most recently reported (or closing) price of a security held by the Fund is no longer valid or reliable, or such price is otherwise unavailable, Seligman will value the security at its fair value as determined in accordance with policies and procedures approved by the Series' Board of Trustees. The value of a security held by the Fund could be so determined in the event of, among other things, natural disasters, acts of terrorism, market disruptions, intra-day trading halts or extreme market volatility. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value or the price that may be realized upon the actual sale of the security. Opening Your Account The Fund's shares are sold through authorized dealers or financial advisors who have sales agreements with Seligman Advisors. There are several programs under which you may be eligible for reduced sales charges. Ask an authorized dealer or your financial advisor if any of these programs apply to you. Class D (not available after May 16, 2008) and Class R shares are not available to all investors. For more information, see "Deciding Which Class of Shares to Buy--Class C or Class D" and "--Class R." To make your initial investment in the Fund, contact an authorized dealer or your financial advisor or complete an account application and send it with your check made payable to the Fund directly to SDC at the address provided on the account application. Your check must be in US dollars and drawn on a US bank. You may not use cash, checks made payable to cash, third party checks, traveler's checks or credit 14 card convenience checks for investment. If you do not choose a Class, your investment will automatically be made in Class A shares. YOU MAY BUY SHARES OF THE FUND FOR ALL TYPES OF TAX-DEFERRED RETIREMENT PLANS. CONTACT RETIREMENT PLAN SERVICES AT THE ADDRESS OR PHONE NUMBER LISTED ON THE INSIDE BACK COVER OF THIS PROSPECTUS FOR INFORMATION AND TO RECEIVE THE PROPER FORMS. The required minimum initial investments are: .. Regular (non-retirement) accounts: None (but certain Fund accounts are subject to a $1,000 minimum Fund account balance; for details, see "Important Policies That May Affect Your Account") .. For accounts opened concurrently with Invest-A-Check(R): . $100 to open if you will be making monthly investments . $250 to open if you will be making quarterly investments If you buy shares by check and subsequently sell the shares, SDC will not send your proceeds until your check clears, which could take up to 15 calendar days from the date of your purchase. You will be sent a statement confirming your purchase and any subsequent transactions in your account. You will also be sent quarterly and annual statements detailing your transactions in the Fund and the other Seligman funds you own under the same account number. Duplicate quarterly account statements for the current year and duplicate annual statements for the most recent prior calendar year will be sent to you free of charge. Copies of year-end statements for prior years are available for a fee of $10 per year, per account, with a maximum charge of $150 per account. Send your request and a check for the fee to SDC at: Seligman Data Corp. P.O. Box 9759 Providence, RI 02940-9759 Share certificates representing shares of the Fund are no longer issued. Any further purchases of shares (whether by further subscription or in connection with the exercise of exchange privileges) will be recorded in book-entry form only. However, if a share certificate has been previously issued to a shareholder, the shareholder will be required to deliver the share certificate to SDC, as shareholder servicing agent, before a request for redemption or exchange of shares evidenced by that share certificate will be processed. If you want to be able to buy, sell, or exchange shares by telephone, you should elect telephone services on the account application when you open your account. This will prevent you from having to complete a supplemental election form (which may require a medallion signature guarantee) at a later date. How to Buy Additional Shares After you have made your initial investment, there are many options available to make additional purchases of Fund shares. Shares may be purchased through an authorized dealer or your financial advisor, or you may send a check directly to SDC. Please provide either an investment slip or a note that provides your name(s), Fund name, and account number. Unless you indicate otherwise, your investment will be made in the Class you already own. Send investment checks to: Seligman Data Corp. P.O. Box 9766 Providence, RI 02940-9766 Your check must be in US dollars and be drawn on a US bank. You may not use cash, checks made payable to cash, third party checks, traveler's checks or credit card convenience checks for investment. You may also use the following account services to make additional investments: 15 Invest-A-Check(R). You may buy Fund shares electronically from a savings or checking account of an Automated Clearing House ("ACH") member bank. If your bank is not a member of ACH, the Fund will debit your checking account by preauthorized checks. For accounts opened concurrently with Invest-A-Check(R), you must buy Fund shares at regular monthly intervals in fixed amounts of $100 or more, or regular quarterly intervals in fixed amounts of $250 or more. If you use Invest-A-Check(R), you must continue to make automatic investments until the Fund's minimum account balance of $1,000 is met or your account may be closed. For accounts opened with $1,000 or more, Invest-A-Check(R) investments may be made for any amount. Automatic Dollar-Cost-Averaging. If you have at least $5,000 in Seligman Cash Management Fund, you may exchange uncertificated shares of that fund to buy shares of the same class of another Seligman mutual fund at regular monthly intervals in fixed amounts of $100 or more, or regular quarterly intervals in fixed amounts of $250 or more. If you exchange Class A shares, you may pay an initial sales charge to buy Fund shares. Automatic CD Transfer. You may instruct your bank to invest the proceeds of a maturing bank certificate of deposit (CD) in shares of the Fund. If you wish to use this service, contact SDC, an authorized dealer or your financial advisor to obtain the necessary forms. Because your bank may charge you a penalty, it is not normally advisable to withdraw CD assets before maturity. Dividends From Other Investments. You may have your dividends from other companies invested in the Fund. (Dividend checks must include your name, account number, Fund name and class of shares.) Direct Deposit. You may buy Fund shares electronically with funds from your employer, the IRS, or any other institution that provides direct deposit. Call SDC for more information. How to Exchange Shares Among the Seligman Mutual Funds You may sell this Fund's shares to buy shares of the same Class of another Seligman mutual fund, or you may sell shares of another Seligman mutual fund to buy this Fund's shares. Exchanges will be made at each fund's respective NAV. You will not pay an initial sales charge when you exchange, unless you exchange Class A shares of Seligman Cash Management Fund to buy shares of the same Class of the Fund or another Seligman mutual fund. If you are exchanging shares subject to CDSC, for purposes of determining CDSC holding periods, such shares will be exchanged pro rata based on the different times of purchase. Only your dividend and capital gain distribution options and telephone services will be automatically carried over to any new fund. If you wish to carry over any other account options (for example, Invest-A-Check(R) or Systematic Withdrawals) to the new fund, you must specifically request so at the time of your exchange. See "The Seligman Mutual Funds" for a list of the funds available for exchange. Before making an exchange, contact an authorized dealer, your financial advisor or SDC to obtain the applicable fund prospectus(es). You should read and understand a fund's prospectus before investing. Some funds may not offer all Classes of shares. How to Sell Shares The easiest way to sell Fund shares is by phone. If you have telephone services, you may be able to use this service to sell Fund shares. Restrictions apply to certain types of accounts. Please see "Important Policies That May Affect Your Account." When you sell Fund shares by phone, a check for the proceeds is sent to your address of record. If you have current ACH bank information on file, you may have the proceeds of the sale of your Fund shares directly deposited into your bank 16 account (typically, within 2 business days after your shares are sold). You may sell shares to the Fund through an authorized dealer or your financial advisor. The Fund does not charge any fees or expenses, other than any applicable CDSC, for this transaction; however, the authorized dealer or financial advisor may charge a service fee. Contact an authorized dealer or your financial advisor for more information. You may always send a written request to sell Fund shares; however, it may take longer to get your money. To protect you and the Fund, if your written redemption request is for $25,000 or more, SDC will seek telephone confirmation from you, an authorized dealer or your financial advisor before sending any money. If the proceeds are: (1) $50,000 or more; (2) to be paid to someone other than the account owner; (3) to be mailed to other than your address of record; (4) requested in connection with an address change; or (5) requested within 30 days of an address change on the account, then before sending any money, the Fund will require: .. A signed, written redemption request; .. Telephone confirmation; and .. A medallion signature guarantee. Telephone confirmations will not affect the date on which your redemption request is actually processed, but may delay the payment of proceeds. If your Fund shares are represented by certificates, you will need to surrender the certificates to SDC before you sell your shares. You may need to provide additional documents to sell Fund shares if you are: .. a corporation; .. an executor or administrator; .. a trustee or custodian; or .. in a retirement plan. MEDALLION SIGNATURE GUARANTEE: Protects you and each Seligman mutual fund from fraud. It is an assurance that the signature is genuine. A Medallion Signature Guarantee from The New York Stock Exchange, Inc. Medallion Signature Guarantee Program, The Securities Transfer Agents Medallion Program or The Stock Exchanges Medallion Program are acceptable. These guarantees are the leading signature guarantee programs recognized by most major financial services associations throughout the United States and Canada, and are endorsed by the Securities Transfer Association. Non-medallion signature guarantees or notarization by a notary public are not acceptable forms of signature guarantees. Contact an authorized dealer, your financial advisor or SDC's Shareholder Services Department for information on selling your shares under any of the above circumstances. You may also use the following account services to sell Fund shares: Systematic Withdrawal Plan. If you have at least $5,000 in the Fund, you may withdraw (sell) a fixed dollar amount (minimum of $50) of uncertificated shares at regular intervals. A check will be sent to you at your address of record or, if you have current ACH bank information on file, you may have your payments directly deposited to your predesignated bank account, typically within 2 business days after your shares are sold. If you bought $1,000,000 or more of Class A shares without an initial sales charge, your withdrawals may be subject to a 1% CDSC if they occur within 18 months of purchase. If you own Class B, Class C, Class D or Class R shares and reinvest your dividends and capital gain distributions, you may annually withdraw 12%, 10%, 10% or 10%, respectively, of the value of your account (at the time of election) without a CDSC. 17 Check Redemption Service. If you have at least $25,000 in the Fund, you may ask SDC to provide checks which may be drawn against your account. You can elect this service on your initial application, or contact SDC for the appropriate forms to establish this service. If you own Class A shares that were bought at NAV because of the size of your purchase, or if you own Class B, C or D shares, check redemptions may be subject to a CDSC. Important Policies That May Affect Your Account To protect you and other shareholders, the Fund reserves the right to: .. Refuse an exchange request if the amount you wish to exchange equals or exceeds the lesser of $1,000,000 or 1% of the Fund's net assets; .. Refuse any request to buy Fund shares; .. Reject any request received by telephone; .. Suspend or terminate telephone services; .. Reject a medallion signature guarantee that SDC believes may be fraudulent; .. Close your Fund account if its value is below $1,000, provided, however, that this policy does not apply to direct accounts held at SDC that are retirement accounts (i.e., IRAs), unclaimed property accounts and Fund shareholder accounts in the process of automatic conversion from the Fund's Class B shares to Class A shares that aggregate to more than $1,000. The Fund will notify you in writing at least 30 days before closing your Fund account and anticipates permitting shareholders owning Fund shares directly with SDC a period of one year to reach the $1,000 Fund minimum balance. If you hold your shares through a financial intermediary, you should contact that financial intermediary for their policies relating to minimum investment requirements (which could be different from the Fund's requirements); .. Close your account if it does not have a certified taxpayer identification number (this is your social security number for individuals); and .. Request additional information or close your account to the extent required or permitted by applicable law or regulations, including those relating to the prevention of money laundering. Telephone Services You, an authorized dealer or your financial advisor will be able to place the following requests by telephone, unless you indicate on your account application that you do not want telephone services: .. Sell uncertificated shares (up to $50,000 per day, payable to account owner(s) and mailed to the address of record or if you have current ACH bank information on file, you may have your redemption proceeds directly deposited to your bank account); .. Exchange shares between Seligman mutual funds; .. Change dividend and/or capital gain distribution options; .. Change your address; and .. Establish systematic withdrawals to address of record. If you do not elect telephone services on your account application when you open your account, or opened your account through an authorized dealer or your financial advisor, telephone services must be elected on a supplemental election form (which may require a medallion signature guarantee). Restrictions apply to certain types of accounts: .. Trust accounts on which the current trustee is not listed may not sell Fund shares by phone; .. Corporations may not sell Fund shares by phone; 18 .. IRAs may only exchange Fund shares or request address changes by phone; and .. Group retirement plans may not sell Fund shares by phone; plans that allow participants to exchange by phone must provide a letter of authorization signed by the plan custodian or trustee and provide a supplemental election form signed by all plan participants. Unless you have current ACH bank information on file, you will not be able to sell Fund shares by phone within 30 days following an address change. Your telephone request must be communicated to an SDC representative. You may not request any phone transactions via the automated access line. You may cancel telephone services at any time by sending a written request to SDC. Each account owner, by accepting or adding telephone services, authorizes each of the other owners to make requests by phone. An authorized dealer or your financial advisor may not establish telephone services without your written authorization. SDC will send written confirmation to the address of record when telephone services are added or terminated. During times of heavy call volume, you may not be able to get through to SDC by phone to request a sale or exchange of Fund shares. In this case, you may need to send written instructions, and it may take longer for your request to be processed. The Fund's NAV may fluctuate during this time. The Fund and SDC will not be liable for processing requests received by phone as long as it was reasonable to believe that the request was genuine. The Fund and SDC will employ reasonable procedures to confirm whether instructions received by telephone are genuine, and, if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. Reinstatement Privilege If you sell Fund shares, you may elect, within 120 calendar days, to use part or all of the proceeds to buy shares of the Fund or another Seligman mutual fund (reinstate your investment) without paying an initial sales charge or, if you paid a CDSC when you sold your shares, receiving a credit for the applicable CDSC paid. This privilege may be exercised only once each calendar year. Contact an authorized dealer or your financial advisor for more information. You should consult your tax advisor concerning possible tax consequences of exercising this privilege. Frequent Trading of Fund Shares As a matter of policy, the Fund discourages frequent trading of Fund shares. In this regard, the Series' Board of Trustees has adopted written policies and procedures that, subject to the limitations set forth below, are designed to deter frequent trading that may be disruptive to the management of the Fund's portfolio. If the Fund, Seligman Advisors (the Fund's distributor) or SDC (the Fund's shareholder service agent) (referred to collectively below as the "Seligman Entities") determine that you have exchanged more than twice to and from the Fund in any three-month period, you will not be permitted to engage in further exchange activity in the Fund for 90 days. The Seligman Entities may under certain circumstances also refuse initial or additional purchases of Fund shares by any person for any reason, including if that person is believed to be engaging, or suspected of engaging, in trading of fund shares in excess of the guidelines noted above (excluding purchases via a direct deposit through an automatic payroll deduction program or purchases by the funds of Seligman Asset Allocation Series, Inc. in the ordinary course of implementing their asset allocation strategies). In addition, the Seligman Entities may under certain circumstances refuse to accept exchange requests for accounts of any person that has had a previous pattern (even if involving a different fund in the Seligman Group) of trading in excess of the guidelines noted above. Furthermore, if you purchase shares of the Fund through a financial intermediary, your ability to purchase or exchange shares of the Fund could be limited if your account is 19 associated with a person (e.g., broker or financial advisor) previously identified by the Seligman Entities as engaging in trading activity in excess of the guidelines noted above. The Fund's policies do not permit exceptions to be granted, and the policies are, to the extent possible, applied uniformly to all accounts where beneficial ownership has been ascertained. Shareholders and their financial intermediaries seeking to engage in excessive trading practices may deploy a variety of strategies to avoid detection, and, despite the efforts of the Seligman Entities to prevent excessive trading, there is no guarantee that the Seligman Entities will be able to identify such shareholders or curtail their trading practices. The ability of the Seligman Entities to detect and curtail excessive trading practices may also be limited by operational systems and technological limitations and hindered by financial intermediaries purposefully or unwittingly facilitating these practices. In addition, the Fund receives purchase, exchange and redemption orders through financial intermediaries, some of whom hold shares through omnibus accounts, and the Seligman Entities will not, under most circumstances, know of or be able to reasonably detect excessive trading which may occur through these financial intermediaries. Omnibus account arrangements and their equivalents (e.g., bank trust accounts and retirement plans) are a common form of holding shares of funds by many brokers, banks and retirement plan administrators. These arrangements often permit the financial intermediary to aggregate many client transactions and ownership positions and provide the Fund with combined purchase and redemption orders. In these circumstances, the Seligman Entities may not know the identity of particular shareholders or beneficial owners or whether particular purchase or sale orders were placed by the same shareholder or beneficial owner. A substantial percentage of shares of the Fund may be held through omnibus accounts and their equivalents. To the extent that the efforts of the Seligman Entities are unable to eliminate excessive trading practices in the Fund, these practices may interfere with the efficient management of the Fund's portfolio, hinder the Fund's ability to pursue its investment objective and may reduce the returns of long-term shareholders. Additionally, these practices may result in the Fund engaging in certain activities to a greater extent than it otherwise would, such as maintaining higher cash balances, using its line of credit to a greater extent and engaging in additional portfolio transactions. Increased portfolio transactions and use of the line of credit could correspondingly increase the Fund's operating costs and decrease the Fund's investment performance. Maintenance of a higher level of cash balances necessary to meet frequent redemptions could likewise result in lower Fund investment performance during periods of rising markets. Dividends and Capital Gain Distributions The Fund generally pays any dividends from its net investment income monthly and distributes any net capital gains realized on investments annually. The Fund has a substantial capital loss carryforward that is available for offset against future net capital gains, expiring in various amounts through 2014. Accordingly, no capital gains distributions are expected to be paid to shareholders until net capital gains have been realized in excess of the available capital loss carryforward. You may elect to: (1)reinvest both dividends and capital gain distributions; (2)receive dividends in cash and reinvest capital gain distributions; or (3)receive both dividends and capital gain distributions in cash. Your dividends and capital gain distributions, if any, will be reinvested if you do not instruct 20 otherwise or if you own Fund shares in a Seligman tax-deferred retirement plan. If you want to change your election, you may send written instructions to SDC at P.O. Box 9759, Providence, RI 02940-9759, or, if you have telephone services, you, an authorized dealer or your financial advisor may call SDC. Your request must be received by SDC before the record date to be effective for that dividend or capital gain distribution. Dividends or capital gain distributions that are not reinvested will be sent by check to your address of record or, if you have current ACH bank information on file, directly deposited into your predesignated bank account, typically within 2 business days from the payable date. Dividends and capital gain distributions are reinvested to buy additional Fund shares on the payable date using the NAV of the payable date. Dividends, if any, on Class B, Class C, Class D and Class R shares will be lower than the dividends on Class A shares as a result of their higher 12b-1 fees. Capital gain distributions will be paid in the same amount for each Class. DIVIDEND: A payment by a mutual fund, usually derived from the fund's net investment income (dividends and interest earned on portfolio securities less expenses). CAPITAL GAIN DISTRIBUTION: A payment to mutual fund shareholders which represents profits realized on the sale of securities in a fund's portfolio. EX-DIVIDEND DATE: The day on which any declared distributions (dividends or capital gains) are deducted from a fund's assets before it calculates its NAV. Taxes The tax treatment of dividends and capital gain distributions is the same whether you take them in cash or reinvest them to buy additional Fund shares. Dividends paid by the Fund, other than "qualified dividend income," are generally taxable to you as ordinary income. Tax-deferred retirement plans are not taxed currently on dividends or capital gain distributions or on gains resulting from the sale or exchange of Fund shares. You may be taxed at different rates on capital gains distributed by the Fund depending on the length of time the Fund holds its assets. When you sell Fund shares, any gain or loss you realize will generally be treated as a long-term capital gain or loss if you held your shares for more than one year, or as a short-term capital gain or loss if you held your shares for one year or less. However, if you sell Fund shares on which a long-term capital gain distribution has been received and you held the shares for six months or less, any loss you realize will be treated as a long-term capital loss to the extent that it offsets the long-term capital gain distribution. An exchange of Fund shares is a sale and may result in a gain or loss for federal income tax purposes. Each January, you will be sent information on the tax status of any distributions made during the previous calendar year. Because each shareholder's situation is unique, you should always consult your tax advisor concerning the effect income taxes may have on your individual investment. For further information, please see the Series' Statement of Additional Information under the section entitled "Taxation of each Fund." 21 The Seligman Mutual Funds EQUITY - -------------------------------------------------------------------------------- SPECIALTY - -------------------------------------------------------------------------------- Seligman Communications and Information Fund Seeks capital appreciation by investing in companies operating in the communications, information and related industries. Seligman Emerging Markets Fund Seeks long-term capital appreciation by investing primarily in equity securities of companies in emerging markets. Seligman Global Technology Fund Seeks long-term capital appreciation by investing primarily in global securities (US and non-US) of companies in the technology and technology-related industries. SMALL COMPANY - -------------------------------------------------------------------------------- Seligman Frontier Fund Seeks growth of capital by investing primarily in small company growth stocks. Seligman Global Smaller Companies Fund Seeks long-term capital appreciation by investing in securities of smaller companies around the world, including the US. Seligman Smaller-Cap Value Fund Seeks long-term capital appreciation by investing in common stocks of smaller companies, deemed to be "value" companies by the investment manager. MEDIUM COMPANY - -------------------------------------------------------------------------------- Seligman Capital Fund Seeks capital appreciation by investing in the common stocks of medium-sized companies. LARGE COMPANY - -------------------------------------------------------------------------------- Seligman Common Stock Fund Seeks total return through a combination of capital appreciation and current income. Seligman Global Growth Fund Seeks capital appreciation by investing primarily in equity securities of companies that have the potential to benefit from global economic or social trends. Seligman Growth Fund Seeks long-term capital appreciation. Seligman International Growth Fund Seeks long-term capital appreciation by generally investing in securities of large- and mid-capitalization growth companies in the international markets. Seligman Large-Cap Value Fund Seeks long-term capital appreciation by investing in common stocks of large companies, deemed to be "value" companies by the investment manager. BALANCED - -------------------------------------------------------------------------------- Seligman Income and Growth Fund Seeks total return through a combination of capital appreciation and income consistent with what is believed to be a prudent allocation between equity and fixed-income securities. REAL ESTATE SECURITIES - -------------------------------------------------------------------------------- Seligman LaSalle Global Real Estate Fund Seeks total return through a combination of current income and long-term capital appreciation by investing in equity and equity-related securities issued by global real estate companies, such as US real estate investment trusts (REITs) and similar entities outside the US. 22 Seligman LaSalle Monthly Dividend Real Estate Fund Seeks to produce a high level of current income with capital appreciation as a secondary objective by investing in equity and equity-related securities issued by real estate companies, such as real estate investment trusts (REITs). FIXED-INCOME - -------------------------------------------------------------------------------- INCOME - -------------------------------------------------------------------------------- Seligman High-Yield Fund Seeks a high level of current income and may also consider the potential for capital appreciation consistent with prudent investment management. The Fund invests primarily in non-investment grade, high-yield securities. Seligman Core Fixed Income Fund Seeks to produce a high level of current income consistent with prudent exposure to risk. Capital appreciation is a secondary objective. The Fund invests a significant portion of its assets in investment grade fixed-income securities. Seligman U.S. Government Securities Fund Seeks a high level of current income consistent with prudent investment risk by investing in a diversified portfolio of securities issued or guaranteed by the US government, its agencies or instrumentalities, or government sponsored enterprises. MUNICIPAL - -------------------------------------------------------------------------------- Seligman Municipal Funds: National Fund Seeks maximum income, exempt from regular federal income taxes. State-specific funds:* Seek to maximize income exempt from regular federal income taxes and from regular income taxes in the designated state. California Louisiana New Jersey .. High-Yield Maryland New York .. Quality Massachusetts North Carolina Colorado Michigan Ohio Florida Minnesota Oregon Georgia Missouri Pennsylvania South Carolina
* A small portion of income may be subject to state and local taxes. MONEY MARKET - -------------------------------------------------------------------------------- Seligman Cash Management Fund Seeks to preserve capital and to maximize liquidity and current income by investing only in high-quality money market securities. The fund seeks to maintain a constant net asset value of $1.00 per share. ASSET ALLOCATION - -------------------------------------------------------------------------------- SELIGMAN ASSET ALLOCATION SERIES. INC. offers four different asset-allocation funds that pursue their investment objectives by allocating their assets among other mutual funds in the Seligman Group. Seligman Asset Allocation Aggressive Growth Fund Seeks long-term capital appreciation by creating a portfolio of mutual funds that invests in aggressive growth-oriented domestic and international equity securities weighted toward small- and medium-capitalization companies. Seligman Asset Allocation Growth Fund Seeks long-term capital appreciation by creating a portfolio of mutual funds that invests in growth-oriented domestic and international equity securities, with a more even weighting among small-, medium- and large-capitalization companies than Seligman Asset Allocation Aggressive Growth Fund. Seligman Asset Allocation Moderate Growth Fund Seeks capital appreciation by creating a portfolio of mutual funds that invests in small-, medium- and large-capitalization domestic and international 23 equity securities as well as real estate securities and domestic fixed-income securities. Seligman Asset Allocation Balanced Fund Seeks capital appreciation and preservation of capital with current income and growth of income by creating a portfolio of mutual funds that invests in medium- and large-capitalization and dividend producing domestic and international equity securities supplemented by a larger allocation to real estate securities as well as domestic fixed-income securities, cash and cash equivalents than Seligman Asset Allocation Moderate Growth Fund. SELIGMAN TARGETHorizon ETF PORTFOLIOS, INC. offers five asset-allocation mutual funds that seek to achieve their respective investment objectives by allocating their assets among exchange-traded funds (ETFs). Seligman TargETFund 2045 Seeks capital appreciation until migration, and thereafter capital appreciation consistent with a strategy of steadily decreasing emphasis on capital appreciation and steadily increasing emphasis on capital preservation and current income as the year 2045 approaches. Seligman TargETFund 2035 Seeks capital appreciation until migration, and thereafter capital appreciation consistent with a strategy of steadily decreasing emphasis on capital appreciation and steadily increasing emphasis on capital preservation and current income as 2035 approaches. Seligman TargETFund 2025 Seeks capital appreciation consistent with a strategy of steadily decreasing emphasis on capital appreciation and steadily increasing emphasis on capital preservation and current income as the year 2025 approaches. Seligman TargETFund 2015 Seeks capital appreciation and current income consistent with a strategy of steadily decreasing emphasis on capital appreciation and steadily increasing emphasis on capital preservation and current income as the year 2015 approaches. Seligman TargETFund Core Seeks capital appreciation and preservation of capital with current income. 24 Financial Highlights The tables below are intended to help you understand the financial performance of certain of the Fund's Classes for the periods presented. Certain information reflects financial results for a single share of a Class that was held throughout the periods shown. Per share amounts are calculated using average shares outstanding during the period. "Total return" shows the rate that you would have earned (or lost) on an investment in each Class, assuming you reinvested all your dividends and capital gain distributions, if any. Total returns do not reflect any sales charges or transaction costs on your investment or taxes. If such charges, costs or taxes were included, total returns would have been lower. Deloitte & Touche LLP, Independent Registered Public Accounting Firm, has audited this information. Their report, along with the Fund's financial statements, is included in the Fund's Annual Report, which is available upon request.
CLASS A - --------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------- 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------- PER SHARE DATA: - --------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 6.80 $ 6.89 $ 7.10 $ 7.23 $ 7.39 - --------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.26 0.24 0.20 0.19 0.18 - --------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.15 (0.09) (0.20) (0.11) (0.14) - --------------------------------------------------------------------------------------------------- Total from investment operations 0.41 0.15 -- 0.08 0.04 - --------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.26) (0.24) (0.20) (0.19) (0.18) - --------------------------------------------------------------------------------------------------- Dividends in excess of net investment income -- -- (0.01) (0.02) (0.02) - --------------------------------------------------------------------------------------------------- Total distributions (0.26) (0.24) (0.21) (0.21) (0.20) - --------------------------------------------------------------------------------------------------- Net asset value, end of year $ 6.95 $ 6.80 $ 6.89 $ 7.10 $ 7.23 - --------------------------------------------------------------------------------------------------- TOTAL RETURN 6.10% 2.33% --% 1.09% 0.55% - --------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: - --------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $36,335 $40,676 $44,402 $47,553 $59,660 - --------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.52% 1.42% 1.50% 1.31% 1.27% - --------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.80% 3.55% 2.90% 2.66% 2.38% - --------------------------------------------------------------------------------------------------- Portfolio turnover rate 204.04% 347.09% 286.60% 133.02% 250.49% - ---------------------------------------------------------------------------------------------------
25
CLASS B - -------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------- PER SHARE DATA: - -------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 6.82 $ 6.90 $ 7.12 $ 7.25 $ 7.40 - -------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.21 0.19 0.15 0.14 0.12 - -------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.14 (0.08) (0.21) (0.11) (0.13) - -------------------------------------------------------------------------------------------------- Total from investment operations 0.35 0.11 (0.06) 0.03 (0.01) - -------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.21) (0.19) (0.15) (0.14) (0.12) - -------------------------------------------------------------------------------------------------- Dividends in excess of net investment income -- -- (0.01) (0.02) (0.02) - -------------------------------------------------------------------------------------------------- Total distributions (0.21) (0.19) (0.16) (0.16) (0.14) - -------------------------------------------------------------------------------------------------- Net asset value, end of year $ 6.96 $ 6.82 $ 6.90 $ 7.12 $ 7.25 - -------------------------------------------------------------------------------------------------- TOTAL RETURN 5.15% 1.73% (0.88)% 0.34% (0.08)% - -------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: - -------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $4,713 $7,619 $13,986 $24,045 $40,659 - -------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.28% 2.17% 2.26% 2.06% 2.03% - -------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.04% 2.80% 2.14% 1.91% 1.62% - -------------------------------------------------------------------------------------------------- Portfolio turnover rate 204.04% 347.09% 286.60% 133.02% 250.49% - --------------------------------------------------------------------------------------------------
CLASS C - -------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------- PER SHARE DATA: - -------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 6.82 $ 6.90 $ 7.11 $ 7.25 $ 7.40 - -------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.21 0.19 0.15 0.14 0.12 - -------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.14 (0.08) (0.20) (0.12) (0.13) - -------------------------------------------------------------------------------------------------- Total from investment operations 0.35 0.11 (0.05) 0.02 (0.01) - -------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.21) (0.19) (0.15) (0.14) (0.12) - -------------------------------------------------------------------------------------------------- Dividends in excess of net investment income -- -- (0.01) (0.02) (0.02) - -------------------------------------------------------------------------------------------------- Total distributions (0.21) (0.19) (0.16) (0.16) (0.14) - -------------------------------------------------------------------------------------------------- Net asset value, end of year $ 6.96 $ 6.82 $ 6.90 $ 7.11 $ 7.25 - -------------------------------------------------------------------------------------------------- TOTAL RETURN 5.15% 1.84% (0.74)% 0.20% (0.08)% - -------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: - -------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $3,906 $4,185 $6,016 $9,764 $18,739 - -------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.28% 2.17% 2.26% 2.06% 2.03% - -------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.04% 2.80% 2.14% 1.91% 1.62% - -------------------------------------------------------------------------------------------------- Portfolio turnover rate 204.04% 347.09% 286.60% 133.02% 250.49% - --------------------------------------------------------------------------------------------------
26
CLASS D - -------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------- PER SHARE DATA: - -------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 6.82 $ 6.90 $ 7.11 $ 7.24 $ 7.40 - -------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.21 0.19 0.15 0.14 0.12 - -------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.14 (0.08) (0.20) (0.11) (0.14) - -------------------------------------------------------------------------------------------------- Total from investment operations 0.35 0.11 (0.05) 0.03 (0.02) - -------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.21) (0.19) (0.15) (0.14) (0.12) - -------------------------------------------------------------------------------------------------- Dividends in excess of net investment income -- -- (0.01) (0.02) (0.02) - -------------------------------------------------------------------------------------------------- Total distributions (0.21) (0.19) (0.16) (0.16) (0.14) - -------------------------------------------------------------------------------------------------- Net asset value, end of year $ 6.96 $ 6.82 $ 6.90 $ 7.11 $ 7.24 - -------------------------------------------------------------------------------------------------- TOTAL RETURN 5.15% 1.70% (0.74)% 0.34% (0.22)% - -------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: - -------------------------------------------------------------------------------------------------- Net assets, end of year (000s omitted) $10,660 $10,091 $10,992 $11,556 $14,789 - -------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 2.28% 2.17% 2.26% 2.06% 2.03% - -------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.04% 2.80% 2.14% 1.91% 1.62% - -------------------------------------------------------------------------------------------------- Portfolio turnover rate 204.04% 347.09% 286.60% 133.02% 250.49% - --------------------------------------------------------------------------------------------------
CLASS R - ----------------------------------------------------------------------------------------------------- 4/30/03* YEAR ENDED DECEMBER 31, TO ------------------------------- 12/31/03 2007 2006 2005 2004 --------- - ------------------------------------------------------------------------------------------- PER SHARE DATA: - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.81 $ 6.89 $ 7.10 $ 7.23 $ 7.36 - ----------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.24 0.22 0.18 0.17 0.10 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.14 (0.08) (0.20) (0.11) (0.10) - ----------------------------------------------------------------------------------------------------- Total from investment operations 0.38 0.14 (0.02) 0.06 -- - ----------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.24) (0.22) (0.18) (0.17) (0.10) - ----------------------------------------------------------------------------------------------------- Dividends in excess of net investment income -- -- (0.01) (0.02) (0.03) - ----------------------------------------------------------------------------------------------------- Total distributions (0.24) (0.22) (0.19) (0.19) (0.13) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $ 6.95 $ 6.81 $ 6.89 $ 7.10 $ 7.23 - ----------------------------------------------------------------------------------------------------- TOTAL RETURN 5.63% 2.21% (0.25)% 0.82% (0.05)% - ----------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: - ----------------------------------------------------------------------------------------------------- Net assets, end of period (000s omitted) $1,905 $1,002 $671 $440 $2 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.78% 1.67% 1.76% 1.56% 1.57%+ - ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets 3.54% 3.30% 2.64% 2.41% 2.01%+ - ----------------------------------------------------------------------------------------------------- Portfolio turnover rate 204.04% 347.09% 286.60% 133.02% 250.49%++ - -----------------------------------------------------------------------------------------------------
- ------------- * Commencement of offering of shares. + Annualized. ++ Computed at the Fund level for the year ended December 31, 2003. 27 How to Contact Us The Fund Write to Corporate Communications/Investor Relations Department J. & W. Seligman & Co. Incorporated 100 Park Avenue New York, NY 10017 Phone Toll-free in the US (800) 221-7844 Outside the US (212) 850-1864 Your Regular (Non-Retirement) Account Write to Shareholder Service Agent/Seligman Group of Funds Seligman Data Corp. For investments P.O. Box 9766 into an account Providence, RI 02940-9766 For non-investment P.O. Box 9759 inquiries Providence, RI 02940-9759 For matters requiring 101 Sabin St. overnight delivery Pawtucket, RI 02860 Phone Toll-free in the US (800) 221-2450 Outside the US (212) 682-7600 Your Retirement Account Write to Retirement Plan Services Seligman Data Corp. 100 Park Avenue New York, NY 10017 Phone Toll-free (800) 445-1777
24-hour automated telephone access is available by calling (800) 622-4597 on a touchtone telephone. You will have instant access to price, yield, account balance, most recent transaction, and other information. SELIGMAN ADVISORS, INC. an affiliate of [LOGO] J&WS J. & W. SELIGMAN & CO. INCORPORATED ESTABLISHED 1864 100 Park Avenue, New York, NY 10017 28 For More Information The following information is available, without charge, upon request by calling toll-free (800) 221-2450 in the US or (212) 682-7600 outside the US. You may also call these numbers to request other information about the Fund or to make shareholder inquiries. The Statement of Additional Information ("SAI") contains additional information about the Fund. It is on file with the Securities and Exchange Commission, or SEC, and is incorporated by reference into (is legally part of) this Prospectus. Annual/Semi-Annual Reports contain additional information about the Fund's investments. In the Fund's annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. The Fund's SAI and most recent Annual/Semi-Annual Reports are also available, free of charge, at www.seligman.com. Information about the Fund, including the Prospectus and SAI, can be viewed and copied at the SEC's Public Reference Room in Washington, DC. For information about the operation of the Public Reference Room, call (202) 551-8090. The Prospectus, SAI, Annual/Semi-Annual reports and other information about the Fund are also available on the EDGAR Database on the SEC's Internet site: www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. The website references in this Prospectus are inactive textual references and information contained in or otherwise accessible through these websites does not form a part of this Prospectus. SEC File Number: 811-4103 [LOGO] Go paperless -- sign up for E-Delivery at www.seligman.com EX-99.17(F) 11 dex9917fhifsai08.txt Supplement, dated March 25, 2009 to the Statement of Additional Information, dated May 1, 2008, of Seligman High Income Fund Series (the "Series"), on behalf of each of Seligman High-Yield Fund and Seligman U.S. Government Securities Fund (each, a Fund and collectively, the "Funds") Effective March 25, 2009, this supplement to the Series' Statement of Additional Information ("SAI") supersedes and replaces the supplement to the SAI dated November 25, 2008. Effective immediately, John G. McColley is a portfolio manager of Seligman U.S. Government Securities Fund, and Jamie Jackson no longer serves as a portfolio manager for that Fund. Other than changes to the information under the caption "Portfolio Managers", the changes set forth herein are substantially identical to those set forth in the supplement dated November 25, 2008. On November 7, 2008, RiverSource Investments, LLC ("RiverSource Investments"), a wholly owned subsidiary of Ameriprise Financial, Inc., announced the closing of its acquisition (the "Acquisition") of J. & W. Seligman & Co. Incorporated. With the Acquisition completed and shareholders of the Fund having previously approved (at a Special Meeting held on November 3, 2008) a new investment management services agreement between the Series (on behalf of the Fund) and RiverSource Investments, RiverSource Investments is the new investment manager of the Fund effective November 7, 2008. In connection with the Acquisition, each Fund's portfolio managers have been changed. This change also results in modification to the investment process used for each Fund. The foregoing changes are reflected in the Supplements, dated November 7, 2008, to each Fund's respective prospectuses. Effective November 7, 2008, the following changes are hereby made to the Fund's SAI. Capitalized terms used but not defined in this Supplement shall have the meanings given to such terms in the Fund's SAI. The following information is added under the caption "Fund History": As of November 7, 2008, the Series and the Funds are part of the RiverSource complex of funds. The RiverSource complex of funds includes a comprehensive array of funds managed by RiverSource Investments, LLC ("RiverSource Investments"), including the Funds and the other Seligman Mutual Funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments ("Threadneedle"), to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board) and the same policies and procedures. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, as set forth in the Funds' respective prospectuses, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. The first two paragraphs under the caption "Description of the Fund and Its Investments and Risks - Options and Other Derivatives " are hereby superseded and replaced with the following: Options and Other Derivatives. The Funds may invest in certain derivatives instruments described below for hedging, cash management or investment purposes. Generally, derivatives may be employed when the investment manager believes they will provide an effective means of managing risk or portfolio characteristics. These instruments are described below. To the extent the Funds engage in the derivatives described below, there can be no assurance that such derivatives will achieve their intended benefits, and the Funds may lose money as a result of such use. The information under the captions "Description of the Fund and Its Investments and Risks - Investment Strategies and Risks - Interest Rate Futures", " - Currency Futures" and " - Options on Interest Rate Futures and Currency Futures" is hereby superseded and replaced with the following: Futures Contracts. The Funds may utilize interest rate futures, currency futures and the U.S. Government Securities Fund may also utilize treasury futures. Futures contracts, which trade on a securities exchange, are standardized as to quantity, delivery date and settlement conditions, including specific securities acceptable for delivery against the futures contract. An interest rate futures contract is an agreement to buy or sell a debt security at a specific date in the future. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. A treasury futures contract is an agreement to buy or sell a specified amount of a specific security issued by the U.S. Treasury for a specified price at a designated date and time in the future. In the case of index futures, settlement is made in cash based on the value of a specified underlying index. More commonly, futures contracts are closed out prior to expiration by an offsetting purchase or sale. Since the counterparty to every futures contact is a securities exchange, offsetting transactions are netted to close out positions. The Funds may incur a loss if the closing transaction occurs at an unfavorable price as compared with that of the opening trade (including transaction costs). There can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the position, including the maintenance of margins, which could result in the Funds incurring substantial losses. Margin deposits must be made at the time a futures contract position is acquired. The Funds are required to deposit in a segregated account, typically with its custodian, in the name of the futures broker through whom the transaction was effected, "initial margin" consisting of cash and/or other appropriate liquid assets in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Initial margin on futures contracts is returned to a Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Funds may be required by a securities exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent "variation margin" payments are made daily to and from the futures broker as the value of the futures position varies, a process known as "marking-to-market." When the Funds purchase or sell futures contracts, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Funds have insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Purchasers and sellers of futures positions can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument held or written. Under certain circumstances, exchanges upon which futures contracts trade may establish daily limits on the amount that the price of a future contract can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Fund were unable to liquidate a futures contract position, it could incur substantial losses. The Funds would continue to be subject to market risk with respect to the position. In addition, the Funds would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or to designate liquid assets on its books and records. Certain characteristics of the futures markets might increase the risk that movements in the prices of futures contracts might not correlate perfectly with movements in the prices of the investments being hedged. For example, all participants in the futures contracts markets are subject to daily variation margin calls and might be compelled to liquidate futures contracts positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, since initial margin deposit requirements in the futures markets are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving arbitrage, "program trading" and other investment strategies might result in temporary price distortions. Interest rate futures contracts (and options on such contracts) are traded in an auction environment on the floors of several exchanges--principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership. The Funds may invest in futures contracts traded on US and non-US exchanges. At the maturity of a futures contract, the Funds may either accept or make delivery of the currency or security specified in the contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. A Fund will only enter into a futures contract if it is expected that the Fund will readily be able to close out such contract. There can, however, be no assurance that it will be able to do so in any particular case, in which case the Funds may suffer losses in the event of adverse price movements. The Funds may, for example, use currency futures to hedge the currency exposure of non-US dollar denominated debt instrument holdings, or for investment purposes to take an interest rate view based on currency valuations. Options on Futures. The Funds may utilize options on both interest rate futures and currency futures, and the U.S. Government Securities Fund may also utilize options on treasury futures (collectively, "options on futures"). Options on futures are effectively options on the asset that underlies a futures contract. A call option on a futures contract gives the holder the right to enter into a long futures contract at a fixed futures price. A put option on a futures contract gives the holder the right to enter into a short futures contract at a fixed futures price. Purchasers and sellers of options on futures can enter into offsetting closing transactions by selling or purchasing, respectively, an offsetting option on the same futures contract. There is risk to that the Funds may have difficulty in closing out positions in options on futures. Although the Funds intend to close out any positions on a securities market, there can be no assurance that such a market will exist for a particular contract at a particular time. Under certain circumstances, exchanges upon which futures are traded may establish daily limits on the amount that the price of an option on a futures contract can vary from the previous day's settlement price. Once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions held by the Funds. Options on futures held by the Funds, to the extent not exercised, will expire and the Funds would experience a loss to the extent of any premium paid for the option. If the Funds were unable to liquidate an option on a futures contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Funds would continue to be subject to market risk with respect to the position. Certain characteristics of the futures market might increase the risk that movements in the prices of options on futures contracts might not correlate perfectly with movements in the prices of any exposure being hedged. For example, all participants in the options on futures markets are subject to daily variation margin calls and might be compelled to liquidate options on futures positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, because initial margin deposit requirements in the futures markets are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of traders in both the futures and securities markets involving arbitrage, "program trading" and other investment strategies might result in temporary price distortions. The following information is hereby added under the caption "Description of the Fund and Its Investments and Risks - Investment Strategies and Risks": Funding Agreements. The High-Yield 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. The largest risks associated with funding agreements include credit risk and liquidity risk. The information under the caption "Management of the Fund - Management Information" is hereby superseded and replaced with the following information: Shareholders elect a Board that oversees the Funds' operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. On November 7, 2008, RiverSource Investments announced the closing of its acquisition (the "Acquisition") of J. & W. Seligman & Co. Incorporated ("Seligman"), 100 Park Avenue, New York, New York 10017. With the Acquisition completed and shareholders having previously elected (at a Special Meeting held on November 3, 2008) ten new trustees (collectively, the "New Board Members"), the New Board Members took office on November 7, 2008. The New Board Members are: Kathleen Blatz, Arne H. Carlson, Pamela G. Carlton, Patricia M. Flynn, Anne P. Jones, Jeffrey Laikind, Stephen R. Lewis, Jr., Catherine James Paglia, Alison Taunton-Rigby and William F. Truscott. Messrs. Leroy C. Richie and John F. Maher, who were members of the Board prior to November 7, 2008, will continue to serve on the Board after the Acquisition, which would result in an overall increase from ten trustees to 12 trustees. Information with respect to the members of the Board is shown below. Each member oversees 163 portfolios in the fund complex managed by RiverSource Investments, which includes 59 Seligman Funds and 104 RiverSource Funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. Independent Board Members
Position with Fund and Principal Occupation Name, Address, Age Length of Time Served During Last Five Years Other Directorships Committee Memberships - ------------------ ---------------------- ------------------------- ------------------------- ---------------------- Kathleen Blatz Board member since Attorney; Chief Justice, None Board Governance, 901 S. Marquette Ave. November 7, 2008 Minnesota Supreme Compliance, Minneapolis, MN 55402 Court, 1998-2006 Investment Review, Age 54 Joint Audit Arne H. Carlson Board member since Chair, RiverSource None Board Governance, 901 S. Marquette Ave. November 7, 2008 Funds, 1999-2006; Compliance, Minneapolis, MN 55402 former Governor of Contracts, Executive, Age 73 Minnesota Investment Review Pamela G. Carlton Board member since President, Springboard- None Distribution, 901 S. Marquette Ave. November 7, 2008 Partners in Cross Investment Review, Minneapolis, MN 55402 Cultural Leadership Joint Audit Age 53 (consulting company) Patricia M. Flynn Board member since Trustee Professor of None Board Governance, 901 S. Marquette Ave. November 7, 2008 Economics and Contracts, Investment Minneapolis, MN 55402 Management, Bentley Review Age 57 College; Former Dean, McCallum Graduate School of Business, Bentley College Anne P. Jones Board member since Attorney and None Board Governance, 901 S. Marquette Ave. November 7, 2008 Consultant Compliance, Minneapolis, MN 55402 Executive, Investment Age 73 Review, Joint Audit Jeffrey Laikind, CFA Board member since Former Managing American Progressive Distribution, 901 S. Marquette Ave. November 7, 2008 Director, Shikiar Asset Insurance Investment Review, Minneapolis, MN 55402 Management Joint Audit Age 72 Stephen R. Lewis, Jr. Board member since President Emeritus and Valmont Industries, Inc. Board Governance, 901 S. Marquette Ave. November 7, 2008 Professor of (manufactures irrigation Compliance, Minneapolis, MN 55402 Economics, Carleton systems) Contracts, Executive, Age 69 College Investment Review
Independent Board Members
Position with Fund and Principal Occupation Name, Address, Age Length of Time Served During Last Five Years Other Directorships Committee Memberships - ------------------ ---------------------- --------------------------- ------------------------- ------------------------- John F. Maher Board member since Retired President and None Distribution, Investment 901 S. Marquette Ave. 2006 Chief Executive Officer Review, Joint Audit Minneapolis, MN 55402 and former Director, Age 64 Great Western Financial Corporation (bank holding company) and its principal subsidiary, Great Western Bank (federal savings bank) Catherine James Paglia Board member since Director, Enterprise None Compliance, 901 S. Marquette Ave. November 7, 2008 Asset Management, Inc. Contracts, Minneapolis, MN 55402 (private real estate and Distribution, Age 55 asset management Executive, Investment company) Review Leroy C. Richie Board member since Counsel, Lewis & Lead Outside Director, Contracts, Distribution, 901 S. Marquette Ave. 2000 Munday, P.C. (law Digital Ally, Inc. Investment Review Minneapolis, MN 55402 firm); Director, (digital imaging); and Age 66 Vibration Control Infinity, Inc. (oil and Technologies, LLC gas exploration and (auto vibration production); Director, technology); Director OGE Energy Corp. and Chairman, (energy and energy Highland Park services provider Michigan Economic offering physical Development Corp; and delivery and related Chairman, Detroit services for both Public Schools electricity and natural Foundation. Formerly, gas). Chairman and Chief Executive Officer, Q Standards Worldwide, Inc. (library of technical standards); Director, Kerr-McGee Corporation (diversified energy and chemical company); Trustee, New York University Law Center Foundation; Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. Alison Taunton-Rigby Board member since Chief Executive Officer Idera Pharmaceuticals, Contracts, 901 S. Marquette Ave. November 7, 2008 and Director, Inc. (biotechnology); Distribution, Minneapolis, MN 55402 RiboNovix, Inc. since Healthways, Inc. (health Executive, Investment Age 64 2003 (biotechnology); management programs) Review former President, Forester Biotech
Board Member Affiliated With RiverSource Investments*
Position with Fund and Principal Occupation Name, Address, Age Length of Time Served During Last Five Years Other Directorships Committee Memberships - ------------------ ---------------------- ------------------------- ------------------- --------------------- William F. Truscott Board member and President - U.S. Asset None Investment Review 53600 Ameriprise Vice President since Management and Chief Financial Center 2008 Investment Officer, Minneapolis, MN 55474 Ameriprise Financial, Age 47 Inc. and President, Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC since 2005; Director, President and Chief Executive Officer, Ameriprise Certificate Company and; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc.; and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005
*Interestedperson 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 other officers are: Fund Officers
Position held with the Fund and Principal occupation Name, address, age length of service during past five years - ------------------ -------------------------------------- ------------------------------------------- Patrick T. Bannigan President since November 7, 2008 Director and Senior Vice President - 172 Ameriprise Financial Center Asset Management, Products and Minneapolis, MN 55474 Marketing, RiverSource Investments, Age 42 LLC and; 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 since November 7, 2008 Executive Vice President - Equity and 172 Ameriprise Financial Center Fixed Income, Ameriprise Financial, Inc. Minneapolis, MN 55474 and RiverSource Investments, LLC since Age 44 2006; Vice 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 since November 7, 2008 Vice President - Asset Management and 5228 Ameriprise Financial Center Trust Company Services, RiverSource Minneapolis, MN 55474 Investments, LLC since 2006; Vice Age 42 President - Operations and Compliance, RiverSource Investments, LLC, 2004- 2006; Director of Product Development - Mutual Funds, Ameriprise Financial, Inc., 2001-2004 Scott R. Plummer Vice President, General Counsel and Vice President and Chief Counsel - Asset 5228 Ameriprise Financial Center Secretary since November 7, 2008 Management, Ameriprise Financial, Inc. Minneapolis, MN 55474 since 2005; Chief Counsel, RiverSource Age 49 Distributors, Inc. and Chief Legal Officer and Assistant Secretary, RiverSource Investments, LLC 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
Fund Officers
Position held with the Fund and Principal occupation Name, address, age length of service during past five years - ------------------ -------------------------------------- ------------------------------------------ Lawrence P. Vogel Treasurer since 2000 Treasurer, RiverSource Investments, LLC 100 Park Avenue, (J. & W. Seligman & Co. Incorporated New York, NY 10017 prior to Nov. 2008), of each of the Age 51 investment companies of the Seligman Group of Funds since 2000; and Treasurer, Seligman Data Corp. since 2000. Senior Vice President, Investment Companies, J. & W. Seligman & Co. Incorporated of each of the investment companies of the Seligman group of funds 1992 to 2008. Eleanor T.M. Hoagland Chief Compliance Officer since 2004; Chief Compliance Officer, RiverSource 100 Park Avenue, Money Laundering Prevention Officer Investments, LLC (J. & W. Seligman & New York, NY 10017 and Identity Theft Prevention Officer Co. Incorporated prior to Nov. 2008), for Age 56 since 2008. each of the investment companies of the Seligman group of funds since 2004; Money Laundering Prevention Officer and Identity Theft Prevention Officer, RiverSource Investments, LLC for each of the investment companies of the Seligman group of funds since November 2008. Managing Director, J. & W. Seligman & Co. Incorporated and Vice- President for each of the investment companies of the Seligman group of funds 2004 to 2008.
As of November 7, 2008, the Board has organized the following committees (accordingly, no committee meetings have been held prior to such date): 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. The committee also makes recommendations to the Board regarding responsibilities and duties of the Board, oversees proxy voting and supports the work of the chairperson of the Board in relation to furthering the interests of the Fund and their shareholders on external matters. Compliance Committee. This committee supports the Fund's maintenance of a strong compliance program by providing a forum for independent Board members to consider compliance matters impacting the Fund or its key service providers; developing and implementing, in coordination with the Fund's Chief Compliance Officer (CCO), a process for the review and consideration of compliance reports that are provided to the Board; and providing a designated forum for the Fund's CCO to meet with independent Board members on a regular basis to discuss compliance matters. Contracts Committee. This committee reviews and oversees the contractual relationships with service providers and receives and analyzes reports covering the level and quality of services provided under contracts with the Fund. It also advises the Board regarding actions taken on these contracts during the annual review process. Distribution Committee. This committee reviews and supports product development, marketing, sales activity and practices related to the Fund, and reports to the Board as appropriate. Executive Committee. This committee acts for the Board between meetings of the Board. Investment Review Committee. This committee reviews and oversees the management of the Fund's assets and 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. This committee oversees the accounting and financial reporting processes of the Fund and internal controls over financial reporting and oversees the quality and integrity of the Fund's financial statements and independent audits as well as the Fund's compliance with legal and regulatory requirements relating to the Fund's accounting and financial reporting, internal controls over financial reporting and independent audits. The committee also makes recommendations regarding the selection of the Fund's independent auditor and reviews and evaluates the qualifications, independence and performance of the auditor. The information under the caption "Management of the Fund - Beneficial Ownership" is hereby superseded and replaced with the following information: The Trustees beneficially owned shares in each of the Funds and the RiverSource complex of funds (which includes the Seligman Funds) as follows (information as of June 30, 2008 unless otherwise indicated):
Aggregate Dollar Range of Shares Dollar Range of Shares Owned By Owned by Trustee in the Name Trustee in each Fund RiverSource Complex of Funds* - ----------------------- --------------------------------- -------------------------------- INDEPENDENT BOARD MEMBERS Kathleen Blatz None Over $100,000 Arne H. Carlson None Over $100,000 Pamela G. Carlton None $1-$10,000 Patricia M. Flynn None Over $100,000** Anne P. Jones None Over $100,000 Jeffrey Laikind None Over $100,000 Stephen R. Lewis, Jr. None Over $100,000** John F. Maher High-Yield Fund: $1-$10,000 Over $100,000 U.S. Government Fund: $1-$10,000 Catherine James Paglia None Over $100,000** Leroy C. Richie High-Yield Fund: $1-$10,000 Over $100,000 U.S. Government Fund: $1-$10,000 Alison Taunton-Rigby None Over $100,000 AFFILIATED BOARD MEMBERS William F. Truscott None Over $100,000
* Each new Board Member, other than Ms. Flynn, owns between $1 and $10,000 of shares in the Seligman Funds. Ms. Flynn owns between $10,001 and $50,000 of shares in the Seligman Funds. Each New Board Member acquired their shares in the Seligman Funds after June 30, 2008. Neither of Messrs. Maher or Richie owns any shares of the RiverSource Funds. ** Total includes deferred compensation invested in share equivalents. The following information is added to the table under the caption "Management of the Fund - Compensation": None of the New Board Members received any compensation from the Fund prior to their election to the Board. The information beneath the compensation table under the caption "Management of the Fund - Compensation" is hereby superseded and replaced with the following information: 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 Fund's 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. The independent Board members are paid an annual retainer of $95,000. Committee and sub- committee Chairs each receive an additional annual retainer of $5,000. In addition, independent Board members are 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. 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. The information under the caption "Management of the Fund - Code of Ethics" is hereby superseded and replaced with the following information: The funds in the RiverSource complex of funds (which includes the Seligman Funds), RiverSource Investments, the investment manager for the Seligman Funds, and Seligman Advisors, the distributor for the Seligman Funds, have each adopted a Code of Ethics (collectively, the "Codes") and related procedures reasonably designed to prevent violations of Rule 204A-1 under the Investment Advisers Act of 1940 and Rule 17j-1 under the 1940 Act. The Codes contain provisions reasonably necessary to prevent a fund's access persons from engaging in any conduct prohibited by paragraph (b) of Rule 17j-1, which indicates that it is unlawful for any affiliated person of or principal underwriter for a fund, or any affiliated person of an investment adviser of or principal underwriter for a fund, in connection with the purchase or sale, directly or indirectly, by the person of a security held or to be acquired by a fund (i) to employ any device, scheme or artifice to defraud a fund; (ii) to make any untrue statement of a material fact to a fund or omit to state a material fact necessary in order to make the statements made to a fund, in light of the circumstances under which they are made, not misleading; (iii) to engage in any act, practice or course of business that operates or would operate as a fraud or deceit on a fund; or (iv) to engage in any manipulative practice with respect to a fund. The Codes prohibit affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for the fund. All references to "Seligman" under the caption "Management of the Fund - Proxy Voting Policies" are hereby replaced with "RiverSource Investments." In addition, the following information is added as the first full paragraph under that caption: The following are interim proxy voting policies, procedures and guidelines that apply only to the Fund and the other Seligman Funds. The Seligman Funds will adopt the same proxy voting policies, procedures and guidelines as the other funds managed by RiverSource Investments in 2009. The seventh and eight paragraphs under the caption "Management of the Fund - Proxy Voting Policies" are hereby superseded and replaced with the following: Deviations from Guidelines and Special Situations. RiverSource Investments recognizes that it may not always be in the best interest of the shareholders of the Fund to vote in accordance with the Guidelines on a particular issue. In such circumstances, RiverSource Investments may request permission from the Board to deviate from the Guidelines. The Board must approve any deviation from the Guidelines, and similarly, must approve the voting decision for proposals of a unique nature requiring a case-by-case analysis. In making requests to the Board regarding deviations from the Guidelines or proposals requiring a case-by-case analysis, RiverSource Investments may rely on views of the management of a portfolio company, the views of its own investment professionals and information obtained from an independent research firm. The second item under the caption "Management of the Fund - Proxy Voting Policies - Guidelines Summary" is hereby superseded and replaced with the following.: 2. RiverSource Investments generally opposes, and supports the elimination of, anti-takeover proposals, including those relating to classified Boards, supermajority votes, issuance of blank check preferred and establishment of classes with disparate voting rights. However, RiverSource Investments will vote in support of proposals to adopt poison pills. The first three paragraphs under the caption "Investment Advisory and Other Services - Investment Manager" are hereby superseded and replaced with the following: With the completion of the Acquisition of Seligman by RiverSource Investments and with shareholders having previously approved (at a Special Meeting held on November 3, 2008) a new investment management services agreement between the Series and RiverSource Investments (the "Management Agreement"), RiverSource Investments is the new investment manager effective November 7, 2008. RiverSource Investments, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is also the investment manager of the other funds in the Seligman Group of Funds, and is a wholly-owned subsidiary of Ameriprise Financial. Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for the Seligman Group of Funds, RiverSource Investments manages investments for the RiverSource funds, 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. Effective November 7, 2008, each Fund will pay RiverSource Investments a fee for managing its assets. The fees paid to RiverSource Investments will be the same annual fee rates that were paid to Seligman prior to November 7, 2008. The information contained under the caption "Portfolio Managers" is superseded and replaced with the following: The following tables set forth certain additional information from that discussed in the Prospectuses with respect to the portfolio manager of each Fund. Unless noted otherwise, all information is provided as of September 30, 2008. Other Accounts Managed by Portfolio Managers. Table A below identifies, for each of the portfolio managers of the High-Yield Fund and the U.S. Government Securities Fund, the number of accounts managed (other than the Fund managed by its portfolio manager) and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. Table B identifies those accounts that have an advisory fee based on the performance of the account. For purposes of the tables below, each series or portfolio of a registered investment company is treated as a separate registered investment company. Table A Seligman High Yield Fund
Registered Investment Other Pooled Investment Portfolio Manager Companies Vehicles Other Accounts - ----------------- ------------------------ ----------------------- -------------- Scott Schroepfer 5 Registered Investment None None Companies with approximately $2.2 billion in total assets under management.
Seligman U.S. Government Securities Fund
Registered Investment Other Pooled Investment Portfolio Manager Companies Vehicles Other Accounts - ----------------- ------------------------------- -------------------------- ------------------------------- Todd White /(1)/ 12 Registered Investment 5 Other Pooled Investment 40 Other Accounts with Companies with Vehicles with approximately $16.0 billion in approximately $10.5 billion in approximately $1.7 total assets under total assets under billion in total assets management. management. under management. John G. McColley /(1)/ None None None
Table B Seligman High Yield Fund Mr. Schroepfer manages no other accounts that pay an advisory fee based on the performance of the account. Seligman U.S. Government Securities Fund
Registered Investment Other Pooled Investment Portfolio Manager Companies Vehicles Other Accounts - ----------------- ------------------------ ----------------------- ----------------------------- Todd White /(1)/ 3 Registered Investment None 1 Other Account with Companies with approximately $113.3 million approximately $1.01 in total assets under billion in total assets management. under management. John G. McColley /(1)/ None None None
(1) Information provided as of January 31, 2009. Compensation/Material Conflicts of Interest. Set forth below is an explanation of the structure of, and method(s) used to determine portfolio manager compensation. Also set forth below is an explanation of material conflicts of interest that may arise between a portfolio manager's management of the Funds' investments and investments in other accounts. Compensation: 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. 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. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. In addition, where portfolio managers invest in a hedge fund managed by the investment manager, they receive a cash reimbursement for the investment management fees charged on their hedge fund investments. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. Conflicts of Interest: 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. 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. Securities Ownership. As of September 30, 2008, Mr. Schroepfer did not own shares of the High-Yield Fund. As of March 25, 2009, neither Mr. White nor Mr. McColley owned shares of the U.S. Government Fund. The information under the caption "Investment Advisory and Other Services - Service Agreements" is hereby deleted and replaced with the following information: Administrative Services Under an Administrative Services Agreement, effective November 7, 2008 Ameriprise administers certain aspects of the Funds' business and other affairs at no cost. Ameriprise provides the Funds with such office space, and certain administrative and other services and executive and other personnel as are necessary for Fund operations. Ameriprise pays all of the compensation of Board members of the Funds who are employees or consultants of RiverSource and of the officers and employees of the Funds. Ameriprise reserves the right to seek Board approval to increase the fees payable by the Fund under the Administrative Services Agreement. However, Ameriprise anticipates that any such increase in fees would be offset by corresponding decreases in advisory fees under the Management Agreement. If an increase in fees under the Administrative Services Agreement would not be offset by corresponding decreases in advisory fees, the affected Funds will inform shareholders prior to the effectiveness of such increase. The following information is hereby added to the end of the section entitled "Investment Advisory and Other Services - Other Service Providers": The funds in the Seligman Group of Funds will enter into 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. The following information is added at after the section entitled "Financial Statements": 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. SUPPLEMENT DATED MARCH 16, 2009 TO THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION OF EACH OF THE FOLLOWING FUNDS: Prospectuses, each dated February 2, 2009, for Seligman Core Fixed Income Fund, Inc., Seligman Municipal Fund Series, Inc., Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series and Seligman TargetHorizon ETF Portfolios, Inc. Prospectuses, each dated May 1, 2008, for Seligman Asset Allocation Series, Inc., Seligman Cash Management Fund, Inc., Seligman Capital Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Growth Fund, Inc., Seligman High Income Fund Series, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Portfolios, Inc., Seligman Value Fund Series, Inc. and Tri-Continental Corporation (each, a "Fund", and collectively, the "Funds") On March 13, 2009, without admitting or denying any violations of law or wrongdoing, J. & W. Seligman & Co. Incorporated (Seligman), Seligman Advisors, Inc. (now known as RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties") entered into a stipulation of settlement with the Office of the Attorney General of the State of New York ("NYAG") and settled the claims made by the NYAG in September 2006 relating to allegations of frequent trading in certain Seligman Funds. Under the terms of the settlement, Seligman will pay $11.3 million to four Seligman Funds as follows: $150,000 to Seligman Global Growth Fund, $550,000 to Seligman Global Smaller Companies Fund, $7.7 million to Seligman Communications and Information Fund and $2.9 million to Seligman Global Technology Fund. These settlement payments are reflected in the net asset values of these four Seligman Funds. This settlement resolves all outstanding matters between the Seligman Parties and the NYAG. Supplement, dated May 15, 2008, to the following Statements of Additional Information: Statements of Additional Information, each dated February 1, 2008, for: Seligman Core Fixed Income Fund, Inc., Seligman Municipal Fund Series, Inc., Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series and Seligman TargetHorizon ETF Portfolios, Inc. Statements of Additional Information, each dated March 3, 2008, for: Seligman Frontier Fund, Inc. and Seligman Global Fund Series, Inc. Statements of Additional Information, each dated May 1, 2008, for: Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Growth Fund, Inc., Seligman High Income Fund Series, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc. and Seligman Value Fund Series, Inc. (each, a "Fund") Capitalized terms used but not defined in this Supplement shall have the meanings given to such terms in each Fund's Statement of Additional Information. The following information supersedes and replaces item (6) under the heading "Purchase, Redemption and Pricing of Shares - Purchase of Shares - CDSC Waivers" in each Fund's Statement of Additional Information: (6) in connection with participation in the Merrill Lynch Small Market 401(k) Program, retirement programs administered or serviced by the Princeton Retirement Group, Paychex, ADP Retirement Services, Hartford Securities Distribution Company, Inc., or NYLIM Service Company LLC, retirement programs or accounts administered or serviced by Mercer HR Services, LLC or its affiliates, or retirement programs or accounts administered or serviced by firms that have a written agreement with Seligman Advisors that contemplates a waiver of CDSCs. SELIGMAN HIGH INCOME FUND SERIES Seligman U.S. Government Securities Fund Seligman High-Yield Fund Statement of Additional Information May 1, 2008 100 Park Avenue New York, New York 10017 (212) 850-1864 Toll Free Telephone: (800) 221-2450 For Retirement Plan Information - Toll-Free Telephone: (800) 445-1777 This Statement of Additional Information ("SAI") expands upon and supplements the information contained in the current Prospectuses of Seligman U.S. Government Securities Fund and Seligman High-Yield Fund (individually, "a Fund"), each dated May 1, 2008, offering Class A shares, Class B shares, Class C shares, Class D shares (Class D shares are not offered after the close of business on May 16, 2008) and Class R shares, and the current Prospectus for Seligman High-Yield Fund, dated May 1, 2008, offering Class I shares (together, "the Prospectuses"). Each of the Seligman High-Yield Fund and the Seligman U.S. Government Securities Fund is a separate series of Seligman High Income Fund Series (the "Series"). This SAI, although not in itself a Prospectus, is incorporated by reference into each of the Fund's Prospectuses in its entirety. It should be read in conjunction with each Fund's Prospectuses, which you may obtain by writing or calling the Series at the above address or telephone numbers, respectively. The financial statements and notes included in each Fund's Annual Report, which includes the Report of Independent Registered Public Accounting Firm thereon, are incorporated herein by reference. An Annual Report for each Fund will be furnished to you without charge if you request a copy of this SAI. The website references in this SAI are inactive textual references and information contained in or otherwise accessible through these websites does not form a part of this SAI. Table of Contents Series History.......................................... 2 Description of the Series and its Investments and Risks. 2 Management of the Series................................ 15 Control Persons and Principal Holders of Securities..... 22 Investment Advisory and Other Services.................. 24 Portfolio Managers...................................... 31 Portfolio Transactions and Other Practices.............. 33 Shares of Beneficial Interest and Other Securities...... 35 Purchase, Redemption, and Pricing of Shares............. 35 Taxation of each Fund................................... 43 Underwriters............................................ 45 Calculation of Yield and Performance Data............... 48 Financial Statements.................................... 51 General Information..................................... 52
TX1A Series History The Series was organized as a business trust under the laws of the Commonwealth of Massachusetts on July 27, 1984. Description of the Series and its Investments and Risks Classification The Series is a diversified open-end management investment company, or mutual fund, which consists of two separate series, which are Seligman U.S. Government Securities Fund (the "U.S. Government Securities Fund") and Seligman High-Yield Fund (the "High-Yield Fund"). Investment Strategies and Risks The following information regarding each Fund's investments and risks supplements the information contained in each of the Fund's Prospectuses. U.S. Government Securities. The U.S. Government Securities Fund intends to invest at least 80% of its net assets (including amounts borrowed for investment purposes) in US Government Securities. Securities backed by the full faith and credit of the US government involve minimal credit risk. These securities in which the Fund invests are considered among the safest of fixed-income investments. However, the market value of such securities (and the market value of those securities backed only by the credit of the US federal agency or instrumentality or government sponsored enterprise that issued the security), like those of other debt securities, will fluctuate with changes, real or anticipated, in the level of interest rates. The Fund's net asset value per share will fluctuate with changes in the market value of the securities held in its portfolio. Additionally, the Fund's yield will vary based on the yield of its portfolio securities. Securities backed only by the credit of the US federal agency or instrumentality or government sponsored enterprise that issued the security may have increased credit risk, including, but not limited to, the risk of non-payment of principal and/or interest. Some of these securities are supported by the credit of the government sponsored enterprise itself and the discretionary authority of the US Treasury to purchase the enterprise's obligations (e.g., securities of the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and the Federal Home Loan Bank). Others are supported only by the credit of the government sponsored enterprise itself (e.g., the Federal Farm Credit Bank). There is no assurance that the US government will provide financial support to government sponsored enterprises that are not supported by the full faith and credit of the US government. Generally, as interest rates rise, the value of the securities held by the Fund will decline. Conversely, if interest rates decline, the value of the securities held by the Fund will increase. This effect is usually more pronounced for longer-term securities. Longer-term securities generally tend to produce higher yields but are subject to greater market fluctuations as a result of changes in interest rates than fixed-income securities with shorter maturities. The Fund may invest in securities of any duration. High-Yield Securities. The High-Yield Fund intends to invest at least 80% of its net assets (including amounts borrowed for investment purposes) in High-Yield Securities, as the term is described in the Fund's Prospectuses. High-Yield Securities are subject to greater risk of loss of principal and income than higher-rated bonds and notes and are considered to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Accordingly, an investment in the Fund presents substantial risks in relation to a fund that invests primarily in investment grade instruments. An economic downturn could adversely impact issuers' ability to pay interest and repay principal and could result in issuers' defaulting on such payments. The value of the High-Yield Fund's holdings will be affected, like all fixed-income securities, by market conditions relating to changes in prevailing interest rates. However, the value of High-Yield Securities is also affected by investors' perceptions. When economic conditions appear to be deteriorating, lower-rated or unrated bonds and notes may decline in market value due to investors' heightened concerns and perceptions about credit quality. 2 High-Yield Securities are traded principally by dealers in the over-the-counter market. The market for these securities may be less active and less liquid than for higher-rated securities. Under adverse market or economic conditions, the secondary market for these securities could contract further, causing the High-Yield Fund difficulties in valuing and selling its securities. During periods of falling interest rates, issuers of an obligation held by the High-Yield Fund may prepay or call securities with higher coupons or interest rates before their maturity dates. If this occurs, the High-Yield Fund could lose potential price appreciation and could be forced to reinvest the unanticipated proceeds at lower interest rates, resulting in a decline in the High-Yield Fund's income. Capital appreciation bonds, including "zero-coupon" and "pay-in-kind" securities, may be subject to greater fluctuations in value because they tend to be more speculative than income-bearing securities. Fluctuations in the market prices of these securities owned by the High-Yield Fund could result in corresponding fluctuations and volatility in the net asset value of the shares of the High-Yield Fund. If an issuer repays an obligation such as a mortgage-backed security held by the High-Yield Fund more slowly than anticipated, the High-Yield Fund's returns could be adversely impacted. This could occur if an underlying mortgage pool has unusual characteristics or because interest rates have remained too high to stimulate repayment. In either case, the value of the obligation will decrease and the High-Yield Fund will be prevented from investing in higher-yielding securities. Foreign Securities. The High-Yield Fund may invest up to 10% of its net assets in debt securities of foreign issuers. Foreign investments may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. There may be less information available about a foreign company than about a US company, and foreign companies may not be subject to reporting standards and requirements comparable to those applicable to US companies. Foreign debt securities and their markets may not be as liquid as US securities and their markets. Securities of foreign companies may involve greater market risk than securities of US companies, and foreign brokerage commissions and custody fees are generally higher than in the United States. Investments in foreign debt securities may also be subject to local economic or political risks, such as political instability of some foreign governments and the possibility of nationalization of issuers. Illiquid Securities. The High-Yield Fund may invest up to 15% of its net assets in illiquid securities, including restricted securities (i.e., securities not readily marketable without registration under the Securities Act of 1933, as amended ("1933 Act")) and other securities that are not readily marketable, such as repurchase agreements of more than one week's duration. The Series may purchase restricted securities that may be offered and sold only to "qualified institutional buyers" under Rule 144A of the 1933 Act, and the investment manager, acting pursuant to procedures approved by the Series' Board of Trustees, may determine, when appropriate, that specific Rule 144A securities are liquid and not subject to the 15% limitation on illiquid securities. Should this determination be made, the investment manager, acting pursuant to such procedures, will carefully monitor the security (focusing on such factors, among others, as trading activity and availability of information) to determine that the Rule 144A security continues to be liquid. It is not possible to predict with assurance exactly how the market for Rule 144A securities will further evolve. This investment practice could have the effect of increasing the level of illiquidity in the High-Yield Fund, if and to the extent that, qualified institutional buyers become for a time uninterested in purchasing Rule 144A securities. Mortgage-Related Securities. Mortgage Pass-Through Securities. The U.S. Government Securities Fund may invest in mortgage pass-through securities. Mortgage pass-through securities include securities that represent interests in pools of mortgage loans made by lenders such as savings and loan institutions, mortgage bankers, and commercial banks. Such securities provide a "pass-through" of monthly payments of interest and principal made by the borrowers on their residential mortgage loans (net of any fees paid to the issuer or guarantor of such securities). Although the residential mortgages underlying a pool may have maturities of up to 30 years, a pool's effective maturity may be reduced by prepayments of principal on the underlying mortgage obligations. Factors affecting mortgage prepayments include, among other things, the level of interest rates, general economic and social conditions and the location and age of the mortgages. High interest rate mortgages are more likely to be prepaid than lower-rate 3 mortgages; consequently, the effective maturities of mortgage-related obligations that pass-through payments of higher-rate mortgages are likely to be shorter than those of obligations that pass-through payments of lower-rate mortgages. If such prepayment of mortgage-related securities in which the U.S. Government Securities Fund invests occurs, the Fund may have to invest the proceeds in securities with lower yields. The Government National Mortgage Association ("GNMA") is a US government corporation within the Department of Housing and Urban Development, authorized to guarantee, with the full faith and credit of the US government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of Federal Housing Administration insured or Veterans Administration guaranteed residential mortgages. These securities entitle the holder to receive all interest and principal payments owed on the mortgages in the pool, net of certain fees, regardless of whether or not the mortgagors actually make the payments. Other government-related issuers of mortgage-related securities include the Federal National Mortgage Association ("FNMA"), a government-sponsored corporation subject to general regulation by the Secretary of Housing and Urban Development but owned entirely by private stockholders, and the Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate instrumentality of the US government created for the purpose of increasing the availability of mortgage credit for residential housing that is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs"), which represent interests in mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the US government. Pass-through securities issued by FNMA are backed by residential mortgages purchased from a list of approved seller/servicers and are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the US government. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through securities based on pools of conventional residential mortgage loans. Securities created by such non-governmental issuers may offer a higher rate of interest than government-related securities; however, timely payment of interest and principal may or may not be supported by insurance or guarantee arrangements, and there can be no assurance that the private issuers can meet their obligations. Collateralized Mortgage Obligations. The U.S. Government Securities Fund may also invest in Collateralized Mortgage Obligations ("CMOs"), including certain CMOs that have elected to be treated as Real Estate Mortgage Investment Conduits ("REMICs"). CMOs are fixed-income securities collateralized by pooled mortgages and separated into short-, medium-, and long-term positions (called tranches). Tranches pay different rates of interest depending upon their maturity. CMOs may be collateralized by (a) pass through securities issued or guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the Department of Veteran's Affairs, (c) unsecuritized conventional Mortgages, (d) other mortgage related securities or (e) any combination thereof. Each tranche of a CMO is issued at a specific coupon rate and has a stated maturity. As the payments on the underlying mortgage loans are collected, the CMO issuer generally pays the coupon rate of interest to the holders of each tranche. In a common structure referred to as a "Pay" CMO, all scheduled and unscheduled principal payments generated by the collateral, as loans are repaid or prepaid, go initially to investors in the first tranches. Investors in later tranches do not start receiving principal payments until the prior tranches are paid in full. Sometimes, CMOs are structured so that the prepayment and/or market risks are transferred from one tranche to another. Most CMOs are issued by Federal agencies. However, the only CMOs backed by the full faith and credit of the US government are CMOs collateralized by pass through securities guaranteed by GNMA. All CMOs are subject to reinvestment risk; that is, as prepayments on the underlying pool of mortgages increase, the maturity of the tranches in the CMO will decrease. As a result, the U.S. Government Securities Fund may have to invest the proceeds that were invested in such CMOs in securities with lower yields. Factors affecting reinvestment risk include the level of interest rates, general economic and social conditions and the location and age of the mortgages. Preferred Stock. The High-Yield Fund may invest up to 10% of its total assets in preferred stock, including non-investment grade preferred stock. Certain preferred stock issues may offer higher yields than similar bond issues because their rights are subordinated to the bonds. Consequently, such preferred stock issues will have a greater risk potential. The investment manager will try to minimize this greater risk potential through its investment process. However, there can be no assurance that losses will not occur. 4 To the extent the High-Yield Fund invests in preferred securities, there are special risks associated with investing in preferred securities, including: . Deferral. Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. . Subordination. Preferred securities are subordinated to bonds and other debt instruments in an issuer's capital structure with respect to priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments. . Liquidity. Preferred securities may be substantially less liquid than many other securities, such as common stocks or US government securities. . Limited Voting Rights. Generally, preferred security holders have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuer's board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights. In the case of certain trust preferred securities, holders generally have no voting rights, except (i) if the issuer fails to pay dividends for a specified period of time or (ii) if a declaration of default occurs and is continuing. In such an event, rights of holders of trust preferred securities generally would include the right to appoint and authorize a trustee to enforce the trust or special purpose entity's rights as a creditor under the agreement with its operating company. . Special Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in income tax or securities laws. As with call provisions, a redemption by the issuer of the preferred securities may negatively impact the return of the security held by the Fund. Repurchase Agreements. Each Fund of the Series may enter into repurchase agreements. A repurchase agreement is an agreement under which a Fund acquires a money market instrument, generally a US government obligation qualified for purchase by the Fund, subject to resale at an agreed upon price and date. Such resale price reflects an agreed upon interest rate effective for the period of time the instrument is held by the Fund and is unrelated to the interest rate on the instrument. Repurchase agreements could involve certain risks in the event of bankruptcy or other default by the seller, including possible delays and expenses in liquidating the securities underlying the agreement, decline in value of the underlying securities and loss of interest. Repurchase agreements usually are for short periods, such as one week or less, but may be for longer periods. Although the U.S. Government Securities Fund may enter into repurchase agreements with respect to any money market instruments qualified for purchase, such agreements generally involve only US government securities and will only involve securities issued or guaranteed by the US government. As a matter of fundamental policy, each Fund will not enter into repurchase agreements of more than one week's duration if more than 10% of its total assets would be invested in such agreements and in restricted and other illiquid securities. When-Issued and Forward Commitment Securities. Each Fund may purchase securities on a when-issued or forward commitment basis, in which case delivery and payment normally take place within 45 days after the date of the commitment to purchase. The payment obligation and the interest rate that will be received on the securities are each fixed at the time the buyer enters into the commitment. A Fund may purchase securities on a when-issued or forward commitment basis with or without the intention of actually acquiring the securities, and may sell these securities before the settlement date if it is deemed advisable. When investing in when-issued or forward commitment securities, cash and/or liquid securities equal to the amount of the when-issued or forward commitment obligations will be segregated at the Series' custodian, and 5 marked to market daily, with additional cash and/or liquid securities added when necessary. When the time comes to pay for when-issued or forward commitment securities, each Fund will meet its respective obligations from then available cash flow, sale of other securities (those segregated or otherwise) or, although they would not normally expect to do so, from the sale of the when-issued or forward commitment securities themselves (which may have a value greater or less than the Fund's payment obligations). Sale of securities to meet such obligations carries with it a greater potential for the realization of capital gain or loss. Securities purchased on a when-issued or forward commitment basis and the securities held in each Fund are subject to changes in market value based upon the public's perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates (which will generally result in similar changes in value, i.e., both experiencing appreciation when interest rates decline and depreciation when interest rates rise). Therefore, to the extent a Fund remains substantially fully invested at the same time that it has purchased securities on a when-issued or forward commitment basis, there will be a greater possibility that the market value of the Fund's assets will vary more than otherwise. Purchasing a security on a when-issued or forward commitment basis can involve a risk that the yields available in the market when the delivery takes place may be higher than those obtained on the security so purchased. Lending of Portfolio Securities. Each Fund of the Series may lend portfolio securities to brokers or dealers, banks, or other institutional borrowers of securities. Loaned securities may not be returned by a borrower; however, a borrower must maintain with a Fund cash or equivalent collateral such as Treasury Bills, equal to at least 100% of the market value of the securities loaned. During the time portfolio securities are on loan, the borrower pays a Fund any income accruing on the loaned securities and a Fund may invest the cash collateral and earn additional income or may receive an agreed upon amount of interest income from the borrower. Loans will generally be short-term. Loans are subject to termination at the option of a Fund or the borrower. Each Fund 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 equivalent collateral to the borrower or placing broker. The lending of portfolio securities may involve certain risks such as: 1) an increase in the market value of the borrowed securities without a corresponding increase in the value of the posted collateral might result in an imbalance in value between the borrowed securities and the collateral; 2) in the event the borrower sought protection under the Federal bankruptcy laws, repayment of the borrowed securities to a Fund might be delayed; and 3) the borrower might refuse to repay the borrowed securities. Each Fund may lend portfolio securities to the extent that the investment manager deems appropriate in seeking to achieve a Fund's investment objective and with only a prudent degree of risk. Except as otherwise specifically noted above and below, each Fund's investment policies are not fundamental and the Board of Trustees of the Series may change such policies without the vote of a majority of a Fund's outstanding voting securities. If a Fund invests in other investment companies, shareholders would bear not only their proportionate share of that Fund's expenses (including operating expenses and advisory fees), but also similar expenses of the underlying investment companies, and that Fund's returns will therefore be lower. Investments to Control. Each Fund may not invest for the purpose of controlling or managing any company. If a Fund acquires a large percentage of the securities of a single issuer, it could be deemed to have invested in such issuer for the purpose of exercising control. If a Fund were to make such acquisitions, there is a risk that such Fund would become less diversified, which could increase the volatility of that Fund and increase the Fund's exposure to market, credit and other risks associated with certain issuers' financial condition and business operations. Exchange Traded Funds. The High-Yield Fund may invest in exchange traded funds ("ETFs"). Certain ETFs are traded, like individual stocks, on an exchange, but they represent a basket of securities that seek to track the performance of certain indices. The indices include not only broad-market indices but more specific indices as well, including those relating to particular sectors, countries and regions. Certain ETFs are traded in the over-the-counter markets, which present counterparty risk and liquidity risks to the Fund. The High-Yield Fund may invest in ETFs for short-term cash management purposes or as part of its overall investment strategy. If the High-Yield Fund invests in ETFs, shareholders would bear not only the High-Yield Fund's expenses (including operating expenses and management fees), but also similar expenses of the ETFs, and that Fund's returns will 6 therefore be lower. To the extent the High-Yield Fund invests in ETFs, the High-Yield Fund is exposed to the risks associated with the underlying investments of the ETFs and the High-Yield Fund's performance may be negatively affected if the value of those underlying investments declines. Short Sales. Each Fund may not sell securities short or maintain a short position. Options and Other Derivatives. The Funds may invest in certain derivatives instruments described below for hedging, cash management or investment purposes. Generally, derivatives may be employed when the investment manager believes they will provide an effective means of managing risk or portfolio characteristics. To the extent the Funds engage in the derivatives described below, there can be no assurance that such derivatives will achieve their intended benefits, and the Funds may lose money as a result of such use. The investment manager must seek approval of the Series' Board of Directors to invest in any derivative if it is of a type the Funds have not previously utilized. Pursuant to this policy, the Board has approved the investment manager's request that the Funds be permitted to use options, interest rate futures, currency futures, options on interest rate and currency futures, options on currencies, currency forwards, and swap agreements. These instruments are described below. Options. The Funds may utilize options. An option is a contract that gives the holder the right to purchase ("call") or sell ("put") a specified security for an agreed upon price at any time before the contract's expiration date. Options may also be based on an index or group of securities, and such options typically settle by payment of a cash amount rather than delivery of the underlying securities. The amount paid for an option is known as the premium, and the exercise price is known as the strike price. The purchaser of an option has the right, but not the obligation, to purchase or sell a security (or to receive a cash settlement amount based on movements in the price of the underlying security, basket of securities, or index). The seller (or "writer") of an option, conversely, has an obligation to sell or purchase a security if the option is exercised. Some options have standardized terms and are traded on securities exchanges. Others are privately negotiated and have no, or only a limited, trading market. Options offer large amounts of leverage, which will result in a Fund's net asset value being more sensitive to changes in the value of the underlying security. The successful use of options depends in part on the ability of the investment manager to manage future price fluctuations, and the degree of correlation between the options and the prices of the underlying securities. If the investment manager is incorrect in its expectation of changes in market prices or the correlation between the instruments or indices on which such options may be written and purchased and the instruments in a Fund's investment portfolio, the Funds may incur losses that it would not otherwise incur. The use of options can also increase a Fund's transaction costs. Options transactions can involve a high degree of risk, including the possibility of a total loss of the amount invested. The purchaser of an option runs the risk of losing the entire premium paid if the option expires "out of the money" (i.e., if the strike price for a call option is higher than the market price, or the strike price for a put option is lower than the market price). The seller of an option earns premium income but is subject to the risk of having to sell the underlying security at significantly less than its market price (or buy a security at significantly more than its market price). When options are purchased on the over-the-counter market, there is a risk that the counterparty that wrote the option will be unable to perform its obligations under the option contract. Such over-the-counter options may also be illiquid and, in such cases, the Funds may have difficulty closing out its position, in which case the Funds could lose money in the event of adverse price movements. Interest Rate Futures. The Funds may utilize interest rate futures. An interest rate futures contract is an agreement to buy or sell a debt security at a specific date in the future. Futures contracts, which trade on a securities exchange, are standardized as to quantity, delivery date and settlement conditions, including specific securities acceptable for delivery against the futures contract. In the case of index futures, settlement is made in cash based on the value of a specified underlying index. More commonly, futures contracts are closed out prior to expiration by an offsetting purchase or sale. Since the counterparty to every futures contact is a securities exchange, offsetting transactions are netted to close out positions. The Funds may incur a loss if the closing transaction occurs at an unfavorable price as compared with that of the opening trade (including transaction costs). There can be no assurance that the Funds will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain the position, including the maintenance of margins, which could result in the Funds incurring substantial losses. 7 Margin deposits must be made at the time a futures contract position is acquired. The Funds are required to deposit in a segregated account, typically with its custodian, in the name of the futures broker through whom the transaction was effected, "initial margin" consisting of cash and/or other appropriate liquid assets in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Initial margin on futures contracts is returned to a Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Funds may be required by a securities exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent "variation margin" payments are made daily to and from the futures broker as the value of the futures position varies, a process known as "marking-to-market." When the Funds purchase or sell futures contracts, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Funds have insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Purchasers and sellers of futures positions can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument held or written. Under certain circumstances, exchanges upon which futures contracts trade may establish daily limits on the amount that the price of a future contract can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Fund were unable to liquidate a futures contract position, it could incur substantial losses. The Funds would continue to be subject to market risk with respect to the position. In addition, the Funds would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or to designate liquid assets on its books and records. Certain characteristics of the futures markets might increase the risk that movements in the prices of futures contracts might not correlate perfectly with movements in the prices of the investments being hedged. For example, all participants in the futures contracts markets are subject to daily variation margin calls and might be compelled to liquidate futures contracts positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, since initial margin deposit requirements in the futures markets are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving arbitrage, "program trading" and other investment strategies might result in temporary price distortions. Interest rate futures contracts (and options on such contracts) are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership. The Funds may invest in futures contracts traded on US and non-US exchanges. Currency Futures. The Funds may utilize currency futures. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the US are traded on regulated exchanges. At the maturity of a futures contract, the Funds may either accept or make delivery of the currency specified in the contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. A Fund will only enter into a futures contract if it is expected that the Fund will readily be able to close out such contract. There can, however, be no assurance that it will be able to do so in any particular case, in which case the Funds may suffer losses in the event of adverse price movements. 8 The Funds may, for example, use currency futures to hedge the currency exposure of non-US dollar denominated debt instrument holdings, or for investment purposes to take an interest rate view based on currency valuations. Options on Interest Rate Futures and Currency Futures. The Funds may utilize options on both interest rate futures and currency futures (collectively, "options on futures"). Options on futures are effectively options on the asset that underlies a futures contract. A call option on a futures contract gives the holder the right to enter into a long futures contract at a fixed futures price. A put option on a futures contract gives the holder the right to enter into a short futures contract at a fixed futures price. Purchasers and sellers of options on futures can enter into offsetting closing transactions by selling or purchasing, respectively, an offsetting option on the same futures contract. There is risk to that the Funds may have difficulty in closing out positions in options on futures. Although the Funds intend to close out any positions on a securities market, there can be no assurance that such a market will exist for a particular contract at a particular time. Under certain circumstances, exchanges upon which futures are traded may establish daily limits on the amount that the price of an option on a futures contract can vary from the previous day's settlement price. Once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions held by the Funds. Options on futures held by the Funds, to the extent not exercised, will expire and the Funds would experience a loss to the extent of any premium paid for the option. If the Funds were unable to liquidate an option on a futures contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Funds would continue to be subject to market risk with respect to the position. Certain characteristics of the futures market might increase the risk that movements in the prices of options on futures contracts might not correlate perfectly with movements in the prices of any exposure being hedged. For example, all participants in the options on futures markets are subject to daily variation margin calls and might be compelled to liquidate options on futures positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, because initial margin deposit requirements in the futures markets are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of traders in both the futures and securities markets involving arbitrage, "program trading" and other investment strategies might result in temporary price distortions. Options on Currencies. The Funds may utilize options on currencies. An option on a currency is a derivative in which the owner has the right but not the obligation to exchange money denominated in one currency into another currency at an agreed-upon exchange rate on a specified date. In general, options on currencies operate similarly to options on equity securities and are subject to many similar risks. Options on currencies are traded primarily in the over-the-counter market, although options on certain currencies are also listed on several exchanges. Options on currencies are affected by all of those factors that influence exchange rates and investments generally. To the extent that these options are traded in the over-the-counter markets, they are considered to be illiquid by the Securities and Exchange Commission (the "SEC"). The value of any currency, including the US dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate with respect to other market forces. 9 The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the US dollar and the applicable foreign currency. Since currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse consequences to the Funds, including losses. Options on currencies held by the Funds, to the extent not exercised, will expire and the Funds would experience a loss to the extent of any premium paid for the option. The Funds may, for example, use currency options to hedge the currency exposure of non-US dollar denominated debt instrument holdings, or for investment purposes to take an interest rate view based on currency valuations. Currency Forwards. The Funds may utilize currency forwards. A currency forward contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. At the maturity of a forward contract, the Funds may either accept or make delivery of the currency specified in the contract, or, at or prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. The Funds generally will enter into forward contract if it is expected that the Funds will be readily able to close out such contract. There can, however, be no assurance that it will in any particular case be able to do so, in which case the Funds may suffer losses in the event of adverse currency movements. The Funds will not enter into forward contracts or maintain an exposure to such contracts where the consummation of such contracts would obligate the Funds to deliver an amount of currency in excess of the value of a Fund's portfolio securities or other assets denominated in that currency. Where the Funds are obligated to make deliveries under forward contracts, to avoid leverage, they will "cover" their obligation with liquid assets in an amount sufficient to meet their respective obligations. The Funds may use currency forwards, for example, to hedge the currency exposure of non-US dollar denominated debt instrument holdings, or for investment purposes to take an interest rate view based on currency valuations. Swap Agreements. The Funds may utilize swap agreements. The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements, such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate multiplied by a "notional principal amount" in return for payments equal to a fixed rate times the same amount, for a specified period of time. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. The Funds may also enter into credit default swap agreements. The credit default swap agreement may have as reference obligations one or more securities or a basket of securities that are or are not currently held by the Funds. The protection "buyer" in a credit default contract is generally obligated to pay the protection "seller" an upfront or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. The use of swap agreements by the Funds 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 agreement 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 possible market conditions. Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If a swap transaction is particularly large or if the relevant market is illiquid (as is 10 the case with many swaps since none are traded in a public securities market), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. In addition, swap transactions may be subject to a Fund's limitation on investments in illiquid securities. Swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive (or cheap) relative to historical prices or the prices of corresponding cash market instruments. Under certain market conditions, it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity or to realize the intrinsic value of the swap agreement. Since some swap agreements can have a leverage component, adverse changes in the value of the underlying asset, reference rate or index can result in a substantial loss to the Funds. Certain swaps have the potential for unlimited loss. Like most other investments, swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to a Fund's interest. The Funds bear the risk that the investment manager will not accurately forecast future market trends or the values of assets, reference rates, indexes, or other economic factors in establishing swap positions for the Funds. If the investment manager attempts to use a swap agreement as a hedge against, or as a substitute for, a portfolio investment, the Funds will be exposed to the risk that the swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Funds. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps, in particular swaps traded on the over-the-counter markets, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the Funds. The use of a swap agreement also involves the risk that a loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms of the agreement. Additionally, the use of credit default swaps can result in losses if the Funds' investment manager does not correctly evaluate the creditworthiness of the issuer on which the credit swap is based. The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Funds' ability to terminate existing swap agreements or to realize amounts to be received under such agreements. Equity-Linked Securities. The High-Yield Fund may invest in equity-linked securities (each, an "ELS") as part of its overall investment strategy. An ELS is a debt instrument whose value is based on the value of a single equity security, basket of equity securities or an index of equity securities (each, an "Underlying Equity"). An ELS typically provides interest income, thereby offering a yield advantage over investing directly in an Underlying Equity. However, the holder of an ELS may have limited or no benefit from any appreciation in the Underlying Equity, but is exposed to downside market risk. The Fund may purchase ELSs that trade on a securities exchange or those that trade on the over-the-counter markets, including Rule 144A securities. The Fund may also purchase ELSs in a privately negotiated transaction with the issuer of the ELSs (or its broker-dealer affiliate, collectively referred to in this section as the "issuer"). The Fund may or may not hold an ELS until its maturity. Investments in ELSs subject the Fund to risks, primarily to the downside market risk associated with the Underlying Equity, and to additional risks not typically associated with investments in listed equity securities, such as liquidity risk, credit risk of the issuer, and concentration risk. Most ELSs do not have any downside protection (though some ELSs provide for a floor on the downside). In general, an investor in an ELS has the same downside risk as an investor in the Underlying Equity. The liquidity of an ELS that is not actively traded on an exchange is linked to the liquidity of the Underlying Equity. The issuer of an ELS generally purchases the Underlying Equity as a hedge. If the Fund wants to sell an ELS back to the issuer prior to its maturity, the issuer may sell the Underlying Equity to unwind the hedge and, therefore, must take into account the liquidity of the Underlying Equity in negotiating the purchase price the issuer will pay to the Fund to acquire the ELS. The liquidity of unlisted ELSs is normally determined by the willingness of the issuer to make a market in the ELS. While the Fund will seek to purchase ELSs only from issuers that it believes to be willing to, and capable of, repurchasing the ELS at a reasonable price, there can be no assurance that the Fund will be able to sell any 11 ELS at such a price or at all. This may impair the Fund's ability to enter into other transactions at a time when doing so might be advantageous. In addition, because ELSs are senior unsecured notes of the issuer, the Fund would be subject to the credit risk of the issuer and the potential risk of being too concentrated in the securities (including ELSs) of that issuer. The Fund bears the risk that the issuer may default on its obligations under the ELS. In the event of insolvency of the issuer, the Fund will be unable to obtain the intended benefits of the ELS. Moreover, it may be difficult to obtain market quotations for purposes of valuing the Fund's ELSs and computing the Fund's net asset value. Price movements of an ELS will likely differ significantly from price movements of the Underlying Equity, resulting in the risk of loss if the investment manager is incorrect in its expectation of fluctuations in securities prices, interest rates or currency prices or other relevant features of an ELS. Except as otherwise specifically noted above, these investment strategies are not fundamental and each Fund, with the approval of the Board of Trustees of the Series, may change such strategies without the vote of shareholders. Fundamental Restrictions Each Fund is subject to fundamental policies that place restrictions on certain types of investments. These policies cannot be changed except by vote of a majority of each Fund's outstanding voting securities. Under these policies, each Fund may not: .. purchase or sell commodities or commodity contracts, except to the extent permissible under applicable law and interpretations, as they may be amended from time to time. In addition, the Board has adopted the following non-fundamental polices: each Fund may purchase and sell commodities and commodity contracts only to the extent that such activities do not result in a Fund being a "commodity pool" as defined in the Commodity Exchange Act and the Commodity Futures Trading Commission's regulations and interpretations thereunder. The Manager must seek Board approval to invest in any type of commodity or commodity contract if it is of the type a Fund has not previously utilized; .. purchase securities on margin except as permitted by the Investment Company Act of 1940 (the "1940 Act") or any rule thereunder, any Securities and Exchange Commission (the "SEC") or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC; .. issue senior securities or borrow money, except as permitted by the 1940 Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC; .. make loans, except as permitted by the 1940 Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC; .. underwrite the securities of other issuers except to the extent a Fund may be deemed an underwriter under the 1933 Act in disposing of a portfolio security or in connection with investments in other investment companies; .. purchase or hold any real estate including limited partnership interests in real property, except each Fund may invest in debt securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein, including REITs; .. make any investment inconsistent with a Fund's classification as a diversified investment company under the 1940 Act; .. invest 25% or more of its total assets, at market value, in any one industry, except that 25% limitation on industry concentration does not apply to securities issued or guaranteed by the US government or any of its agencies or instrumentalities (which may include mortgage-related securities); .. purchase or hold the securities of any issuer, if to its knowledge, Trustees or officers of the Series individually owning beneficially more than 0.5% of the securities of that other company own in the aggregate more than 5% of such securities; and 12 .. engage in transactions with its Trustees and officers, or firms they are associated with, in connection with the purchase or sale of securities, except as broker. Certain of the fundamental policies set forth above prohibit transactions "except as permitted by the 1940 Act or any rule thereunder, any SEC or SEC staff interpretations thereof or any exemptions therefrom which may be granted by the SEC." The following discussion explains the flexibility that the each Fund gains from these exceptions. Purchase of securities on margin - A purchase on margin involves a loan from the broker-dealer arranging the transaction. The "margin" is the cash or securities that the borrower places with the broker-dealer as collateral against the loan. However, the purchase of securities on margin is effectively prohibited by the 1940 Act because a Fund generally may borrow only from banks. Thus, under current law, this exception does not provide any additional flexibility to a Fund. Issuing senior securities - A "senior security" is an obligation with respect to the earnings or assets of a company that takes precedence over the claims of that company's common stock with respect to the same earnings or assets. The 1940 Act prohibits a mutual fund from issuing senior securities other than certain borrowings, but SEC staff interpretations allow a fund to engage in certain types of transactions that otherwise might raise senior security concerns (such as short sales, buying and selling financial futures contracts and selling put and call options), provided that the fund maintains segregated deposits or portfolio securities, or otherwise covers the transaction with offsetting portfolio securities, in amounts sufficient to offset any liability associated with the transaction. The exception in the fundamental policy allows each Fund to operate in reliance upon these staff interpretations. Borrowing money - The 1940 Act permits a fund to borrow up to 33 1/3% of its total assets (including the amounts borrowed) from banks, plus an additional 5% of its total assets for temporary purposes, which may be borrowed from banks or other sources. Making loans - The 1940 Act generally prohibits each Fund from making loans to affiliated persons but does not otherwise restrict a Fund's ability to make loans. Each Fund may not change its investment objective without shareholder approval. Under the 1940 Act, a "vote of a majority of the outstanding voting securities" of the Series or of a particular Fund means the affirmative vote of the lesser of (l) more than 50% of the outstanding shares of the Series or of such Fund; or (2) 67% or more of the shares present at a shareholders' meeting if more than 50% of the outstanding shares of the Series or of such Fund are represented at the meeting in person or by proxy. The Funds also may not acquire any securities of a registered open-end investment company or a registered unit investment trust in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act. This policy is not fundamental. Each Fund will provide shareholders with at least 60 days prior notice of any change in that Fund's "80%" investment policy as described in the Prospectuses. Such notice will be provided in plain English in a separate written document and will contain the following prominent statement, in bold-face type: "Important Notice Regarding Change in Investment Policy". This prominent statement will also appear on the envelope in which the notice is delivered or, if the notice is delivered separately from other communications to shareholders, such statement will appear either on the notice or on the envelope in which the notice is delivered. This policy is not fundamental. Temporary Defensive Position In an attempt to respond to adverse market, economic, political, or other conditions, the High-Yield Fund may invest up to 100% of its assets in cash or cash equivalents, including, but not limited to, prime commercial paper, bank certificates of deposit, bankers' acceptances, or repurchase agreements for such securities, and securities of the US government and its agencies and instrumentalities, as well as cash and cash equivalents denominated in foreign currencies. The High-Yield Fund's investments in foreign cash equivalents will be limited to those that, 13 in the opinion of the investment manager, equate generally to the standards established for US cash equivalents. Investments in bank obligations will be limited at the time of investment to the obligations of the 100 largest domestic banks in terms of assets which are subject to regulatory supervision by the US government or state governments, and the obligations of the 100 largest foreign banks in terms of assets with branches or agencies in the United States. The High-Yield Fund may also invest in high-yield, medium and lower quality corporate notes. Portfolio Turnover Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the year by the monthly average of the value of the portfolio securities owned during the year. Securities whose maturity or expiration date at the time of acquisition were one year or less are excluded from the calculation. The portfolio turnover rate for the U.S. Government Securities Fund for the years ended December 31, 2007 and 2006 were 204.04% and 347.09%, respectively. Conditions in the fixed-income market in 2007 contributed to a relatively lower portfolio turnover rate for the U.S. Government Securities Fund as compared to 2006. The portfolio turnover rate for the High-Yield Fund for the years ended December 31, 2007 and 2006 were 77.94% and 99.04%, respectively. Disclosure of Portfolio Holdings The full portfolio holdings of each Fund, as well as portfolio weightings, are published quarterly, generally no sooner than 15 calendar days after the end of each calendar quarter on the website of the Fund's distributor, Seligman Advisors, Inc. ("Seligman Advisors") (www.seligman.com). In addition, the top 10 holdings of each Fund and the aggregate weighting of the top 10 holdings are published monthly, generally no sooner than 5 business days after the end of each month. Seligman employees may freely distribute each Fund's portfolio holdings information described above to third parties the day after such information appears on Seligman Advisor's website. The foregoing monthly and quarterly information will remain available on Seligman Advisor's website for at least 5 months from the end of the period shown. In accordance with the policies and procedures approved by the Series' Board of Trustees, each Fund's portfolio holdings may be disclosed to certain parties prior to its public release if the disclosure is intended for research or other legitimate business purposes and the recipient is subject to a duty of confidentiality. Disclosures of portfolio holdings for such purposes (which may be on-going) are considered on a case-by-case basis, and the Series' procedures require the prior written approval of the Chief Investment Officer of J. & W. Seligman & Co. Incorporated ("Seligman") (or its designee) and the Series' Chief Compliance Officer ("CCO") with respect to disclosures intended for research purposes, and the President of Seligman or Seligman Advisors (or their respective designees) and the Series' CCO with respect to disclosures intended for other legitimate business purposes. In connection with the CCO's review and approval, the CCO considers whether such disclosure is in the best interests of the Funds. If prior approval is granted, the recipient must enter into a written agreement prior to the release of each Fund's portfolio holdings information that includes, among other things, a requirement that the holdings be kept confidential and places limits on the use of the information for trading purposes. The CCO, who reports directly to the Series' Board of Trustees regarding compliance with the Series' policies, and Seligman's Chief Compliance Officer monitor compliance with this policy. In addition, the Series' policies expressly permit Seligman's employees to release each Fund's holdings information without a confidentiality agreement as necessary to facilitate the execution of securities transactions or to respond to questions about Seligman's views on individual securities or whether each Fund of the Series owns or does not own a particular security, provided that individual securities weightings will not be disclosed unless such weightings are otherwise provided in the quarterly disclosure noted above. Portfolio managers (or their designees) may also disclose certain information about individual securities or information about a particular investment style on an occasional basis to third parties for research purposes, provided that the information does not include the name of a Fund or the weightings of particular securities unless otherwise provided in the quarterly disclosure noted above. The Series may also permit its auditors to have access to each Fund's portfolio holdings as necessary in connection with their auditing services. Currently, Seligman has entered into ongoing arrangements to disclose each Fund's portfolio holdings prior to the public disclosure of such information with the following third party research providers: Salomon Analytics Inc., Vestek Systems, Inc., and Bloomberg POM. The portfolio holdings are released to these research providers 14 on an as-needed basis (including daily, if necessary). In addition, Seligman discloses each Fund's portfolio holdings to State Street Bank and Trust Company ("SSBT") in connection with back-office, custodial and/or administrative services provided by SSBT, and to Institutional Shareholder Services ("ISS") in connection with proxy voting. Seligman discloses portfolio holdings to the third parties listed above, other than ISS, on a daily basis. Accordingly, the time elapsed between the date of such information and the date of its disclosure is generally less than 24 hours. Seligman discloses portfolio holdings to ISS on an as-requested basis, and the time elapsed between the date of the information and the date of its disclosure will vary based upon the date specified by the ISS request. All of the above mentioned disclosures have been approved, as applicable, by the President of Seligman or Seligman Advisors, Seligman's Chief Investment Officer and/or the Series' CCO and are made pursuant to the terms of confidentiality agreements or provisions that prohibit the disclosure and restrict the use of the holdings information. No compensation is received by any party in consideration of the disclosure of the Series' portfolio holdings pursuant to these arrangements. Management of the Series Board of Trustees The Board of Trustees provides broad supervision over the affairs of the Series. Management Information Information with respect to the Trustees and officers of the Series is shown below. Unless otherwise indicated, their addresses are 100 Park Avenue, New York, NY 10017.
Number of Portfolios Term of Office in Fund and Length of Complex Name, (Age), Position(s) Time Principal Occupation(s) During Past 5 Years, Trusteeships Overseen With Series Served* and Other Information by Trustee - ------------------------- ------------------ -------------------------------------------------------------------- ---------- INDEPENDENT TRUSTEES Maureen Fonseca (52)**** July 2007 to Date Head of School, The Masters School (education); Director or 59 Trustee Trustee of each of the investment companies of the Seligman Group of Funds**; Trustee, New York State Association of Independent Schools and Greens Farms Academy (education); and Commissioner, Middle States Association (education). John R. Galvin (78) 1995 to Date Dean Emeritus, Fletcher School of Law and Diplomacy at Tufts 59 Trustee University; Director or Trustee of each of the investment companies of the Seligman Group of Funds**; and Chairman Emeritus, American Council on Germany. Formerly, Director, Raytheon Co. (defense and commercial electronics); Governor of the Center for Creative Leadership; and Trustee, Institute for Defense Analyses. From February 1995 until June 1997, Director, USLIFE Corporation (life insurance). From June 1987 to June 1992, Supreme Allied Commander, NATO, and the Commander- in-Chief, United States European Command. John F. Maher (64) December 2006 Retired President and Chief Executive Officer, and former Director, 59 Trustee to Date Great Western Financial Corporation (bank holding company) and its principal subsidiary, Great Western Bank (a federal savings bank). Director or Trustee of each of the investment companies of the Seligman Group of Funds**. From 1989 to 1999, Director, Baker Hughes (energy products and services). Frank A. McPherson (75) 1995 to Date Retired Chairman of the Board and Chief Executive Officer of 59 Trustee Kerr-McGee Corporation (diversified energy and chemical company); Director or Trustee of each of the investment companies of the Seligman Group of Funds**; and Director, DCP Midstream GP, LLP (natural gas processing and transporting), Integris Health (owner of various hospitals), Oklahoma Medical Research Foundation, Oklahoma Foundation for Excellence in Education, National Cowboy and Western Heritage Museum and Oklahoma City Museum of Art. Formerly, Director, ConocoPhillips (integrated international oil corporation), Kimberly-Clark Corporation (consumer products), Oklahoma Chapter of the Nature Conservancy, Boys and Girls Clubs of Oklahoma, Oklahoma City Public Schools Foundation, Oklahoma City Chamber of Commerce and BOK Financial (bank holding company). From 1990 until 1994, Director, the Federal Reserve System's Kansas City Reserve Bank.
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Term of Office and Length of Name, (Age), Position(s) Time Principal Occupation(s) During Past 5 Years, Trusteeships With Series Served* and Other Information - ---------------------------- -------------------- ---------------------------------------------------------------------- INDEPENDENT TRUSTEES Betsy S. Michel (65) 1984 to Date Attorney; Director or Trustee of each of the investment companies Trustee of the Seligman Group of Funds**; and Trustee, The Geraldine R. Dodge Foundation (charitable foundation) and Drew University (Madison, NJ). Formerly, Chairman of the Board of Trustees of St. George's School (Newport, RI) and Trustee, World Learning, Inc. (international educational training) and Council of New Jersey Grantmakers. Leroy C. Richie (66) 2000 to Date Counsel, Lewis & Munday, P.C. (law firm); Director or Trustee of Trustee each of the investment companies of the Seligman Group of Funds**. Director, Vibration Control Technologies, LLC (auto vibration technology); Lead Outside Director, Digital Ally, Inc. (digital imaging) and Infinity, Inc. (oil and gas exploration and production); Director, OGE Energy Corp. (energy and energy services provider offering physical delivery and related services for both electricity and natural gas); Director and Chairman, Highland Park Michigan Economic Development Corp; and Chairman, Detroit Public Schools Foundation. Formerly, Chairman and Chief Executive Officer, Q Standards Worldwide, Inc. (library of technical standards); Director, Kerr-McGee Corporation (diversified energy and chemical company); Trustee, New York University Law Center Foundation; and Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. From 1990 until 1997, Vice President and General Counsel,, Automotive Legal Affairs, Chrysler Corporation. Robert L. Shafer (75) 1984 to Date Ambassador and Permanent Observer of the Sovereign Military Trustee Order of Malta to the United Nations; and Director or Trustee of each of the investment companies of the Seligman Group of Funds**. Formerly, from May 1987 until June 1997 Director, USLIFE Corporation (life insurance) and from December 1973 until January 1996 Vice President, Pfizer Inc. (pharmaceuticals). James N. Whitson (73) 1993 to Date Retired Executive Vice President and Chief Operating Officer, Trustee Sammons Enterprises, Inc. (a diversified holding company); Director or Trustee of each of the investment companies of the Seligman Group of Funds**; and Director, CommScope, Inc. (manufacturer of telecommunications equipment). Formerly, Director and Consultant, Sammons Enterprises, Inc. and Director, C-SPAN (cable television networks). INTERESTED TRUSTEES AND PRINCIPAL OFFICERS William C. Morris*** (70) 1988 to Date Chairman and Director, J. & W. Seligman & Co. Incorporated; Trustee and Chairman of the Chairman of the Board and Director or Trustee of each of the Board investment companies of the Seligman Group of Funds**; Chairman and Director, Seligman Advisors, Inc., Seligman Services, Inc. and Carbo Ceramics Inc. (manufacturer of ceramic proppants for oil and gas industry); Director, Seligman Data Corp.; and President and Chief Executive Officer, The Metropolitan Opera Association. Formerly, Director, Kerr-McGee Corporation (diversified energy and chemical company); and Chief Executive Officer of each of the investment companies of the Seligman Group of Funds. Brian T. Zino*** (55) Dir.: 1993 to Date Director and President, J. & W. Seligman & Co. Incorporated; Trustee, Chief Executive Pres.: 1995 to Date President, Chief Executive Officer and Director or Trustee of each Officer and President CEO: 2002 to Date of the investment companies of the Seligman Group of Funds**; Director, Seligman Advisors, Inc. and Seligman Services, Inc.; Chairman, Seligman Data Corp.; and a member of the Board of Governors of the Investment Company Institute. Formerly, Director and Chairman, ICI Mutual Insurance Company.
Number of Portfolios in Fund Complex Principal Occupation(s) During Past 5 Years, Trusteeships Overseen and Other Information by Trustee - ---------------------------------------------------------------------- ---------- Attorney; Director or Trustee of each of the investment companies 59 of the Seligman Group of Funds**; and Trustee, The Geraldine R. Dodge Foundation (charitable foundation) and Drew University (Madison, NJ). Formerly, Chairman of the Board of Trustees of St. George's School (Newport, RI) and Trustee, World Learning, Inc. (international educational training) and Council of New Jersey Grantmakers. Counsel, Lewis & Munday, P.C. (law firm); Director or Trustee of 59 each of the investment companies of the Seligman Group of Funds**. Director, Vibration Control Technologies, LLC (auto vibration technology); Lead Outside Director, Digital Ally, Inc. (digital imaging) and Infinity, Inc. (oil and gas exploration and production); Director, OGE Energy Corp. (energy and energy services provider offering physical delivery and related services for both electricity and natural gas); Director and Chairman, Highland Park Michigan Economic Development Corp; and Chairman, Detroit Public Schools Foundation. Formerly, Chairman and Chief Executive Officer, Q Standards Worldwide, Inc. (library of technical standards); Director, Kerr-McGee Corporation (diversified energy and chemical company); Trustee, New York University Law Center Foundation; and Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. From 1990 until 1997, Vice President and General Counsel,, Automotive Legal Affairs, Chrysler Corporation. Ambassador and Permanent Observer of the Sovereign Military 59 Order of Malta to the United Nations; and Director or Trustee of each of the investment companies of the Seligman Group of Funds**. Formerly, from May 1987 until June 1997 Director, USLIFE Corporation (life insurance) and from December 1973 until January 1996 Vice President, Pfizer Inc. (pharmaceuticals). Retired Executive Vice President and Chief Operating Officer, 59 Sammons Enterprises, Inc. (a diversified holding company); Director or Trustee of each of the investment companies of the Seligman Group of Funds**; and Director, CommScope, Inc. (manufacturer of telecommunications equipment). Formerly, Director and Consultant, Sammons Enterprises, Inc. and Director, C-SPAN (cable television networks). Chairman and Director, J. & W. Seligman & Co. Incorporated; 59 Chairman of the Board and Director or Trustee of each of the investment companies of the Seligman Group of Funds**; Chairman and Director, Seligman Advisors, Inc., Seligman Services, Inc. and Carbo Ceramics Inc. (manufacturer of ceramic proppants for oil and gas industry); Director, Seligman Data Corp.; and President and Chief Executive Officer, The Metropolitan Opera Association. Formerly, Director, Kerr-McGee Corporation (diversified energy and chemical company); and Chief Executive Officer of each of the investment companies of the Seligman Group of Funds. Director and President, J. & W. Seligman & Co. Incorporated; 59 President, Chief Executive Officer and Director or Trustee of each of the investment companies of the Seligman Group of Funds**; Director, Seligman Advisors, Inc. and Seligman Services, Inc.; Chairman, Seligman Data Corp.; and a member of the Board of Governors of the Investment Company Institute. Formerly, Director and Chairman, ICI Mutual Insurance Company.
16
Term of Office and Length of Name, (Age), Position(s) Time Principal Occupation(s) During Past 5 Years, Trusteeships With Series Served* and Other Information - ------------------------------ ------------------- -------------------------------------------------------------------- PRINCIPAL OFFICERS J. Eric Misenheimer (45) 2005 to Date In addition to his duties with the High-Yield Fund, he is a Vice President, and Portfolio Managing Director of J. & W. Seligman & Co. Incorporated, as Manager of High-Yield Fund well as head of its High-Yield Team; and Vice President and Co- Portfolio Manager of Seligman Core Fixed Income Fund, Inc. and Seligman Income and Growth Fund, Inc. Prior to April 2005, Senior Vice President, Director of Taxable High Yield Fixed Income Investing for Northern Trust Global investments and since July 1999 management team leader, Northern High Yield Fixed Income Fund. Francis L. Mustaro (58) 2006 to Date In addition to his duties with the U.S. Government Securities Fund, Vice President, and Portfolio he is a Managing Director of J. & W. Seligman & Co. Incorporated; Manager of U.S. Government head of Seligman's Investment Grade Team; Vice President and Securities Fund Portfolio Manager of Seligman Cash Management Fund, Inc. and Seligman Core Fixed Income Fund, Inc.; Vice President and Co- Portfolio Manager of Seligman Income and Growth Fund, Inc.; and Vice President of Seligman Portfolios, Inc. and Portfolio Manager of each of its Seligman Cash Management Portfolio and Seligman Investment Grade Fixed Income Portfolio. Prior to April 2006, Managing Director and Senior Portfolio Manager, Core Fixed Income Group of Citigroup Asset Management. Eleanor T.M. Hoagland (56) 2004 to Date Managing Director, J. & W. Seligman & Co. Incorporated; and Vice President and Chief Vice President and Chief Compliance Officer for each of the Compliance Officer investment companies of the Seligman Group of Funds**. Thomas G. Rose (50) 2000 to Date Managing Director, Chief Financial Officer and Treasurer, J. & W. Vice President Seligman & Co. Incorporated; Senior Vice President, Finance, Seligman Advisors, Inc. and Seligman Data Corp.; and Vice President of each of the investment companies of the Seligman Group of Funds**, Seligman Services, Inc. and Seligman International, Inc. Lawrence P. Vogel (51) V.P.: 1992 to Date Senior Vice President and Treasurer, Investment Companies, J. & Vice President and Treasurer Treas.: 2000 to W. Seligman & Co. Incorporated; Vice President and Treasurer of Date each of the investment companies of the Seligman Group of Funds**; and Treasurer, Seligman Data Corp. Frank J. Nasta (43) 1994 to Date Director, Managing Director, General Counsel and Corporate Secretary Secretary, J. & W. Seligman & Co. Incorporated; Secretary of each of the investment companies of the Seligman Group of Funds**; Director and Corporate Secretary, Seligman Advisors, Inc. and Seligman Services, Inc., and Corporate Secretary, Seligman International, Inc. and Seligman Data Corp.
Number of Portfolios in Fund Complex Principal Occupation(s) During Past 5 Years, Trusteeships Overseen and Other Information by Trustee - -------------------------------------------------------------------- ---------- In addition to his duties with the High-Yield Fund, he is a N/A Managing Director of J. & W. Seligman & Co. Incorporated, as well as head of its High-Yield Team; and Vice President and Co- Portfolio Manager of Seligman Core Fixed Income Fund, Inc. and Seligman Income and Growth Fund, Inc. Prior to April 2005, Senior Vice President, Director of Taxable High Yield Fixed Income Investing for Northern Trust Global investments and since July 1999 management team leader, Northern High Yield Fixed Income Fund. In addition to his duties with the U.S. Government Securities Fund, N/A he is a Managing Director of J. & W. Seligman & Co. Incorporated; head of Seligman's Investment Grade Team; Vice President and Portfolio Manager of Seligman Cash Management Fund, Inc. and Seligman Core Fixed Income Fund, Inc.; Vice President and Co- Portfolio Manager of Seligman Income and Growth Fund, Inc.; and Vice President of Seligman Portfolios, Inc. and Portfolio Manager of each of its Seligman Cash Management Portfolio and Seligman Investment Grade Fixed Income Portfolio. Prior to April 2006, Managing Director and Senior Portfolio Manager, Core Fixed Income Group of Citigroup Asset Management. Managing Director, J. & W. Seligman & Co. Incorporated; and N/A Vice President and Chief Compliance Officer for each of the investment companies of the Seligman Group of Funds**. Managing Director, Chief Financial Officer and Treasurer, J. & W. N/A Seligman & Co. Incorporated; Senior Vice President, Finance, Seligman Advisors, Inc. and Seligman Data Corp.; and Vice President of each of the investment companies of the Seligman Group of Funds**, Seligman Services, Inc. and Seligman International, Inc. Senior Vice President and Treasurer, Investment Companies, J. & N/A W. Seligman & Co. Incorporated; Vice President and Treasurer of each of the investment companies of the Seligman Group of Funds**; and Treasurer, Seligman Data Corp. Director, Managing Director, General Counsel and Corporate N/A Secretary, J. & W. Seligman & Co. Incorporated; Secretary of each of the investment companies of the Seligman Group of Funds**; Director and Corporate Secretary, Seligman Advisors, Inc. and Seligman Services, Inc., and Corporate Secretary, Seligman International, Inc. and Seligman Data Corp.
- -------- * Each Trustee serves for an indefinite term, until the election and qualification of a successor or until his or her earlier death, resignation or removal. Each officer is elected annually by the Board. 17 ** The Seligman Group of Funds currently consists of twenty-two registered investment companies, including the Series. ***Mr. Morris and Mr. Zino are considered "interested persons" of the Series, as defined in the 1940 Act, by virtue of their positions with Seligman and its affiliates. ****Dr. Fonseca became a member of the Board of Trustees on July 19, 2007. The standing committees of the Board include the Board Operations Committee, Audit Committee and Director Nominating Committee. These Committees are comprised solely of Trustees who are not "interested" persons of the Series as that term is defined in the 1940 Act. The duties of these Committees are described below. Board Operations Committee. This Committee has authority generally to direct the operations of the Board, including the nomination of members of other Board Committees and the selection of legal counsel for the Series. The Committee met six times during the year ended December 31, 2007. Members of the Committee are Messrs. McPherson (Chairman), Galvin, Maher, Richie, Shafer and Whitson, and Mses. Fonseca and Michel. In his capacity as Chairman of the Board Operations Committee, Mr. McPherson performs duties similar to those of a "lead independent director," as he chairs meetings of the independent Trustees, and acts as a point of contact between the independent Trustees and Seligman between board meetings in respect of general matters. Audit Committee. This Committee recommends an independent registered public accounting firm for selection as auditors by the Board annually. In addition, the Committee assists the Board in its oversight of the Series' financial reporting process and operates pursuant to a written charter. The Committee met twice during the year ended December 31, 2007. Members of the Committee are Messrs. Whitson (Chairman), Galvin, Maher and Richie. Trustee Nominating Committee. This Committee selects and nominates persons for election as Trustees by the Board. In addition, if a shareholder meeting is held where Trustees are to be elected, the Committee will select and nominate persons for election as Trustees at such shareholder meeting. The Committee may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Series occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. A shareholder or group of shareholders (referred to in either case as a "Nominating Shareholder") that, individually or as a group, has beneficially owned at least $10,000 of the Series' shares for at least one year prior to the date the Nominating Shareholder submits a candidate for nomination as a director may submit one candidate to the Nominating Committee for consideration at a special meeting or other meeting of shareholders at which directors will be elected. Nominations will not be considered except in connection with such meetings of shareholders. To be timely for consideration by the Nominating Committee, the submission, including all required information, must be submitted in writing via first class mail to the attention of the Secretary of the Series at 100 Park Avenue, New York, NY 10017 and received at such time as may be determined by the Series' Board of Directors in its reasonable discretion. The Nominating Committee will consider only one candidate submitted by a Nominating Shareholder for nomination for election. The Nominating Committee will not consider self-nominated candidates or candidates nominated by members of a candidate's family, including such candidate's spouse, children, parents, uncles, aunts, grandparents, nieces and nephews. The Nominating Committee will consider and evaluate candidates submitted by the Nominating Shareholder on the basis of the same criteria as those used to consider and evaluate candidates submitted from other sources. These criteria may include the candidate's relevant knowledge, experience and expertise, the candidate's ability to carry out his or her duties in the best interests of the Series and the candidate's ability to qualify as a disinterested trustee. The charter for the Nominating Committee, which provides a detailed description of the criteria used by the Nominating Committee as well as information required to be provided by shareholders submitting candidates for consideration by the Nominating Committee, may be obtained by writing to the Secretary of the Series at the address above. The Committee met twice during the year ended December 31, 2007. Members of the Committee are Messrs. Shafer (Chairman) and McPherson, and Ms. Michel. Beneficial Ownership of Shares As of December 31, 2007, the Trustees beneficially owned shares in the Series and the Seligman Group of Funds as follows: 18 U.S. Government Securities Fund Aggregate Dollar Range of Shares Dollar Range of Fund Shares Owned Owned by Trustee in the Seligman Name By Trustee Group of Funds - ---- --------------------------------- -------------------------------- INDEPENDENT TRUSTEES Maureen Fonseca.... None $1-$10,000 John R. Galvin..... $1-$10,000 $50,001-$100,000 John F. Maher...... $1-$10,000 Over $100,000 Frank A. McPherson. $50,001-$100,000 Over $100,000 Betsy S. Michel.... $1-$10,000 Over $100,000 Leroy C. Richie.... $1-$10,000 Over $100,000 Robert L. Shafer... None Over $100,000 James N. Whitson... $10,001-$50,000 Over $100,000 INTERESTED TRUSTEES William C. Morris.. $10,001-$50,000 Over $100,000 Brian T. Zino...... None Over $100,000 High-Yield Fund Aggregate Dollar Range of Shares Dollar Range of Fund Shares Owned Owned by Trustee in the Seligman Name By Trustee Group of Funds - ---- --------------------------------- -------------------------------- INDEPENDENT TRUSTEES Maureen Fonseca.... None $1-$10,000 John R. Galvin..... $1-$10,000 $50,001-$100,000 John F. Maher...... $1-$10,000 Over $100,000 Frank A. McPherson. $50,001-$100,000 Over $100,000 Betsy S. Michel.... $1-$10,000 Over $100,000 Leroy C. Richie.... $1-$10,000 Over $100,000 Robert L. Shafer... None Over $100,000 James N. Whitson... $10,001-$50,000 Over $100,000 INTERESTED TRUSTEES William C. Morris.. Over $100,000 Over $100,000 Brian T. Zino...... None Over $100,000
Compensation
Pension or Total Compensation Aggregate Retirement Benefits from Series and Compensation Accrued as Part of Fund Complex Paid Name and Position with Series from Series (1) Fund Expenses to Trustees (1)(2) - ----------------------------- --------------- ------------------- ------------------ Maureen Fonseca, Trustee(3)... $1,026 N/A $ 43,565 John R. Galvin, Trustee....... 2,177 N/A 106,500 John F. Maher, Trustee(4)..... 2,210 N/A 105,000 Frank A. McPherson, Trustee... 2,204 N/A 106,500 Betsy S. Michel, Trustee...... 2,311 N/A 112,500 Leroy C. Richie, Trustee...... 2,318 N/A 112,500 Robert L. Shafer, Trustee..... 2,311 N/A 112,500 James N. Whitson, Trustee..... 2,177 N/A 106,500
- -------- (1)For the Series' year ended December 31, 2007. (2)As of December 31, 2007, the Seligman Group of Funds consisted of twenty-three registered investment companies, including the Series. (3)Dr. Fonseca became a member of the Board of Trustees on July 19, 2007. (4)Mr. Maher is deferring his fees. No compensation is paid by a Fund to Trustees or officers of the Series who are employees of Seligman. The Series has a deferred compensation plan under which independent trustees may elect to defer receiving their fees. A trustee who has elected deferral of his or her fees may choose a rate of return equal to either (1) the interest rate on short-term Treasury Bills, or (2) the rate of return on the shares of certain of the investment companies advised by Seligman, as designated by the trustee. The cost of such fees and earnings (when incurred) is included in trustees' fees and expenses, and the accumulated balance thereof is included in other liabilities in each Fund's financial statements. The Funds may, but are not obligated to, purchase shares of the other funds in the Seligman Group of Funds to hedge their obligations in connection with the deferred compensation plan. 19 Mr. Maher is currently deferring compensation pursuant to the deferred compensation plan. Mr. Maher has accrued deferred compensation (including earning losses) in respect of the Series, in the amount of $2,271 as of December 31, 2007. Class A shares may be issued without a sales charge to present and former directors or trustees (and their family members) of the Series. Class A shares may be sold at net asset value to these persons since such sales require less sales effort and lower sales-related expenses as compared with sales to the general public. Code of Ethics Seligman, Seligman Advisors, their subsidiaries and affiliates, and the Seligman Group of Funds have adopted a Code of Ethics that sets forth the circumstances under which officers, directors, trustees and employees (collectively, "Employees") are permitted to engage in personal securities transactions. The Code of Ethics proscribes certain practices with regard to personal securities transactions and personal dealings, provides a framework for the reporting and monitoring of personal securities transactions by Seligman's Chief Compliance Officer, and sets forth a procedure of identifying, for disciplinary action, those individuals who violate the Code of Ethics. The Code of Ethics prohibits Employees (including all investment team members) from purchasing or selling any security or an equivalent security that is being purchased or sold by any client, or where the Employee intends, or knows of another's intention, to purchase or sell a security on behalf of a client. The Code also prohibits all Employees from acquiring securities in a private placement or in an initial or secondary public offering unless prior approval has been obtained from Seligman's Chief Compliance Officer. The Code of Ethics prohibits (1) each portfolio manager or member of an investment team from purchasing or selling any security within seven calendar days either before or after the purchase or sale of the security by a client's account (including investment company accounts) that the portfolio manager or investment team manages; (2) each Employee from profiting from short-term trading (a profitable purchase and sale or vice-versa within 60 days); and (3) each member of an investment team from profiting from short sales of a security if, at that time, any client managed by that team has a long position in that security. Any profit realized pursuant to any of these prohibitions must be disgorged to a charitable organization. Employees are required, except under very limited circumstances, to engage in personal securities transactions through a broker-dealer designated by Seligman. All transactions by Employees in non-exempt securities must be pre-cleared by Seligman's compliance system. This system is designed to prevent transactions in securities that would conflict with the interests of clients. All Employees are also required to disclose all securities beneficially owned by them upon commencement of employment and at the end of each calendar year. A copy of the Code of Ethics is on public file with, and is available upon request from, the SEC. You can access it through the SEC's Internet site, www.sec.gov. Proxy Voting Policies Introduction. On behalf of each Fund, one or more independent third parties under the supervision of Seligman votes the proxies of the securities held in each Fund's portfolio in accordance with Seligman's criteria of what is in the best interests of that Fund's shareholders. The financial interest of the shareholders is the primary consideration in determining how proxies should be voted. Seligman has a responsibility to analyze proxy issues and to ensure that voting is accomplished in a way consistent with those financial interests. In the case of social and political responsibility issues which do not involve financial considerations, it is not possible to fairly represent the diverse views of the shareholders. As a result, Seligman's policy generally is to abstain from voting on these issues. Notwithstanding the above, proposals seeking disclosure of certain matters relating to social and political issues may be supported if such disclosure is not deemed to be unduly burdensome. The Proxy Voting Process. Proxies for securities held in the portfolios of a Fund will be received, processed and voted by one or more independent third parties under the supervision of Seligman pursuant to the guidelines (the "Guidelines") established by Seligman's Proxy Voting Committee (the "Committee"). A description of the Guidelines can be found below. 20 The Committee was established to set Seligman's policy and Guidelines, to consider new corporate governance issues as they arise, to assist in determining how Seligman will respond to such issues and to provide oversight of the proxy voting process. The Committee currently consists of Seligman's Chief Investment Officer (Chair), Seligman's Chief Financial Officer and Seligman's General Counsel. Seligman subscribes to a service offered by an independent third party that provides research on proposals to be acted upon at shareholder meetings and assistance in the tracking, voting and recordkeeping of proxies. Conflicts of Interests. Seligman's Chief Compliance Officer maintains a Proxy Watch List, which contains the names of those companies that may present the potential for conflict in the voting process with Seligman, Seligman Advisors or any Seligman affiliate. For example, the Proxy Watch List will include those portfolio companies for which Seligman separately manages assets in private accounts or which are significant distributors of Seligman's products and services. As described below, proxy voting for these companies will be subject to a higher level of consideration. Deviations from Guidelines and Special Situations. Seligman recognizes that it may not always be in the best interest of the shareholders to vote in accordance with the Guidelines on a particular issue. In such circumstances, Seligman may deviate from the Guidelines. A member of the Committee must approve any deviation from the Guidelines. Furthermore, a majority of the Committee's members must approve any deviation from the Guidelines for issuers included on the Proxy Watch List. Similarly, one member of the Committee must approve the voting decision for proposals of a unique nature requiring a case-by-case analysis. A majority of the Committee must approve the voting decision for such proposals if the issuer is included on the Proxy Watch List. Seligman may consider the views of the management of a portfolio company, as well as the view of Seligman's investment professionals, when analyzing potential deviations from the Guidelines and for those proposals requiring a case-by-case evaluation. Guidelines Summary. The Guidelines are briefly described as follows: 1. Seligman votes with the recommendations of a company's board of directors on general corporate governance issues such as changing the company's name, ratifying the appointment of auditors and procedural matters relating to shareholder meetings. 2. Seligman opposes, and supports the elimination of, anti-takeover proposals, including those relating to classified Boards, supermajority votes, poison pills, issuance of blank check preferred and establishment of classes with disparate voting rights. 3. Seligman abstains from voting on issues relating to social and/or political responsibility, except for matters relating to disclosure issues if not deemed unduly burdensome for the company (e.g., political contributions). 4. Seligman votes for stock option plans, increases in the number of shares under existing stock option plans and other amendments to the terms of such plans; provided that the overall dilution of all active stock option plans and stock purchase plans does not exceed 10% on a fully diluted basis and are otherwise considered to align the interest of the company with those of shareholders (e.g., all such plans must specifically prohibit repricing). 5. Seligman generally votes with the recommendations of a company's board of directors on other matters relating to executive compensation, unless considered excessive. 6. Seligman will withhold voting for the entire board of trustees (or individual trustees as the case may be) if: (a) less than 75% of the board is independent; (b) the board has a nominating or compensation committee of which less than 75% of its members are independent; (c) the board has recommended shareholders vote for an anti-takeover device which Seligman votes against; or (d) the board has recommended a matter relating to a stock option plan or stock purchase plan which Seligman votes against. 21 7. Seligman will vote for proposals relating to the authorization of additional common stock up to 5 times that currently outstanding. 8. Seligman will vote for proposals to effect stock splits. 9. Seligman will vote for proposals authorizing share repurchase programs. 10. Seligman will vote against authorization to transact unidentified business at the meeting. 11. Acquisitions, mergers, reorganizations, reincorporations and other similar transactions will be voted on a case-by-case basis. 12. Proposals to amend a company's charter or by-laws (other than as identified above) will be voted on a case-by-case basis. 13. Seligman will vote against all proposals where the company did not provide adequate information to make a decision. 14. Seligman abstains from voting shares which have recently been sold or for which information was not received on a timely basis. Information regarding how each Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge upon request by calling toll free (800) 221-2450 in the US or collect (212) 682-7600 outside the US and (ii) on the SEC's website at www.sec.gov. Information for each new 12-month period ending June 30 will be available no later than August 31 of that year. Control Persons and Principal Holders of Securities Control Persons As of April 2, 2008, there was no person or persons who controlled either the U.S. Government Securities Fund or the High-Yield Fund, either through a significant ownership of shares or any other means of control. Principal Holders As of April 2, 2008, the following principal holders owned 5% or more of the then outstanding shares of capital stock of a Class of shares for the following Funds:
Percentage of Total Shares Name and Address Fund/Class Held - ---------------- ------------- ------------- MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32246 High-Yield 9.95% Fund/Class A Citigroup Global House Account, 7th Floor, 333 West 34th Street, New York, NY 10001 High-Yield 5.01% Fund/Class A MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32246 High-Yield 15.61% Fund/Class B Morgan Stanley DW, Attn. Mutual Fund Operations, Harborside Financial Center, Plaza High-Yield 10.79% Two, Jersey City, NJ 07311 Fund/Class B Citigroup Global House Account, 7th Floor, 333 West 34th Street, New York, NY 10001. High-Yield Fund/Class B 6.55% Citigroup Global House Account, 7th Floor, 333 West 34th Street, New York, NY 10001. High-Yield Fund/Class C 8.52% MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL High-Yield 32246............................................................................. Fund/Class D 30.34%
22
Percentage of Total Shares Name and Address Fund/Class Held - ---------------- ----------------- ------------- Citigroup Global House Account, 7th Floor, 333 West 34th Street, New York, NY 10001.. High-Yield Fund/Class D 5.87% State Street Bank & Trust Co., FBO Customers, North Carolina College Savings, 105 High-Yield Rosemont Avenue, Westwood, MA 02090................................................ Fund/Class I 31.21% State Street Bank & Trust Co., FBO Customers, North Carolina College Savings, 105 High-Yield Rosemont Avenue, Westwood, MA 02090................................................ Fund/Class I 23.04% State Street Bank & Trust Co., FBO Customers, North Carolina College Savings, 105 High-Yield Rosemont Avenue, Westwood, MA 02090................................................ Fund/Class I 20.05% Patterson & Co., FBO Customers, 1525 West WT Harris Blvd., Charlotte, NC 28288....... High-Yield Fund/Class I 13.11% MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL High-Yield 32246.............................................................................. Fund/Class R 94.35% MCB Trust Services Custodian FBO Plumbers Local Union No. 93, 700 17th Street, Suite U.S. Government 300, Denver, CO 80202.............................................................. Securities Fund/ Class A 15.93% MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL U.S. Government 32246.............................................................................. Securities Fund/ Class A 6.25% MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL U.S. Government 32246.............................................................................. Securities Fund/ Class B 11.96% Morgan Stanley DW, Attn. Mutual Fund Operations, Harborside Financial Center, Plaza U.S. Government Two, Jersey City, NJ 07311......................................................... Securities Fund/ Class B 8.12% MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL U.S. Government 32246.............................................................................. Securities Fund/ Class D 27.29% MLPF&S FBO Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL U.S. Government 32246.............................................................................. Securities Fund/ Class R 87.17% MG Trust Company, FBO Cardinal Buses Inc. 401K Plan, 700 17th Street, Suite 300, U.S. Government Denver CO 80202.................................................................... Securities Fund/ Class R 6.20%
Management Ownership As of April 2, 2008, Trustees and officers of the U.S. Government Securities Fund as a group owned less than 1% of the U.S. Government Securities Fund Class A shares of the then outstanding shares of beneficial interest of the Fund. As of the same date, Trustees or officers of the Fund did not own any of the Fund's Class B shares, Class C shares, Class D shares or Class R shares of the then outstanding shares of beneficial interest of the Series. 23 As of April 2, 2008, Trustees and officers of the High-Yield Fund as a group owned less than 1% of the Fund's Class A shares of the then outstanding shares of beneficial interest of the Fund. As of the same date, Trustees and officers of the High-Yield Fund did not own any of the Fund's Class B shares, Class C shares, Class D shares, or Class R shares of the then outstanding shares of beneficial interest of the Fund. As of the same date, Trustees and officers of the High-Yield Fund as a group owned 2.77% of the High-Yield Fund's Class I shares of beneficial interest then outstanding of the Fund. Investment Advisory and Other Services Investment Manager Subject to the control of the Series' Board of Trustees, Seligman manages the investment of the assets of each Fund of the Series and administers its business and other affairs pursuant to management agreements approved by the Series' Board of Trustees and the initial shareholders of each Fund (the "Management Agreements"). As of the date of this SAI, Seligman also served as investment manager to twenty-one other US registered investment companies which, together with the Series, make up the "Seligman Group of Funds." There are no other management-related service contracts under which services are provided to each Fund of the Series. No person or persons, other than the directors, trustees, officers or employees of Seligman and the Series, regularly advise each Fund or Seligman of the Series with respect to the Funds' investments. Seligman is a successor firm to an investment banking business founded in 1864 which has thereafter provided investment services to individuals, families, institutions, and corporations. Mr. William C. Morris, Chairman and Trustee of Seligman and Chairman of the Board of Trustees and Trustee of the Series, owns a majority of the outstanding voting securities of Seligman and is a controlling person of Seligman. All of the officers of the Series listed above are officers or employees of Seligman. Their affiliations with the Series and with Seligman are provided under their principal business occupations. Seligman is entitled to receive a management fee from each Fund for its services to such Fund, calculated daily and payable monthly. For the U.S. Government Securities Fund, the fee is equal to 0.50% per annum of the Fund's average daily net assets on an annual basis. The management fee for the High-Yield Fund is equal to 0.65% of the Fund's average daily net assets on the first $1 billion of net assets and 0.55% per annum of the Fund's average daily net assets in excess of $1 billion. The management fees paid by the U.S. Government Securities Fund for the years ended December 31, 2007, 2006 and 2005 equaled 0.50% of the average daily net assets of such Funds, or $292,788, $340,058 and $431,891 respectively. The management fees paid by the High-Yield Fund for the years ended December 31, 2007, 2006 and 2005 equaled 0.65% of the average daily net assets of such Fund, or $1,927,944, $2,443,687 and $3,289,129, respectively. Each Fund of the Series pays all of its expenses other than those assumed by Seligman, including administration, shareholder services and distribution fees, fees and expenses of independent attorneys and auditors, taxes and governmental fees, including fees and expenses of qualifying each Fund and its shares under Federal and State securities laws, expenses of repurchase or redemption of shares, expenses of printing and distributing reports, notices and proxy materials to shareholders, expenses of printing and filing reports and other documents with governmental agencies, expenses of shareholders' meetings, expenses of corporate data processing and related services, shareholder record keeping and shareholder account services, fees and disbursements of transfer agents and custodians, expenses of disbursing dividends and distributions, fees and expenses of trustees of the Series not employed by or serving as a Director of Seligman or its affiliates, insurance premiums, interests on borrowings, and extraordinary expenses, such as litigation expenses. The Series' expenses are allocated among the Funds in a manner determined by the Trustees to be fair and equitable. Each Fund's Management Agreement provides that Seligman will not be liable to a Fund for any error of judgment or mistake of law, or for any loss arising out of any investment, or for any act or omission in performing its duties under the Management Agreement, except for willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations and duties under the Management Agreement. 24 Each Fund's Management Agreement was initially approved by the Board of Trustees at a meeting held on September 30, 1988 and by the shareholders at a special meeting held on December 16, 1988. The amendments to the Management Agreement of the High-Yield Fund, to increase the fee rate payable to Seligman by the Fund, were approved by the Board of Trustees on September 21, 1995 and by the shareholders at a special meeting held on December 12, 1995. The Management Agreements will continue in effect until December 31 of each year if (1) such continuance is approved in the manner required by the 1940 Act (i.e., by a vote of a majority of the Board of Trustees or of the outstanding voting securities of each Fund and by a vote of a majority of the Trustees who are not parties to the Management Agreement or interested persons of any such party) and (2) Seligman shall not have notified a Fund at least 60 days prior to December 31 of any year that it does not desire such continuance. Each Management Agreement may be terminated by the appropriate Fund, without penalty, on 60 days' written notice to Seligman and will terminate automatically in the event of its assignment. Each Fund has agreed to change its name upon termination of the Management Agreement if continued use of the name would cause confusion in the context of Seligman's business. Principal Underwriter Seligman Advisors (an affiliate of Seligman), located at 100 Park Avenue, New York, New York 10017, acts as general distributor of the shares of each Fund of the Series and of each of the other mutual funds in the Seligman Group. Seligman Advisors is an "affiliated person" (as defined in the 1940 Act) of Seligman, which is itself an affiliated person of the Series. Those individuals identified above under "Management Information" as trustees or officers of both the Series and Seligman Advisors (in which case, directors or trustees) are affiliated persons of both entities. Services Provided by the Investment Manager Under each Fund's Management Agreement, dated December 29, 1988 for the U.S. Government Securities Fund and December 29, 1988, as amended January 1, 1996, for the High-Yield Fund, subject to the control of the Series' Board of Trustees, Seligman manages the investment of the assets of each Fund, including making purchases and sales of portfolio securities consistent with each Fund's investment objectives and policies, and administers the business and other affairs of each Fund. Seligman provides the Series with such office space, administrative and other services and executive and other personnel as are necessary for Series operations. Seligman pays all of the compensation of trustees of the Series who are employees or consultants of Seligman and of the officers and employees of the Series. Seligman also provides senior management for Seligman Data Corp. ("SDC"), the Series' shareholder service agent. Service Agreements There are no other management-related service contracts under which services are provided to either Fund of the Series. Other Investment Advice No person or persons, other than directors, trustees, officers, or employees of Seligman, regularly advise the Funds of the Series or Seligman with respect to the Funds' respective investments. Dealer Reallowances Dealers and financial advisors receive a percentage of the initial sales charge on sales of Class A shares of each Fund of the Series, as set forth below:
Regular Dealer Sales Charge Sales Charge Reallowance as a % of As a % of Net as a % of Amount of Purchase Offering Price(1) Amount Invested Offering Price ------------------ ----------------- --------------- -------------- Less than $100,000.. 4.50% 4.71% 4.00% $100,000 - $249,999. 3.50 3.63 3.00 $250,000 - $499,999. 2.50 2.56 2.25 $500,000 - $999,999. 2.00 2.04 1.75 $1,000,000 and over. 0 0 0
- -------- (1)"Offering Price" is the amount that you actually pay for each Fund's shares; it includes the initial sales charge. 25 Seligman Services, Inc. ("Seligman Services") is a limited purpose broker/dealer. Prior to January 1, 2006, Seligman Services received commissions from certain sales of each Fund's shares. Accordingly, for the year ended December 31, 2005, Seligman Services received commissions from certain sales of the U.S. Government Securities Fund's shares in the amount of $1,361. Also, for the year ended December 31, 2005, Seligman Services received commissions from certain sales of the High-Yield Fund's shares in the amount of $3,306. Rule 12b-1 Plan Each Fund of the Series has adopted an Administration, Shareholder Services and Distribution Plan ("12b-1 Plan") in accordance with Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. Under its 12b-1 Plan, each Fund may pay to Seligman Advisors an administration, shareholder services and distribution fee in respect of the Fund's Class A, Class B, Class C, Class D and Class R shares. (Effective at the close of business on May 16, 2008, the Funds' Class D shares will be combined with Class C shares, and Class D shares will no longer be available. After Class D shares are combined with Class C shares, former Class D shareholders will be subject to the Funds' Rule 12b-1 Plan in respect of Class C shares, which is identical in its terms to Class D shares. There is no administration, shareholder services and distribution fee in respect of either Fund's Class I shares.) Payments by a Fund under its 12b-1 Plan may include, but are not limited to: (1) compensation to securities dealers and other organizations ("Service Organizations") for providing distribution assistance with respect to assets invested in the Fund; (2) compensation to Service Organizations for providing administration, accounting and other shareholder services with respect to the Series' shareholders; and (3) otherwise promoting the sale of shares of the Fund, including paying for the preparation of advertising and sales literature and the printing and distribution of such promotional materials and prospectuses to prospective investors and defraying Seligman Advisors' costs incurred in connection with its marketing efforts with respect to shares of the Series. Seligman, in its sole discretion, may also make similar payments to Seligman Advisors from its own resources, which may include the management fee that Seligman receives from each Fund, respectively. Payments made by a Fund under its 12b-1 Plan are intended to be used to encourage sales of shares of each Fund of the Series, as well as to discourage redemptions. Fees paid by a Fund under its 12b-1 Plan with respect to any class of shares of the Fund may not be used to pay expenses incurred solely in respect of any other class of the Fund or any other Seligman fund. Expenses attributable to more than one class of a Fund are allocated between the classes of the Fund in accordance with a methodology approved by the Series' Board of Trustees. Expenses of distribution activities that benefit both a Fund and other Seligman funds are allocated among the applicable Fund and funds based on relative gross sales during the quarter in which such expenses are incurred, in accordance with a methodology approved by the Board of Trustees of the Series. Class A Under the 12b-1 Plan, each Fund, with respect to its Class A shares, is authorized to pay monthly to Seligman Advisors a service fee at an annual rate of up to 0.25% of the average daily net asset value of such Fund's Class A shares. This fee is used by Seligman Advisors exclusively to make payments to Service Organizations, which have entered into agreements with Seligman Advisors. Such Service Organizations receive from Seligman Advisors a continuing fee of up to 0.25% on an annual basis, payable quarterly, of the average daily net assets of Class A shares attributable to the particular Service Organization for providing personal service and/or maintenance of shareholder accounts for each Fund, respectively. The fee payable to Service Organizations from time to time shall, within such limits, be determined by the Trustees of the Series. A Fund of the Series is not obligated to pay Seligman Advisors for any such costs it incurs in excess of the fee described above. No expense incurred in one year by Seligman Advisors with respect to Class A shares of a Fund may be paid from Class A 12b-1 fees received from the Fund in any other year. If a Fund's 12b-1 Plan is terminated in respect of its Class A shares, no amounts (other than amounts accrued but not yet paid) would be owed by the Fund to Seligman Advisors with respect to its Class A shares. The total amount of service fees paid to Seligman Advisors in respect of Class A shares of the U.S. Government Securities Fund and the High-Yield Fund for the year ended December 31, 2007 was $88,631 and $433,874, respectively, equivalent to 0.24% and 0.25%, respectively, per annum of each Fund's Class A shares' average daily net assets. 26 Class B Under the 12b-1 Plan, each Fund, with respect to its Class B shares, is authorized to pay monthly a 12b-1 fee at an annual rate of up to 1% of the average daily net asset value of such Fund's Class B shares. This fee is comprised of (1) a distribution fee equal to 0.75% per annum, substantially all of which is paid directly to one or more third parties that have purchased Seligman Advisor's rights to this fee (the "Purchasers") to compensate them for having funded, at the time of sale of a Fund's Class B shares (i) a 4% sales commission to Service Organizations and (ii) prior to August 1, 2004, a payment of up to 0.35% of sales to Seligman Advisors to help defray its costs of distributing Class B shares; and (2) a service fee of up to 0.25% per annum which is paid to Seligman Advisors. A small portion of the distribution fee is paid to Seligman Advisors in connection with sales of Class B shares for which no commissions are paid; Seligman Advisors may pay the entire 12b-1 fee to Service Organizations who have not received any sales commission for the sale of Class B shares. The service fee is used by Seligman Advisors exclusively to make payments to Service Organizations which have entered into agreements with Seligman Advisors. Such Service Organizations receive from Seligman Advisors a continuing service fee of up to 0.25% on an annual basis, payable quarterly, of the average daily net assets of Class B shares of a Fund attributable to the particular Service Organization for providing personal service and/or maintenance of shareholder accounts for the Fund. The amounts expended by Seligman Advisors or the Purchasers in any one year upon the initial purchase of Class B shares of a Fund may exceed the 12b-1 fees paid by the Series in that year. Each Fund's 12b-1 Plan permits expenses incurred in respect of Class B shares in one year to be paid from Class B 12b-1 fees received from the Fund in any other year; however, in any year a Fund is not obligated to pay any 12b-1 fees in excess of the fees described above. Seligman Advisors and the Purchasers are not reimbursed for expenses that exceed such fees. If a Fund's 12b-1 Plan is terminated in respect of Class B shares, no amounts (other than amounts accrued but not yet paid) would be owed by that Fund to Seligman Advisors or the Purchasers with respect to its Class B shares. The total amount of distribution and service fees paid in respect of Class B shares of the U.S. Government Securities Fund and the High-Yield Fund for the year ended December 31, 2007 was $59,538 and $366,259, respectively, or 1% per annum of each Fund's Class B shares' average daily net assets. Class C Under the 12b-1 Plan, each Fund, with respect to Class C shares, is authorized to pay monthly to Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily net asset value of such Fund's Class C shares. This fee is used by Seligman Advisors as follows: During the first year following the sale of Class C shares, a distribution fee of 0.75% of the average daily net assets attributable to such Class C shares is used, along with any contingent deferred sales charge ("CDSC") proceeds to (1) reimburse Seligman Advisors for its (A) payment at the time of sale of Class C shares of a 0.75% sales commission to Service Organizations or (B) ongoing payment of 0.75% of the average daily net assets attributable to such Class C shares to Service Organizations who elect not to receive a time of sale payment and (2) pay for other distribution expenses, including paying for the preparation of advertising and sales literature and the printing and distribution of such promotional materials and prospectuses to prospective investors and other marketing costs of Seligman Advisors. In addition, during the first year following the sale of Class C shares, a service fee of up to 0.25% of the average daily net assets attributable to such Class C shares is used to reimburse Seligman Advisors for its prepayment to Service Organizations at the time of sale of Class C shares of a service fee of 0.25% of the net asset value of the Class C share sold (for shareholder services to be provided to Class C shareholders over the course of the one year immediately following the sale) and for its ongoing payment of a service fee of 0.25% of the average daily net assets attributable to such Class C shares to those Service Organizations who elect not to receive a time of sale payment. The payment of service fees to Seligman Advisors is limited to amounts Seligman Advisors actually paid to Service Organizations as service fees at either the time of sale or the ongoing service fees paid to Service Organizations who elect not to receive such service fees at the time of sale. After the initial one-year period following a sale of Class C shares, the 12b-1 fee attributable to such Class C shares is paid to Service Organizations for providing continuing shareholder services and distribution assistance in respect of a Fund. The total amount of distribution and service fees paid to Seligman Advisors in respect of Class C shares of the U.S. Government Securities Fund and the High-Yield Fund for the year ended December 31, 2007 was $39,929 and $223,245, respectively, or 1% per annum of each Fund's Class C shares' average daily net assets. 27 The amounts expended by Seligman Advisors in any one year with respect to Class C shares of a Fund may exceed the 12b-1 fees paid by the Fund in that year. Each Fund's 12b-1 Plan permits expenses incurred by Seligman Advisors in respect of Class C shares in one year to be paid from Class C 12b-1 fees in any other year; however, in any year a Fund is not obligated to pay any 12b-1 fees in excess of the fees described above. As of December 31, 2007, Seligman Advisors incurred $708,395 and $2,956,468 of expenses in respect of the U.S. Government Securities Fund and the High-Yield Fund Class C shares, respectively, that were not reimbursed from the amounts received from each Fund's 12b-1 Plan. These amounts were equal to 18.14% and 16.62%, respectively, of each Fund's Class C shares' net assets as of December 31, 2007. If the 12b-1 Plan is terminated in respect of Class C shares of a Fund, no amounts (other than amounts accrued but not yet paid) would be owed by such Fund to Seligman Advisors with respect to its Class C shares. Class D (NOT AVAILABLE AFTER MAY 16, 2008) Effective at the close of business (4:00 p.m. EST) on May 16, 2008, the Funds' Class D shares will be combined with Class C shares, and Class D shares will no longer be available. After Class D shares are combined with Class C shares, all former Class D shareholders will be subject to the Funds' Rule 12b-1 plan in respect of Class C shares (as described immediately above), which is identical in its terms to Class D shares. Accordingly, the description of the Fund's 12b-1 Plan in respect of Class D shares will not be relevant after May 16, 2008. Under the 12b-1 Plan, each Fund, with respect to its Class D shares, is authorized to pay monthly to Seligman Advisors a 12b-1 fee at an annual rate of up to 1% of the average daily net asset value of such Fund's Class D shares. This fee is used by Seligman Advisors as follows: During the first year following the sale of Class D shares, a distribution fee of 0.75% of the average daily net assets attributable to such Class D shares is used, along with any CDSC proceeds, to (1) reimburse Seligman Advisors for its (A) payment at the time of sale of Class D shares of a 0.75% sales commission to Service Organizations or (B) ongoing payment of 0.75% of the average daily net assets attributable to such Class D shares to Service Organizations who elect not to receive a time-of-sale payment and (2) pay for other distribution expenses, including paying for the preparation of advertising and sales literature and the printing and distribution of such promotional materials and prospectuses to prospective investors and other marketing costs of Seligman Advisors. In addition, during the first year following the sale of Class D shares of a Fund, a service fee of up to 0.25% of the average daily net assets attributable to such Class D shares is used to reimburse Seligman Advisors for its prepayment to Service Organizations at the time of sale of Class D shares of the Fund of a service fee of 0.25% of the net asset value of the Class D shares sold (for shareholder services to be provided to Class D shareholders of the Fund over the course of the one year immediately following the sale) and for its ongoing payment of a service fee of 0.25% of the average daily net assets attributable to such Class D shares to those Service Organizations who elect not to receive time-of-sale payment. The payment of service fees to Seligman Advisors is limited to amounts Seligman Advisors actually paid to Service Organizations as service fees at either the time of sale or the ongoing services fees paid to Service Organizations who elect not to receive such service fees at the time of sale. After the initial one-year period following a sale of Class D shares of a Fund, the 12b-1 fee attributable to such Class D shares of the Fund is paid to Service Organizations for providing continuing shareholder services and distribution assistance in respect of assets invested in the Fund. The total amount of distribution and service fees paid to Seligman Advisors in respect of Class D shares of the U.S. Government Securities Fund and the High-Yield Fund for the year ended December 31, 2007 was $106,110 and $525,887, respectively, or 1% per annum of each Fund's Class D shares' average daily net assets. The amounts expended by Seligman Advisors in any one year with respect to Class D shares of a Fund may exceed the 12b-1 fees paid by the Fund in that year. Each Fund's 12b-1 Plan permits expenses incurred by Seligman Advisors in respect of Class D shares in one year to be paid from Class D 12b-1 fees in any other year; however, in any year a Fund is not obligated to pay any 12b-1 fees in excess of the fees described above. As of December 31, 2007, Seligman Advisors incurred $738,418 and $7,226,552 of expenses in respect of the U.S. Government Securities Fund and the High-Yield Fund Class D shares, respectively, that were not reimbursed from the amounts received from each Fund's 12b-1 Plan. These amounts were equal to 6.93% and 16.11%, respectively, of each Fund's Class D shares' net assets as of December 31, 2007. 28 If the 12b-1 Plan is terminated in respect of Class D shares of a Fund, no amounts (other than amounts accrued but not yet paid) would be owed by the Fund to Seligman Advisors with respect to its Class D shares. Class R Under the 12b-1 Plan, each Fund, with respect to Class R shares, is authorized to pay monthly to Seligman Advisors a 12b-1 fee at an annual rate of up to 0.50% of the average daily net asset value of the Class R shares. This 12b-1 fee is comprised of (1) a distribution fee equal to 0.25% of the average daily net assets attributable to the Class R shares and (2) a service fee of up to 0.25% of the average daily net asset value of the Class R shares. The 12b-1 fee is used by Seligman Advisors in one of two ways, depending on the payout option chosen by Service Organizations. This fee is used by Seligman Advisors as follows: Option 1 - Service Organization opts for time-of-sale payment. A distribution fee of 0.25% of the average daily net assets attributable to such Class R shares is used, along with any CDSC proceeds, to (1) reimburse Seligman Advisors for its payment at the time of sale of Class R shares of a 0.75% sales commission to the Service Organization, and (2) pay for other distribution expenses, including paying for the preparation of advertising and sales literature and the printing and distribution of such promotional materials and prospectuses to prospective investors and other marketing costs of Seligman Advisors. In addition, during the first year following the sale of Class R shares, a service fee of up to 0.25% of the average daily net assets attributable to such Class R shares is used to reimburse Seligman Advisors for its prepayment to the Service Organization at the time of sale of Class R shares of a service fee of 0.25% of the net asset value of the Class R shares sold (for shareholder services to be provided to Class R shareholders over the course of the one year immediately following the sale). After the initial one-year period following a sale of Class R shares, the 0.25% servicing fee is used to reimburse Seligman Advisors for its payments to the Service Organization for providing continuing shareholder services. The payment of service fees to Seligman Advisors is limited to amounts Seligman Advisors actually paid to Service Organizations at the time of sale as service fees. Option 2 - Service Organization does not opt for time-of-sale payment. The entire 12b-1 fee attributable to the sale of the Class R shares, along with any CDSC proceeds, is used to (1) reimburse Seligman Advisors for its on-going payment of the entire 12b-1 fees attributable to such Class R shares to the Service Organization for providing continuing shareholder services and distribution assistance in respect of a Fund and (2) pay for other distribution expenses, including paying for the preparation of advertising and sales literature and the printing and distribution of such promotional materials and prospectuses to prospective investors and other marketing costs of Seligman Advisors. The total amount of distribution and service fees paid to Seligman Advisors in respect of Class R shares of the U.S. Government Securities Fund and the High-Yield Fund for the year ended December 31, 2007 was $7,342 and $11,961, respectively, or 0.50% per annum of each Fund's Class R shares' average daily net assets. The amounts expended by Seligman Advisors in any one year with respect to Class R shares of each Fund may exceed the 12b-1 fees paid by such Fund in that year. Each Fund's 12b-1 Plan permits expenses incurred by Seligman Advisors in respect of Class R shares in one fiscal year to be paid from Class R 12b-1 fees in any other fiscal year; however, in any fiscal year a Fund is not obligated to pay any 12b-1 fees in excess of the fees described above. As of December 31, 2007, Seligman Advisors incurred $58,469 and $82,903 of expenses in respect of the U.S. Government Securities Fund and the High-Yield Fund Class R shares, respectively, that were not reimbursed from the amounts received from each Fund's 12b-1 Plan. These amounts were equal to 3.07% and 2.15%, respectively, of each Fund's Class R shares' net assets as of December 31, 2007. If the 12b-1 Plan is terminated in respect of Class R shares of a Fund, no amounts (other than amounts accrued but not yet paid) would be owed by such Fund to Seligman Advisors with respect to Class R shares. 29 Payments made by the U.S. Government Securities Fund under its 12b-1 Plan for the year ended December 31, 2007, were spent on the following activities in the following amounts:
Class A Class B Class C Class D Class R ------- ------- ------- ------- ------- Compensation to underwriters... $ -0- $ 121 $ 1,382 $ 9,493 $ 33 Compensation to broker/dealers. 88,631 14,805 38,547 96,617 7,309 Other Compensation*............ -0- 44,612 -0- -0- -0-
- -------- * Payment is made to the Purchasers to compensate them for having funded, at the time of sale, payments to broker/dealers and underwriters. Payments made by the High-Yield Fund under its 12b-1 Plan for the year ended December 31, 2007, were spent on the following activities in the following amounts:
Class A Class B Class C Class D Class R -------- -------- -------- -------- ------- Compensation to underwriters... $ -0- $ 324 $ 11,058 $ 18,991 $ 15 Compensation to broker/dealers. 433,874 91,108 212,187 506,896 11,946 Other Compensation*............ -0- 274,827 -0- -0- -0-
- -------- * Payment is made to the Purchasers to compensate them for having funded, at the time of sale, payments to broker/dealers and underwriters. The 12b-1 Plan was initially approved with respect to each Fund on April 8, 1986 by the Board of Trustees of the Series, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Series and who had no direct or indirect financial interest in the operation of the 12b-1 Plan or in any agreement related to the Plan ("Qualified Trustees") and by the shareholders of each Fund at a meeting of shareholders on April 10, 1986. The Plan was approved with respect to Class B shares of the High-Yield Fund on March 21, 1996 by the Board of Trustees of the Series, including a majority of the Qualified Trustees, and became effective in respect of the Class B shares of the High-Yield Fund on April 22, 1996. The Plan was approved with respect to Class B shares of the U.S. Government Securities Fund on September 19, 1996 by the Board of Trustees of the Series, including a majority of the Qualified Trustees, and became effective in respect of Class B shares of the U.S. Government Securities Fund on January 1, 1997. The Plan was approved in respect of Class C shares of both Funds on May 20, 1999 by the Board of Trustees, including a majority of the Qualified Trustees, and became effective in respect of Class C shares of both Funds on June 1, 1999. The Plan was approved in respect of the Class D shares of both Funds on July 15, 1993 by the Board of Trustees of the Fund, including a majority of the Qualified Trustees, and became effective in respect of the Class D shares of both Funds on September 21, 1993. The 12b-1 Plan in respect of each Fund was approved in respect of Class R shares on March 20, 2003 by the Board of Trustees, including a majority of the Qualified Trustees, and became effective in respect of Class R shares of both Series on April 30, 2003. The Plans will continue in effect until December 31 of each year so long as such continuance is approved annually by a majority vote of both the Trustees and the Qualified Trustees of the Series, cast in person at a meeting called for the purpose of voting on such approval. The Plan may not be amended to increase materially the amounts payable to Service Organizations (as defined in each of the Fund's prospectuses) with respect to a class without the approval of a majority of the outstanding voting securities of such class. If the amount payable in respect of Class A shares under the Plans is proposed to be increased materially, the Series will either (1) permit holders of Class B shares to vote as a separate class on the proposed increase or (2) establish a new class of shares subject to the same payment under the Plans as existing Class A shares, in which case the Class B shares will thereafter convert into the new class instead of into Class A shares. No material amendment to the Plans may be made except by a majority of both the Trustees and Qualified Trustees. The 12b-1 Plans require that the Treasurer of the Series shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under the Plans. Rule 12b-1 also requires that the selection and nomination of Trustees who are not "interested persons" of the Fund be made by such disinterested Trustees. The 12b-1 Plan is reviewed annually by the Trustees. Seligman Services acts as the broker/dealer of record for shareholder accounts of each Fund that do not have a designated financial advisor and receives compensation pursuant to each Series' 12b-1 Plan for providing 30 personal services and account maintenance to such accounts. For the year ended December 31, 2007, Seligman Services received service fees pursuant to the U.S. Government Securities Fund's 12b-1 Plan in the amounts of $8,433. For the years ended December 31, 2007, Seligman Services received service fees pursuant to the High-Yield Fund's 12b-1 Plan in the amounts of $13,823. Other Service Providers SDC, which is owned by certain other investment companies in the Seligman Group, is the shareholder servicing agent and dividend paying agent for the Funds. SDC charges the Funds at cost for its services. These costs may include amounts paid by SDC to financial intermediaries and other third parties who provide sub-transfer agency services. Certain officers and trustees of the Series are also officers and directors of SDC. SDC's address is 100 Park Avenue, New York, New York 10017. Portfolio Managers For purposes of this discussion, each member of a Fund's portfolio team is referred to as a "portfolio manager". The following table sets forth certain additional information from that discussed in the Prospectuses with respect to the portfolio managers of each Fund. Unless noted otherwise, all information is provided as of December 31, 2007. Other Accounts Managed by Portfolio Managers. The tables below identify, for each of the portfolio managers of the High-Yield Fund and the Seligman U.S. Government Securities Fund, the number of accounts managed (other than the Fund managed by its portfolio manager(s)) and the total assets in such accounts, within each of the following categories: other registered investment companies, other pooled investment vehicles, and other accounts. None of the accounts noted below has an advisory fee based on performance of the account. For purposes of the tables below, each series or portfolio of a registered investment company is treated as a separate registered investment company. Seligman High-Yield Fund
Other Registered Portfolio Manager Investment Companies Other Pooled Investment Vehicles Other Accounts - ----------------- ----------------------------- -------------------------------- -------------------------- J. Eric Misenheimer 2 Other Registered 1 Other Pooled Investment 3 Other Accounts with Investment Companies Vehicle with approximately $607,000 in with approximately approximately $6.7 million total assets under $107.1 million in net in net assets under management. assets under management. management. Paul A. Langlois 2 Other Registered 1 Other Pooled Investment 1 Other Account with Investment Companies Vehicle with approximately $146,000 in with approximately approximately $6.7 million total assets under $107.1 million in net in net assets under management. assets under management. management. Henry P. Rose 2 Other Registered 1 Other Pooled Investment 3 Other Accounts with Investment Companies Vehicle with approximately $959,000 in with approximately approximately $6.7 million total assets under $107.1 million in net in net assets under management. assets under management. management.
31 Seligman U.S. Government Securities Fund
Other Registered Other Pooled Investment Portfolio Manager Investment Companies Vehicles Other Accounts - ----------------- ------------------------ --------------------------- --------------------------- Francis L. Mustaro 5 Other Registered 1 Other Pooled Investment 20 Other Accounts with Investment Companies Vehicle with approximately $310 million with approximately approximately $1.2 million in total assets under $292.0 million in net in net assets under management. assets under management. management.
Compensation/Material Conflicts of Interest. Set forth below is an explanation of the structure of, and method(s) used to determine, portfolio manager compensation. Also set forth below is an explanation of material conflicts of interest that may arise between the portfolio managers' management of their Fund's investments and investments in other accounts. Compensation: For the year ended December 31, 2007, as compensation for his responsibilities, Mr. Misenheimer received a base salary and a discretionary bonus. The discretionary bonus was based on numerous qualitative and quantitative factors relating to Mr. Misenheimer's responsibilities as portfolio manager and High Yield Team Leader. The factors include, among other things, the investment performance of the Seligman mutual funds managed by Mr. Misenheimer (including the High Yield Fund) as compared with these funds' respective Lipper averages, primarily for the year 2007, but also for the previous years since Mr. Misenheimer joined Seligman, an evaluation of Mr. Misenheimer's leadership abilities with respect to his investment team, his contributions to Seligman's other investment teams, as well as the competitive environment for Mr. Misenheimer's services. For the year ended December 31, 2007, as compensation for his responsibilities, Mr. Mustaro received a base salary and a discretionary bonus. The discretionary bonus was based on numerous qualitative and quantitative factors relating to Mr. Mustaro's responsibilities as portfolio manager and Investment Grade Team Leader. The factors include, among other things, the investment performance of the Seligman mutual funds managed by Mr. Mustaro (including the U.S. Government Securities Fund) as compared with these funds' respective Lipper averages, primarily for the year 2007, but also for the previous year since Mr. Mustaro joined Seligman, an evaluation of Mr. Mustaro's leadership abilities with respect to his investment team, his contributions to Seligman's other investment teams, as well as the competitive environment to retain his services. As compensation for their responsibilities, each of Messrs. Langlois and Rose received a base salary and discretionary bonus for the year ended December 31, 2007. Discretionary bonuses for each of Messrs. Langlois and Rose were based on numerous qualitative and quantitative factors, including, among other things, an evaluation of each portfolio manager's skills as a research analyst (i.e., quality of research), their particular contributions to their respective investments teams (as well as their contributions to other Seligman investment teams), their ability to take initiative with respect to new roles/responsibilities, their leadership abilities and potential for growth as a portfolio manager, their ability to assimilate new concepts and ideas, their ability to work within a team structure, as well as the competitive environment for the portfolio manager's services. To reduce the amount of time the portfolio managers dedicate to marketing efforts and client services, each Fund's investment team has an experienced product manager that acts as the primary liaison between Seligman Advisors' marketing department and that investment team. Conflicts of Interest Actual or potential conflicts of interest may arise from the fact that Seligman, and the portfolio managers of each Fund have day-to-day management responsibilities with respect to accounts of clients of Seligman other than the 32 Fund ("Other Accounts"). Seligman has policies and procedures intended to mitigate or manage the conflicts of interest described below. There is no guarantee that any such policies or procedures will detect each and every situation in which a conflict of interest arises. Seligman may receive higher compensation with respect to Other Accounts (including accounts which are private investment funds or have performance or higher fees paid to Seligman, or in which one or more portfolio managers have direct or indirect personal interest in the receipt of such fees) than that received with respect to each Fund. This may create a potential conflict of interest for Seligman or its portfolio managers by providing an incentive to favor these Other Accounts when, for example, placing securities transactions. In addition, Seligman could be viewed as having a conflict of interest to the extent that Seligman or an affiliate has a proprietary investment in one or more Other Accounts, the portfolio managers have personal investments, directly or indirectly, in one or more Other Accounts or the Other Accounts are investment options in Seligman's employee benefit plans. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest, as Seligman may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. Seligman may be perceived as causing accounts it manages to participate in an offering to increase Seligman's overall allocation of securities in that offering. A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account or when a sale in one account lowers the sale price received in a sale by a second account. Because Seligman manages accounts that engage in short sales of securities of the type in which many clients may invest, Seligman could be seen as harming the performance of certain client accounts (i.e., those not engaging in short sale transactions) for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall. Conversely, Seligman could be seen as benefiting those accounts that may engage in short sales through the sale of securities held by other clients to the extent that such sales reduce the cost to cover the short positions. Seligman and its affiliates may at times give advice or take action with respect to accounts that differs from the advice given other accounts. A particular security may be bought or sold only for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. Simultaneous portfolio transactions in the same security by multiple clients may tend to decrease the prices received by clients for sales of such securities and increase the prices paid by clients for purchases of such securities. A conflict may also arise to the extent that Seligman advises multiple accounts which own different capital structures of an issuer (e.g., bonds versus common stocks). This conflict may be more pronounced if such an issuer files for bankruptcy and Seligman participates in negotiations to restructure that issuer. Employees of Seligman, including portfolio managers, may engage in personal trading, subject to Seligman's Code of Ethics. In addition to the general conflicts noted above, personal trading by employees may create apparent or actual conflicts to the extent that one or more employees personally benefit or appear to benefit from subsequent trading by clients in similar securities. Because portfolio managers of Seligman manage multiple client accounts, portfolio managers may devote unequal time and attention to the portfolio management of client accounts. Securities Ownership. As of December 31, 2007, with respect to the High-Yield Fund, Mr. Misenheimer and Mr. Langlois each owned between $10,001 and $50,000 of its shares. As of December 31, 2007, with respect to the U.S. Government Securities Fund, Mr. Mustaro owned between $1 and $10,000 of its shares. Portfolio Transactions and Other Practices Portfolio Transactions Seligman will seek the most favorable price and execution in the purchase and sale of portfolio securities for each Fund of the Series. When two or more of the investment companies in the Seligman Group of Funds or 33 other investment advisory clients of Seligman desire to buy or sell the same security at the same time, the securities purchased or sold are allocated by Seligman in a manner believed to be equitable to each. There may be possible advantages or disadvantages of such transactions with respect to price or the size of positions readily obtainable or saleable. Corporate bonds and other fixed-income securities are generally traded on the over-the-counter market on a "net" basis without a stated commission, through dealers acting for their own account and not as brokers. The Series will engage in transactions with these dealers or deal directly with the issuer. Prices paid to dealers will generally include a "spread," i.e., the difference between the prices at which a dealer is willing to purchase or to sell the security at that time. The Management Agreements recognize that in the purchase and sale of portfolio securities, Seligman will seek the most favorable price and execution and, consistent with that policy, may give consideration to the research, statistical and other services furnished by dealers to Seligman for its use in connection with its services to the Funds as well as to other clients. The Funds will not incur commissions in connection with the purchase and sale of fixed-income securities. Because fixed-income securities generally trade on a net basis, they normally do not incur brokerage commissions. For the years ended December 31, 2007, 2006 and 2005, the Seligman High-Yield Fund paid total brokerage commissions to others for execution, research and statistical services in the amounts of $86,009, $119,351 and $9,000, respectively. Such variations result primarily from periodic sales of equity securities (as opposed to fixed-income securities) by the Fund. Commissions For the years ended December 31, 2007, 2006 and 2005, the Funds did not execute any portfolio transactions with, and therefore did not pay any commissions to, any broker affiliated with the Funds, Seligman, or Seligman Advisors. Brokerage Selection Seligman selects broker-dealers with the goal of obtaining "best execution". Seligman will consider a full range and quality of a broker-dealer's services, such as price, market familiarity, reliability, integrity, commission rates, execution and settlement capabilities, ability to handle large orders, financial condition, technological infrastructure and operational capabilities, willingness to commit capital and the brokerage and research services provided or made available by the broker-dealer. These brokerage and research services, including supplemental investment research, analysis, and reports concerning issuers, industries, and securities, may be useful to Seligman in connection with its services to clients other than the Funds. The relative weighting given to any of the criteria mentioned above depends on a variety of factors including the nature of the transaction, the market on which a particular trade is being executed and the number of broker-dealers making a market in the security to be traded. Although sales of investment company shares will not be considered in selecting broker-dealers to effect securities transactions, Seligman offers its investment products primarily through the broker-dealer selling networks and expects that nearly all broker-dealers that effect securities transactions for the investment companies of the Seligman Group of Funds will have a relationship with Seligman or its affiliates to distribute shares of the investment companies or other investment products offered by Seligman. Seligman ranks broker-dealers through an internal voting process which considers the services provided by broker-dealers excluding investment company or product sales by that broker-dealer. In connection with any agency trades, Seligman determines the reasonableness of the commissions to be paid to a broker-dealer based upon the quality of the brokerage and research services provided, or arranged for, and as a result, may select a broker-dealer whose commission costs may be higher than another would have charged. Seligman monitors and evaluates the performance and execution capabilities of broker-dealers through which it places orders and periodically reviews its policy with regard to negotiating commissions or mark-ups for the Seligman Funds in light of current market conditions, statistical studies and other available information. 34 Regular Broker-Dealers During the year ended December 31, 2007, neither Fund of the Series acquired securities of its regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or of their parents. Shares of Beneficial Interest and Other Securities Shares of Beneficial Interest The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest, $.001 par value. The Trustees also have the power to create additional series of shares. At present, shares of beneficial interest of two series have been authorized, which shares of beneficial interest constitute interests in the U.S. Government Securities Fund and the High-Yield Fund. Shares of beneficial interest of the U.S. Government Securities Fund are divided into five classes, designated Class A, Class B, Class C, Class D and Class R shares of beneficial interest (Class D shares will be combined with Class C shares at the close of business on May 16, 2008. Accordingly, thereafter there will exist only four classes of shares ). Shares of beneficial interest of the High-Yield Fund are divided into six classes, designated Class A, Class B, Class C, Class D, Class I and Class R shares of beneficial interest (Class D shares will be combined with Class C shares at the close of business on May 16, 2008. Accordingly, thereafter there will exist only five classes of shares). Each share of beneficial interest of each Fund's respective classes is equal as to earnings, assets and voting privileges, except that each class bears its own separate distribution and, potentially, certain other class expenses and has exclusive voting rights with respect to any matter to which a separate vote of any class is required by the 1940 Act or applicable state law. The Series has adopted a Plan ("Multiclass Plan") pursuant to Rule 18f-3 under the 1940 Act permitting the issuance and sale of multiple classes of shares of beneficial interest. In accordance with the Declaration of Trust, the Trustees may authorize the creation of additional classes of shares of beneficial interest with such characteristics as are permitted by the Multiclass Plan and Rule 18f-3. The 1940 Act requires that where more than one class exists, each class must be preferred over all other classes in respect of assets specifically allocated to such class. Shares of each Fund entitle their holders to one vote per share. Each Fund's shares have noncumulative voting rights, do not have preemptive or subscription rights and are transferable. It is the intention of the Series not to hold Annual Meetings of Shareholders. The Trustees may call Special Meetings of Shareholders for action by shareholder vote as may be required by the 1940 Act or Declaration of Trust. Pursuant to the 1940 Act, shareholders have to approve the adoption of any management contract, distribution plan and any changes in fundamental investment policies. Shareholders also have the right to call a meeting of shareholders for the purpose of voting on the removal of one or more Trustees. Such removal can be effected upon the action of two-thirds of the outstanding shares of the Series. Other Securities The Series has no authorized securities other than the above-mentioned shares. Purchase, Redemption, and Pricing of Shares Purchase of Shares Class A Purchase Price. Class A shares of each Fund of the Series may be purchased at a price equal to the next determined net asset value per share, plus an initial sales charge. Employee and Family Members. Class A shares of the Funds may be issued without a sales charge to present and former directors, trustees, officers, employees (and their respective family members) of the Series, the other investment companies in the Seligman Group of Funds, and Seligman and its affiliates. Family members are defined to include lineal descendants and lineal ancestors, siblings (and their spouses and children) and any company or organization controlled by any of the foregoing. Such sales may also be made to employee benefit plans and thrift plans for such persons and to any investment advisory, custodial, trust or other fiduciary account managed or advised by Seligman or any affiliate. The sales may be made for investment purposes only, and shares may be resold only to the Funds. Class A shares may be sold at net asset value to these persons since such sales require less sales effort and lower sales related expenses as compared with sales to the general public. 35 If you are eligible to purchase Class A shares without a sales charge or qualify for volume discounts, you should inform your financial advisor, financial intermediary or SDC of such eligibility and be prepared to provide proof thereof. Purchases of Class A shares by a "single person" (as defined below under "Persons Entitled to Reductions") may be eligible for the following reductions in initial sales charges: Discounts and Rights of Accumulation. Reduced sales charges will apply if the sum of (i) the current amount being invested by a "single person" in Class A shares of a Fund and in Class A shares of other Seligman mutual funds (excluding Class A shares of the Seligman Cash Management Fund, Inc.), (ii) the current net asset value of the Class A shares and Class B shares of other Seligman mutual funds already owned by the "single person" other than Seligman Cash Management Fund, Inc. (except as provided in (iii)) and (iii) the current net asset value of Class A shares of Seligman Cash Management Fund, Inc. which were acquired by a "single person" through an exchange of Class A shares of another Seligman mutual fund, exceeds the breakpoint discount thresholds for Class A shares described in the Prospectus (the "Breakpoint Discounts"). The value of the shares contemplated by items (ii) and (iii) above (collectively, the "Prior Owned Shares") will be taken into account only if SDC or the financial intermediary (if you are purchasing through a financial intermediary) is notified that there are holdings eligible for aggregation to meet the applicable Breakpoint Discount thresholds. If you are purchasing shares through a financial intermediary, you should consult with your intermediary to determine what information you will need to provide them in order to receive the Breakpoint Discounts to which you may be entitled. This information may include account records regarding shares eligible for aggregation that are held at any financial intermediary, as well as a social security or tax identification number. You may need to provide this information each time you purchase shares. In addition, certain financial intermediaries may prohibit you from aggregating investments in the Seligman Group if those investments are held in your accounts with a different intermediary or with SDC. If you are dealing directly with SDC, you should provide SDC with account information for any shares eligible for aggregation. This information includes account records and a social security or tax identification number. You may need to provide this information each time you purchase shares. Letter of Intent. A letter of intent allows you to purchase Class A shares over a 13-month period with the benefit of the Breakpoint Discounts discussed in the Prospectus, based on the total amount of Class A shares of the Fund that the letter states that you intend to purchase plus the current net asset value of the Prior Owned Shares. Reduced sales charges may be applied to purchases made within a 13-month period starting from the date of receipt from you of a letter of intent. In connection with such arrangement, a portion of the shares you initially purchase will be held in escrow to provide for any sales charges that might result if you fail to purchase the amount of shares contemplated by the letter of intent assuming your purchases would not otherwise be eligible for Breakpoint Discounts. These shares will be released upon completion of the purchases contemplated by the letter of intent. In the event you do not fulfill your obligations and the amount of any outstanding sales charge is greater than the value of the shares in escrow, you will be required to pay the difference. If the amount of the outstanding sales charge is less than the value of the shares in escrow, you will receive any shares remaining in escrow after shares with a value equal to the amount of the outstanding sales charge are redeemed by the transfer agent. Persons Entitled To Reductions. Reductions in initial sales charges apply to purchases of Class A shares in an account held by a "single person." A "single person" includes an individual; members of a family unit comprising, husband, wife and minor children; or a trustee or other fiduciary purchasing for a single fiduciary account. Employee benefit plans qualified under Section 401 of the Internal Revenue Code of 1986, as amended, organizations tax exempt under Section 501(c)(3) or (13) of the Internal Revenue Code, and non-qualified employee benefit plans that satisfy uniform criteria are also considered "single persons" for this purpose. The uniform criteria are as follows: 1. Employees must authorize the employer, if requested by a Fund, to receive in bulk and to distribute to each participant on a timely basis any Fund's Prospectuses, reports, and other shareholder communications. 36 2. Employees participating in a plan will be expected to make regular periodic investments (at least annually). A participant who fails to make such investments may be dropped from the plan by the employer or the Fund 12 months and 30 days after the last regular investment in his account. In such event, the dropped participant would lose the discount on share purchases to which the plan might then be entitled. 3. The employer must solicit its employees for participation in such an employee benefit plan or authorize and assist an investment dealer in making enrollment solicitations. Eligible Employee Benefit Plans. The table of sales charges in each of the Series' Prospectuses applies to sales to "eligible employee benefit plans," except that the Fund may sell shares at net asset value to "eligible employee benefit plans" which have at least $2 million in plan assets at the time of investment in a Fund, but, in the event of plan termination, will be subject to a CDSC of 1 % on shares purchased within 18 months prior to plan termination. "Eligible employee benefit plan" means any plan or arrangement, whether or not tax qualified, which provides for the purchase of Fund shares. Sales to eligible employee benefit plans are believed to require limited sales effort and sales-related expenses and therefore are made at net asset value. However, Section 403(b) plans sponsored by public educational institutions are not eligible for net asset value purchases based on the aggregate investment made by the plan or number of eligible employees. Sales to eligible employee benefit plans must be made in connection with a payroll deduction system of plan funding or other systems acceptable to SDC, the Series' shareholder service agent. Contributions or account information for plan participation also should be transmitted to SDC by methods which it accepts. Additional information about "eligible employee benefit plans" is available from financial advisors or Seligman Advisors. Ascensus (formerly, BISYS) Plans. Plans that (i) own Class B shares of any Seligman mutual fund and (ii) participate in Seligman Growth 401(k) through Ascensus' third-party administration platform may, with new contributions, purchase Class A shares at net asset value. Class A shares purchased at net asset value are subject to a CDSC of 1% on shares purchased within 18 months prior to plan termination. Further Types of Reductions. Class A shares may also be issued without an initial sales charge in the following instances: (1)to any registered unit investment trust which is the issuer of periodic payment plan certificates, the net proceeds of which are invested in Fund shares; (2)to separate accounts established and maintained by an insurance company which are exempt from registration under Section 3(c)(11) of the 1940 Act; (3)to registered representatives and employees (and their spouses and minor children) of any dealer or bank that has a sales agreement with Seligman Advisors; (4)to financial institution trust departments; (5)to registered investment advisers exercising discretionary investment authority with respect to the purchase of Fund shares; (6)to accounts of financial institutions or authorized dealers or investment advisors that charge account management fees, provided Seligman or one of its affiliates has entered into an agreement with respect to such accounts; (7)pursuant to sponsored arrangements with organizations which make recommendations to, or permit group solicitations of, its employees, members or participants in connection with the purchase of shares of the Fund; (8)to other investment companies in the Seligman Group in connection with a deferred fee arrangement for outside trustees, or through a "fund of funds" arrangement; 37 (9)to certain "eligible employee benefit plans" as discussed above; (10)to those partners and employees of outside counsel to the Series or its directors or trustees who regularly provide advice and services to the Series, to other funds managed by Seligman, or to their directors or trustees; (11)in connection with sales pursuant to a retirement plan alliance program which has a written agreement with Seligman Advisors; and (12)to participants in retirement and deferred compensation plans and trusts used to fund those plans, including, but not limited to, those defined in Section 401(a), 401(k), 403(b), or 457 of the Internal Revenue Code and "rabbi trusts", for which Charles Schwab & Co., Inc. or an affiliate acts a broker-dealer, trustee, or record keeper. CDSC Applicable to Class A Shares. Class A shares purchased without an initial sales charge due to a purchase of $1,000,000 or more, alone or through a volume discount, Right of Accumulation or letter of intent, are subject to a CDSC of 1% on redemptions of such shares within 18 months of purchase. Employee benefit plans eligible for net asset value sales may be subject to a CDSC of 1% for terminations at the plan level only, on redemptions of shares purchased within 18 months prior to plan termination, except that any such plan that is or was a separate account client of Seligman at the time of initial investment in a Seligman mutual fund (or within the prior 30 days) will not be subject to a CDSC on redemption of any shares. Other available reductions will not be subject to a 1% CDSC. The 1% CDSC will be waived on shares of each Fund purchased through Morgan Stanley Dean Witter & Co. by certain Chilean institutional investors (i.e., pension plans, insurance companies, and mutual funds). Upon redemption of such shares within an 18-month period, Morgan Stanley Dean Witter will reimburse Seligman Advisors a pro rata portion of the fee it received from Seligman Advisors at the time of sale of such shares. See "CDSC Waivers" below for other waivers which may be applicable to Class A shares. Class B Class B shares of each Fund of the Series may be purchased at a price equal to the next determined net asset value, without an initial sales charge. However, Class B shares of each Fund are subject to a CDSC if the shares are redeemed within six years of purchase at rates set forth in the table below, charged as a percentage of the current net asset value or the original purchase price, whichever is less.
Years Since Purchase CDSC -------------------- ---- Less than 1 year 5% 1 year or more but less than 2 years 4% 2 years or more but less than 3 years 3% 3 years or more but less than 4 years 3% 4 years or more but less than 5 years 2% 5 years or more but less than 6 years 1% 6 years or more 0%
Approximately eight years after purchase, Class B shares will convert automatically to Class A shares. Shares purchased through reinvestment of dividends and capital gain distributions on Class B shares also will convert automatically to Class A shares along with the underlying shares on which they were earned. Conversion occurs during the month which precedes the eighth anniversary of the purchase date. If Class B shares of a Fund are exchanged for Class B shares of another Seligman Mutual Fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period of the shares exchanged will be tacked onto the holding period of the shares acquired. Class B shareholders of a Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher or longer than the CDSC schedule relating to the new Class B shares. In addition, Class B shares of the Fund acquired by exchange will be subject to the Fund's CDSC schedule if such schedule is higher or longer than the CDSC schedule relating to the Class B shares of the Seligman mutual fund from which the exchange has been made. 38 Class C Class C shares may be purchased at a price equal to the next determined net asset value without an initial sales charge. However, Class C shares are subject to a CDSC of 1% if the shares are redeemed within one year of purchase, charged as a percentage of the current net asset value or the original purchase price, whichever is less. Unlike Class B shares, Class C shares do not convert to Class A shares. Class D (NOT AVAILABLE AFTER MAY 16, 2008) Effective at the close of business (4:00 p.m. EST) on May 16, 2008, the Funds' Class D shares will be combined with Class C shares, and Class D shares will no longer be available. Purchase orders for Class D shares to be effective on or after May 9, 2008 through May 16, 2008 may, in the Funds' discretion, be rejected due to operational reasons relating to the combination; if you are considering purchasing Class D shares during such period, you should consider Class C shares instead (consult your financial advisor as necessary). Any orders for exchange or redemption of the Funds' Class D shares to be effective through May 16, 2008 will continue to be accepted in accordance with the Prospectus. All orders (i.e., purchases, exchanges and redemptions) for Class D shares to be effective after the close of business on May 16, 2008 cannot be processed because no Class D shares will be outstanding or offered. Class D shares are identical in their terms to the Class C shares. When offered, Class D shares of each Fund of the Series may be purchased at a price equal to the next determined net asset value, without an initial sales charge. However, Class D shares of each Fund are subject to a CDSC of 1% if the shares are redeemed within one year of purchase, charged as a percentage of the current net asset value or the original purchase price, whichever is less. Unlike Class B shares, Class D shares do not convert to Class A shares. Class I Class I shares may be purchased at a price equal to the next determined net asset value. Class I shares are not subject to any initial or contingent deferred sales charges or distribution expense. This Class, however, is only offered to certain types of investors. Persons who are eligible to purchase Class I shares of the Seligman High-Yield Fund are described in the Prospectus for the Class I shares. Unlike Class B shares, Class I shares do not convert to Class A shares. Class R Class R shares may be purchased at a price equal to the next determined net asset value, without an initial sales charge. However, Class R shares are subject to a CDSC of 1% if the shares are redeemed within one year of the plan's initial purchase of Class R shares, charged as a percentage of the current net asset value or the original purchase price, whichever is less. Unlike Class B shares, Class R shares do not convert to Class A shares. Systematic Withdrawals. Class B, Class C, Class D and Class R shareholders of each Fund who reinvest both their dividends and capital gain distributions to purchase additional shares of each Fund, respectively, may use that Fund's Systematic Withdrawal Plan to withdraw up to 12%, 10%, 10% and 10%, respectively, of the value of their accounts per year without the imposition of a CDSC. Account value is determined as of the date the systematic withdrawals begin. CDSC Waivers. The CDSC on Class B, Class C, Class D and Class R shares of each Fund (and certain Class A shares, as discussed above) will be waived or reduced in the following instances: (1)on redemptions following the death or disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a shareholder or beneficial owner; (2)in connection with (1) distributions from retirement plans qualified under Section 401(a) of the Internal Revenue Code when such redemptions are necessary to make distributions to plan participants (such 39 payments include, but are not limited to, death, disability, loans, retirement, or separation of service), (2) distributions from a custodial account under Section 403(b)(7) of the Internal Revenue Code or an IRA due to death, or disability, minimum distribution requirements after attainment of age 70 1/2 or, for accounts established prior to January 1, 1998, attainment of age 59 1/2, and (3) a tax-free return of an excess contribution to an IRA; (3)in whole or in part, in connection with shares sold to current and retired Trustees of the Series; (4)in whole or in part, in connection with shares sold to any state, county, or city or any instrumentality, department, authority, or agency thereof, which is prohibited by applicable investment laws from paying a sales load or commission in connection with the purchase of any registered investment management company; (5)in whole or in part, in connection with systematic withdrawals; (6)in connection with participation in the Merrill Lynch Small Market 401(k) Program, retirement programs administered or serviced by the Princeton Retirement Group, Paychex, ADP Retirement Services, Hartford Securities Distribution Company, Inc., or NYLIM Service Company LLC, or retirement programs or accounts administered or serviced by Mercer HR Services, LLC or its affiliates; (7)on incidental redemptions to cover administrative expenses (such expenses include, but are not limited to, trustee fees, wire fees or courier fees) not to exceed $25.00 per occurrence; (8)on redemptions of shares initially purchased by an eligible employee benefit plan that are not in connection with a plan-level termination; and (9)on any redemption of Class A shares that are purchased by an eligible employee benefit plan that is a separate account client of Seligman at the time of initial investment (or within the prior 30 days) in a Seligman mutual fund. If, with respect to a redemption of any Class A, Class B, Class C, Class D or Class R shares of a Fund sold by a dealer, the CDSC is waived because the redemption qualifies for a waiver as set forth above, the dealer shall remit to Seligman Advisors promptly upon notice, an amount equal to the payment or a portion of the payment made by Seligman Advisors at the time of sale of such shares. Payment in Securities. In addition to cash, the Funds may accept securities in payment for shares of a Fund sold at the applicable public offering price (net asset value and, if applicable, any sales charge). Generally, the Series will only consider accepting securities (l) to increase its holdings in a portfolio security of a Fund, or (2) if Seligman determines that the offered securities are a suitable investment for a Fund and in a sufficient amount for efficient management. Although no minimum has been established, it is expected that a Fund would not accept securities with a value of less than $100,000 per issue in payment for shares. The Series may reject in whole or in part offers to pay for shares of a Fund with securities, may require partial payment in cash for applicable sales charges, and may discontinue accepting securities as payment for shares of a Fund at any time without notice. The Fund will not accept restricted securities in payment for a Fund shares. The Series will value accepted securities in the manner provided for valuing portfolio securities of the Funds. Any securities accepted by the Funds in payment for a Fund's shares will have an active and substantial market and have a value which is readily ascertainable. Fund Reorganizations Class A shares of each Fund may be issued without an initial sales charge in connection with the acquisition of cash and securities owned by other investment companies. Any CDSC will be waived in connection with the redemption of a Fund's shares if the Fund is combined with another Seligman mutual fund, or in connection with a similar reorganization transaction. 40 Offering Price When you buy or sell shares of a Fund of the Series, you do so at the Class's net asset value ("NAV") next calculated after Seligman Advisors accepts your request. However, in some cases, each Fund of the Series has authorized certain financial intermediaries (and other persons designated by such financial intermediaries) to receive purchase and redemption orders on behalf of each Fund. In such instances, customer orders will be priced at the Class's NAV next calculated after the authorized financial intermediary (or other persons designated by such financial intermediary) receives the request. Any applicable sales charge will be added to the purchase price for Class A shares. NAV per share of each class of a Fund is determined as of the close of regular trading on the New York Stock Exchange ("NYSE") (normally, 4:00 p.m. Eastern time), on each day that the NYSE is open for business. The NYSE is currently closed on New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. NAV per share for a class of a Fund is computed by dividing such class's share of the value of the net assets of such Fund (i.e., the value of its assets less liabilities) by the total number of outstanding shares of such class. All expenses of a Fund, including the management fee, are accrued daily and taken into account for the purpose of determining NAV. The dividends paid with respect to the Class B, Class C, Class D and Class R shares will generally be lower than the dividends paid with respect to the Class A shares as a result of the higher 12b-1 fees with respect to such shares, which in turn will be lower than the dividends paid with respect to the Class I shares, which have no 12b-1 fee and which may have lower expenses. With respect to the High-Yield Fund, generally portfolio securities, on an exchange are valued at the last sale price on the primary exchange or security market on which such securities primarily are traded. Securities not listed on an exchange or security market or for which there is no last sales price are valued by independent pricing services based on bid prices, which consider such factors as coupons, maturities, credit ratings, liquidity, specific terms and features, and the US Treasury yield curve, or are valued by Seligman based on quotations provided by primary market makers in such securities. If Seligman concludes that the most recently reported (or closing) price of a security held by the Fund is no longer valid or reliable, or such price is otherwise unavailable, Seligman will value the security based upon its fair value as determined in accordance with procedures approved by the Series' Board of Trustees. In addition, fair value pricing may also be utilized, in accordance with procedures approved by the Board of Directors in the event of, among other things, natural disasters, acts of terrorism, market disruptions, intra-day trading halts or extreme market volatility. With respect to the U.S. Government Securities Fund, investments in US government and government agency obligations are valued at current market values or, in their absence, at fair values determined in accordance with procedures approved by the Series' Board of Trustees. Securities traded on an exchange are valued at the last sales prices or, in their absence and in the case of over-the-counter securities, at the mean of bid and asked prices. For purposes of determining the net asset value per share of a Fund of the Series, all assets and liabilities initially expressed in foreign currencies will be converted into US dollars on the basis of a pricing service that takes into account the quotes provided by a number of major banks. Short-term obligations with 60 days or less remaining to maturity are generally valued at current market quotations or amortized cost if Seligman believes it approximates fair value. Short-term obligations with more than 60 days remaining to maturity will be valued at current market value until the sixtieth day prior to maturity, and will then be valued as described above for short-term obligations maturing in 60 days or less. Premiums received on the sale of call options will be included in the net asset value, and current market value of the options sold by a Series will be subtracted from net asset value. 41 Specimen Price Make-Up Under the current distribution arrangements between the Series and Seligman Advisors, Class A shares of each Fund are sold with a maximum initial sales charge of 4.50% and Class B, Class C, Class D, Class I (High-Yield Fund only) and Class R shares of each Fund are sold at NAV/(1)/. (Class D shares will be combined with Class C shares at the close of business on May 16, 2008). Using each Class's NAV at December 31, 2007 of the U.S. Government Securities Fund and of the High-Yield Fund, the maximum offering price of each Fund's shares is as follows:
U.S. Government High-Yield Securities Fund Fund --------------- ---------- Class A Net asset value per share.............................. $6.95 $3.17 Maximum initial sales charge (4.50% of offering price). 0.33 0.15 ----- ----- Offering price to public............................... $7.28 $3.32 ===== ===== Class B Net asset value and offering price per share/(1)/...... $6.96 $3.17 ===== ===== Class C Net asset value and offering price per share/(1)/...... $6.96 $3.18 ===== ===== Class D/(2)/ Net asset value and offering price per share/(1)/...... $6.96 $3.18 ===== ===== Class I Net asset value and offering price per share........... n/a $3.17 ===== ===== Class R Net asset value and offering price per share/(1)/...... $6.95 $3.17 ===== =====
- -------- (1)Class B shares are subject to a CDSC declining from 5% in the first year after purchase to 0% after six years. Class C shares and Class D shares are subject to a 1% CDSC if you redeem your shares within one year of purchase. Class R shares are subject to a 1% CDSC on shares redeemed within one year of a retirement plan's initial purchase. (2)Class D shares are not available after the close of business May 16, 2008. Redemption in Kind The procedures for selling a Fund's shares under ordinary circumstances are set forth in each of the Fund's Prospectuses. In unusual circumstances, payment may be postponed, or the right of redemption postponed for more than seven days, if: (i) the orderly liquidation of portfolio securities is prevented by the closing of, or restricted trading on, the NYSE; (ii) during periods of emergency which make the disposal by a Fund of their shares impracticable or it is not reasonably practicable for each of the Funds to fairly determine their respective net assets; or (iii) such other periods as ordered by the SEC for the protection of a Fund's shareholders. Under these circumstances, redemption proceeds may be made in securities (i.e., a redemption in kind). If payment is made in securities, a shareholder may incur brokerage expenses in converting these securities to cash. 42 Anti-Money Laundering As part of each Fund's responsibility for the prevention of money laundering, you may be required by a Fund, Seligman or their respective service providers to provide additional information, including information needed to verify the source of funds used to purchase shares and your identity or the identity of any underlying beneficial owners of your shares. In the event of delay or failure by you to produce any requested information, a Fund or its service providers may refuse to accept a subscription or, to the extent permitted or required by applicable law, cause a complete redemption of your shares from a Fund. A Fund, by written notice to you, may suspend payment to you of any proceeds or distributions if the Fund or its service providers reasonably deem it necessary to do so in order to comply with applicable laws and regulations, including any anti-money laundering laws and regulations applicable to the Fund, Seligman or their respective service providers. Arrangements Permitting Frequent Trading of Fund Shares. The Series has no arrangements with any person to permit frequent trading of a Fund's shares. Taxation of each Fund Each Fund is qualified and intends to continue to qualify for tax treatment as a regulated investment company under Subchapter M of the Internal Revenue Code. For each year so qualified, each Fund will not be subject to federal income taxes on its investment company taxable income and net capital gains, if any, realized during any taxable year, which it distributes to its shareholders, provided that at least 90% of its investment company taxable income (which includes net short-term capital gains) is distributed to shareholders each year. Qualification does not, of course, involve governmental supervision of management or investment practices or policies. Investors should consult their own counsel for a complete understanding of the requirements that each Fund must meet to qualify for such treatment. The information set forth in the Prospectuses and the following discussion relate solely to the US federal income taxes on dividends and distributions by each Fund and assumes that each Fund qualifies as a regulated investment company. Dividends from net investment income (other than qualified dividend income) and distributions from the excess of net short-term capital gains over net long-term capital losses are taxable as ordinary income to shareholders, whether received in cash or reinvested in additional shares. For taxable years beginning before January 1, 2011, with respect to the High-Yield Fund, dividends from qualified dividend income will be taxed at a reduced rate to individuals of generally 15% (5% for individuals in lower tax brackets). Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (generally foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States). The amount of dividend income that may be designated as "qualified dividend income" by a Fund will generally be limited to the aggregate of the eligible dividends received by a Fund. In addition, each Fund must meet certain holding period requirements with respect to the shares on which the Fund received the eligible dividends, and the non-corporate US shareholder must meet certain holding period requirements with respect to the Fund shares. To the extent designated as derived from the Funds' dividend income that would be eligible for the dividends received deduction if the Funds were not a regulated investment company, distributions are eligible, subject to certain restrictions, for the 70% dividends received deduction for corporations. If for any year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders. Such distributions will generally be taxable to the shareholders as qualified dividend income and generally will be eligible for the dividends received deduction in the case of corporate shareholders. Distributions of net capital gains (i.e., the excess of net long-term capital gains over any net short-term losses) are taxable as long-term capital gain, whether received in cash or invested in additional shares, regardless of how long the shares have been held by a shareholder. Non-corporate US shareholders will be subject to federal income tax on distributions of net capital gains at a maximum rate of 15% if designated as derived from a Fund's capital gains from property held for more than one year and recognized in the taxable years beginning before 43 January 1, 2011. Net capital gain of a corporate shareholder is taxed at the same rate as ordinary income. Such distributions are not eligible for the dividends received deduction allowed to corporate shareholders. Shareholders receiving distributions in the form of additional shares issued by a Fund will be treated for federal income tax purposes as having received a distribution in an amount equal to the cash that could have been elected to be received instead of the additional shares. At December 31, 2007, the U.S. Government Securities Fund and the High-Yield Fund had net capital loss carryforwards for federal income tax purposes of $8,151,784 and $1,370,110,507, respectively, which are available for offset against future taxable net capital gains, with $1,438,163 expiring in 2008, $2,770,254 expiring in 2012, $1,912,635 expiring in 2013 and $2,030,732 expiring in 2014 for the U.S. Government Securities Fund and $255,659,981 expiring in 2008, $668,622,539 expiring in 2009, $444,283,739 expiring in 2010 and $1,544,248 expiring in 2012 for the High-Yield Fund. There is no assurance that the Funds will be able to utilize all of its capital loss carryforward before it expires. Dividends and capital gain distributions declared in October, November or December, payable to shareholders of record on a specified date in such a month and paid in the following January will be treated as having been paid by each Fund of the Series and received by each shareholder in December. Under this rule, therefore, shareholders may be taxed in one year on dividends or distributions actually received in January of the following year. Any gain or loss realized upon a sale or redemption of shares in a Fund by a shareholder who is not a dealer in securities will generally be treated as a long-term capital gain or loss if the shares have been held for more than one year and otherwise as a short-term capital gain or loss. Long-term capital gain of a non-corporate US shareholder that is recognized in a taxable year beginning before January 1, 2011 is generally taxed at a maximum rate of 15% in respect of shares held for more than one year. Net capital gain of a corporate shareholder is taxed at the same rate as ordinary income. However, if shares on which a long-term capital gain distribution has been received are subsequently sold or redeemed and such shares have been held for six months or less (after taking into account certain hedging transactions), any loss realized will be treated as long-term capital loss to the extent that it offsets the long-term capital gain distribution. In addition, no loss will be allowed on the sale or other disposition of shares of a Fund if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the holder acquires (including shares acquired through dividend reinvestment) securities that are substantially identical to the shares of the Fund. In determining gain or loss on shares of a Fund that are sold or exchanged within 90 days after acquisition, a shareholder generally will not be permitted to include in the tax basis attributable to such shares the sales charge incurred in acquiring such shares to the extent of any subsequent reduction of the sales charge by reason of the exchange or reinstatement options offered by the Fund. Any sales charge not taken into account in determining the tax basis of shares sold or exchanged within 90 days after acquisition will be added to the shareholder's tax basis in the shares acquired pursuant to the exchange or reinstatement options. Each Fund is subject to a 4% nondeductible excise tax on the under-distribution of amounts required to be paid under a prescribed formula. The formula requires payment to shareholders during a calendar year of distributions representing at least 98% of a Fund's ordinary income for the calendar year, at least 98% of its net capital gain income realized during the one-year period ending on October 31 during such year, and all ordinary income and net capital gain income for prior years that was not previously distributed. Each Fund intends to make sufficient distributions or deemed distributions of its ordinary income and net capital gain income prior to the end of each calendar year to avoid liability for the excise tax. Unless a shareholder includes a certified taxpayer identification number (social security number for individuals) on the account application and certifies that the shareholder is not subject to backup withholding, the Fund is required to withhold and remit to the US Treasury Department a portion of distributions and other reportable payments to the shareholder. Shareholders should be aware that, under regulations promulgated by the US Treasury Department, the Funds may be fined on an annual basis for each account for which a certified taxpayer identification number (social security number for individuals) is not provided. In the event that such a fine is imposed, the Funds may charge a service fee equal to such fine that may be deducted from the shareholder's account and offset against any of its undistributed dividends and capital gain distributions. The Funds also reserves the right to close any account which does not have a certified taxpayer identification number or social security number, as applicable. 44 Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder") depends on whether the income from a Fund is "effectively connected" with a US trade or business carried on by such shareholder. If the income from a Fund is not effectively connected with a US trade or business carried on by a foreign shareholder, ordinary income dividends paid to such foreign shareholders generally will be subject to a 30% US withholding tax under existing provisions of the Internal Revenue Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty or law. Nonresident shareholders are urged to consult their own tax advisers concerning the applicability of the US withholding tax. If the income from a Fund is effectively connected with a US trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends, undistributed capital gains credited to such shareholder and any gains realized upon the sale of shares of the Fund will be subject to US federal income tax at the graduated rates applicable to US citizens or domestic corporations, and a foreign corporate investor will also be subject to a branch profits tax. In the case of foreign non-corporate shareholders, a Fund may be required to backup withhold US federal income tax on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund, the procedure for claiming the benefit of a lower treaty rate and the applicability of foreign taxes. Transfers by gift of shares of a Fund by an individual foreign shareholder will not be subject to US federal gift tax, but the value of shares of a Fund held by such a shareholder at his death will generally be includible in his gross estate for US federal estate tax purposes, subject to any applicable estate tax treaty. Shareholders are urged to consult their tax advisors concerning the effect of federal income and state and local taxes in their individual circumstances. Underwriters Distribution of Securities The Series and Seligman Advisors are parties to a Distributing Agreement dated January 1, 1993 under which Seligman Advisors acts as the exclusive agent for distribution of shares of each Fund of the Series. Seligman Advisors accepts orders for the purchase of Fund shares, which are offered continuously. As general distributor of each Fund's shares, Seligman Advisors allows reallowances to all dealers on sales of Class A shares as set forth above under "Dealer Reallowances" and, prior to June 4, 2007, Class C shares. Seligman Advisors retains the balance of sales charges and any CDSCs paid by investors. Total initial sales charges paid by shareholders of Class A shares and (only through June 3, 2007) Class C shares of the U.S. Government Securities Fund for the years ended December 31, 2007, 2006 and 2005 amounted to $6,239, $7,958 and $8,425, respectively, of which $647, $1,724, and $782, respectively was retained by Seligman Advisors. Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares. Total initial sales charges paid by shareholders of Class A shares and (only through June 3, 2007) Class C shares of the High-Yield Fund for the years ended December 31, 2007, 2006 and 2005 amounted to $44,365, $60,238 and $124,828, respectively, of which $9,144, $13,581 and $15,695 was retained by Seligman Advisors. Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares. Compensation Seligman Advisors, which is an affiliated person of Seligman, which is an affiliated person of the Series, received the following commissions (including sales charges after January 1, 2006 that otherwise would have been paid to Seligman Services) and other compensation from each Fund during the year ended December 31, 2007: 45
Net Underwriting Compensation on Discounts and Redemptions and Commissions (Class Repurchases (CDSC on Class A and Class C Sales A, Class C, Class D and Brokerage Other Fund Charges Retained)(1) Class R Shares Retained)(2) Commissions Compensation(3) - ---- -------------------- --------------------------- ----------- --------------- U.S. Government Securities Fund. $1,466 $ 2,776 $-0- $11,629 High-Yield Fund................. 6,277 19,502 -0- 30,388
- -------- (1)Effective June 4, 2007, there is no initial sales charges on purchases of Class C shares. Accordingly, any net underwriting discounts and commissions in respect of Class C shares retained by Seligman Advisors would relate to purchases prior to June 4, 2007. (2)Seligman Advisors has sold its rights to collect a substantial portion of the distribution fees paid by the Funds in respect of their respective Class B shares and any CDSC imposed on redemptions of Class B shares to the Purchasers in connection with an arrangement discussed above under "Rule 12b-1 Plan." (3)During the year ended December 31, 2006, Seligman Advisors received distribution and service fees in respect of Class B, Class C, Class D and Class R shares pursuant to each Fund's Rule 12b-1 Plan. These amounts and the arrangements pursuant to which such compensation is paid are detailed above under the discussion "Rule 12b-1 Plan." Other Payments Seligman Advisors pays authorized dealers and investment advisors, from its own resources, a fee on purchases of Class A shares of the Seligman mutual funds (other than Seligman TargetHorizon ETF Portfolios, Inc. (the "TargETFunds") and Seligman Cash Management Fund, Inc. (the "Cash Fund")) of $1,000,000 or more ("NAV sales"), calculated as follows:
Amount of Purchase Payment to Dealer (as a % of NAV Sales) ------------------ --------------------------------------- $1,000,000 - $3,999,999.. 1.00% $4,000,000 - $24,999,999. 0.50% $25,000,000 or more...... 0.25%
With respect to purchases of Class A shares of the TargETFunds, Seligman Advisors shall pay authorized dealers and investment advisors 0.25% on NAV sales attributable to such funds. Assets exchanged from the TargETFunds to another Seligman mutual fund are not eligible for the fees described above. Class A shares representing only an initial purchase of the Cash Fund are not eligible for the fees described above; however, such shares will become eligible for the applicable fee described above once they are exchanged for Class A shares of another Seligman mutual fund. The calculation of the fee will be based on assets held by a "single person," including an individual, members of a family unit comprising husband, wife and minor children purchasing securities for their own account, or a trustee or other fiduciary purchasing for a single fiduciary account or single trust. Purchases made by a trustee or other fiduciary for a fiduciary account may not be aggregated with purchases made on behalf of any other fiduciary or individual account. Seligman Advisors also pays authorized dealers and investment advisors, from its own resources, a fee on assets of certain investments in Class A shares of the Seligman mutual funds participating in an "eligible employee benefit plan" that are attributable to the particular authorized dealer or investment advisor. The shares eligible for the applicable fee described below are those on which an initial sales charge was not paid because either the participating eligible employee benefit plan has, for accounts opened prior to January 7, 2008, at least (1) $500,000 invested in the Seligman mutual funds or (2) 50 eligible employees to whom such plan is made available or, for accounts opened on or after January 7, 2008, at least $2 million in plan assets at the time of investment in a Fund. The payment schedule, for each calendar year, in respect of the Seligman mutual funds (other than the TargETFunds and the Cash Fund) is as follows:
Amount of Purchase Payment to Dealer (as a % of NAV Sales) - ------------------ --------------------------------------- Sales up to but not including $4,000,000. 1.00% $4,000,000 - $24,999,999................. 0.50% $25,000,000 or more...................... 0.25%
46 The payment is based on cumulative sales for each plan during a single calendar year, or portion thereof. Assets exchanged from the TargETFunds to another Seligman mutual fund are not eligible for the fees described above. Class A shares representing only an initial purchase of the Cash Fund are not eligible for the fees described above; however, such shares will become eligible for the applicable fee once they are exchanged for Class A shares of another Seligman mutual fund. The payment schedule, for each calendar year, in respect of the TargETFunds is 0.25% of sales. These fees in respect of eligible employee benefit plans and the fees on NAV sales described above are not duplicative (i.e., the fee is paid one time to authorized dealers or investment advisors for each purchase of Class A shares of $1,000,000 or more participating in an eligible employee benefit plan). With respect to the fees relating to eligible employee benefit plans and NAV sales (each as described above), no fees shall be payable on any assets invested in a Fund by an eligible employee benefit plan that is a separate account client of Seligman at the time of initial investment (or within the prior 30 days) in that Fund. Seligman and Seligman Advisors may make cash and non-cash payments to banks, broker-dealers, insurance companies, financial planning firms, third party administrators and other financial intermediaries (collectively, "Financial Intermediaries"), subject to Seligman and Seligman Advisors' respective internal policies and procedures. Seligman Advisors provides Financial Intermediaries with sales literature and advertising materials relating to the registered investment companies advised by Seligman (the "Seligman Funds"). Seligman Advisors also shares expenses with Financial Intermediaries for costs incurred in hosting seminars for employees and clients of Financial Intermediaries, subject to Seligman Advisors' internal policies and procedures governing payments for such seminars. These seminars may take place at Seligman Advisors' headquarters or other appropriate locations and may include reimbursement of travel expenses (i.e., transportation, lodging and meals) of employees of Financial Intermediaries in connection with training and education seminars. Subject to Seligman Advisors' internal policies and procedures, Seligman Advisors may provide any or all of the following to employees of Financial Intermediaries and their guest(s): (i) an occasional meal, a sporting event or theater ticket or other comparable entertainment; (ii) gifts of less than $100 per person per year; and/or (iii) Seligman Advisors' promotional items of nominal value (golf balls, shirts, etc.). In addition, Financial Intermediaries may have omnibus accounts and similar arrangements with SDC and may be paid by SDC for providing sub-transfer agency and other services. Such expenses paid by SDC are included in the annual operating expenses set forth in the Prospectuses. Seligman and/or Seligman Advisors have revenue sharing arrangements with certain Financial Intermediaries. Payments to these Financial Intermediaries are usually structured in any of three ways or a combination thereof: (i) as a percentage of gross sales; (ii) as a percentage of net assets attributable to the Financial Intermediary; or (iii) a fixed dollar amount. The foregoing payments (which may take the form of expense reimbursements) by Seligman, Seligman Advisors and/or SDC may be made for shareholder servicing, promotion of Seligman Funds and other services provided by Seligman, such as advisory services to managed accounts, marketing support and/or access to sales meetings, sales representatives and management representatives of the Financial Intermediaries. These payments are in addition to the 12b-1 fees and sales loads borne by shareholders, as well as the finders' fees and loads paid by Seligman Advisors, as set forth in the prospectus or otherwise described above. Such payments may result in, or be necessary for, the inclusion of the Seligman Funds on a sales list, including a preferred or select sales list, in various sales programs. Receipt by Financial Intermediaries of the foregoing payments or services could create an incentive for the Financial Intermediaries to offer a Seligman Fund in lieu of other mutual funds where such payments or services are not provided. Shareholders should consult their Financial Intermediaries for further information. 47 Calculation of Yield and Performance Data The Funds may quote performance data in various ways. All performance information supplied by a Fund in advertising is historical and past performance is not indicative of future investment results. The rate of return will vary and the principal value of an investment will fluctuate. Shares, if redeemed, may be worth more or less than their original cost. Performance Calculations Performance quoted in advertising reflects any change in price per share, assumes the reinvestment of dividends and capital gain distributions, if any, and may or may not include the effect of a Class's maximum initial sales charge and/or CDSC, as applicable. Such performance may be quoted as a percentage or as a dollar amount, may be calculated over any time period and may be presented in a table, graph or similar illustration. Excluding applicable sales charges from a performance calculation produces a higher performance figure than if such sales charges were included in the calculation. Effective January 7, 2008, the maximum initial sales charge on investments in Class A shares of less than $100,000 is 4.50%. Although for all periods presented the Funds' Class A share returns reflect the 4.50% maximum initial sales charge, the actual returns for periods prior to January 7, 2008 would have been lower if a 4.75% maximum initial sales charge then in effect was incurred. Effective June 4, 2007, there is no initial sales charge on purchases of Class C shares. Although for all periods presented each Fund's Class C share returns do not reflect an initial sales charge, the actual returns for periods prior to June 4, 2007 would have been lower if a 1.00% maximum initial sales charge then in effect was incurred. Effective at the close of business on May 16, 2008, the Funds will no longer offer Class D shares. For additional information, see the section of the Prospectus "Deciding Which Class of Shares to Buy -- Class C or Class D." Average annual total returns are calculated by determining the growth or decline in the value of a hypothetical $1,000 investment in the Funds over a stated period, and then calculating the annual rate required for this hypothetical investment to grow to the amount that would have been received upon a redemption at the end of such period (i.e., the average annual compound rate of return). Average annual total returns include any applicable maximum sales charge or CDSC. Cumulative total returns reflect the simple change in the value of a hypothetical investment in the Funds over a stated period. The cumulative total return for each Class of shares shown below is calculated by assuming a hypothetical initial investment of $1,000 at the beginning of the period specified; subtracting the maximum initial sales charge for Class A shares; determining total value of all dividends and capital gain distributions, if any, that would have been paid during the period on such shares assuming that each dividend or distribution was invested in additional shares at net asset value; calculating the total value of the investment at the end of the period; subtracting the CDSC on Class B, Class C, Class D and Class R shares, if applicable; and finally, by dividing the difference between the amount of the hypothetical initial investment at the beginning of the period and its total value at the end of the period by the amount of the hypothetical initial investment. Ten-year returns for Class B shares reflect automatic conversion to Class A shares approximately eight years after their date of purchase. No adjustments have been made for any income taxes payable by investors on dividends invested or gain distributions taken in shares. Historical Investment Results Class A The annualized yields for the 30-day period ended December 31, 2007 for the Class A shares of the U.S. Government Securities Fund and of the High-Yield Fund was 3.57% and 7.53%, respectively. The annualized yields were computed by dividing each of the U.S. Government Securities Fund's and High-Yield Fund's net investment income per share earned during the 30-day period by the maximum offering price per share (i.e., the net asset value plus the maximum initial sales charge of 4.50% of the net amount invested) on December 31, 2007, which was the last day of the period. The average number of Class A shares of the U.S. Government Securities Fund and the High-Yield Fund was 5,370,088 and 52,409,137, respectively, which was the average 48 daily number of shares outstanding during the 30-day period that were eligible to receive dividends. Income was computed by totaling the interest earned on all debt obligations during the 30-day period and subtracting from that amount the total of all recurring expenses incurred during the period. The 30-day yield was then annualized on a bond-equivalent basis assuming semi-annual reinvestment and compounding of net investment income. The average annual total returns for the Class A shares of the U.S. Government Securities Fund for the one-, five-, and ten-year periods ended December 31, 2007 were 1.33%, 1.05% and 3.77%, respectively. The average annual total returns for the Class A shares of the High Yield Fund for the one-, five-, and ten-year periods ended December 31, 2007 were (3.74)%, 6.95% and 0.17%, respectively. These returns were computed by assuming a hypothetical initial payment of $1,000 in Class A shares of the particular Fund, subtracting the maximum initial sales charge of 4.50% of the public offering price and assuming that all of the dividends and capital gain distributions of the particular Fund, if any, were reinvested over the relevant time periods. It was then assumed that at the end of the one-, five- and ten-year periods, the entire amounts were redeemed. The average annual total return was then determined by calculating the annual rate required for the initial investment to grow to the amount that would have been received upon redemption (i.e., the average annual compound rate of return). The cumulative total returns for the Class A shares of the U.S. Government Securities Fund and of the High-Yield Fund for the ten-year periods ended December 31, 2007 were 44.82% and 6.17%, respectively. Thus, a $1,000 investment in Class A shares of the U.S. Government Securities Fund made on December 31, 1997 had a value of $1,448 on December 31, 2007; and a $1,000 investment in Class A shares of the High-Yield Fund made on December 31, 1997 had a value of $1,017 on December 31, 2007. Class B The annualized yields for the 30-day period ended December 31, 2007 for the Class B shares of the U.S. Government Securities Fund and of the High-Yield Fund were 3.02% and 6.94%, respectively. The annualized yields were computed by dividing each of the U.S. Government Securities Fund's and High-Yield Fund's net investment income per share earned during the 30-day period by the maximum offering price per share (i.e., the net asset value) on December 31, 2007, which was the last day of the period. The average number of Class B shares of the U.S. Government Securities Fund and the High-Yield Fund was 876,431 and 10,924,146, respectively, which was the average daily number of shares outstanding during the 30-day period that were eligible to receive dividends. Income was computed as discussed above for Class A shares. The average annual total returns for the Class B shares of the U.S. Government Securities Fund for the one- , five- and ten-year periods ended December 31, 2007 were (0.15)%, 0.87% and 3.63%, respectively. The average annual total returns for the Class B shares of the High-Yield Fund for the one-, five- and ten-year periods ended December 31, 2007 were (4.60)%, 6.78% and (0.06)%, respectively. These returns were computed assuming a hypothetical initial payment of $1,000 in Class B shares of the particular Fund and assuming that all of the dividends and capital gain distributions paid by each Fund's Class B shares, if any, were reinvested over the relevant time periods. Return from inception reflects automatic conversion to Class A shares approximately eight years after inception date. It was then assumed that at the end of the one-, five- and ten-year periods the entire amounts were redeemed, subtracting the applicable CDSC. The average annual total return was then calculated by calculating the annual rate required for the initial payment to grow to the amount which would have been received upon such redemption (i.e., the average annual compound rate of return). The cumulative total returns for Class B shares of the U.S. Government Securities Fund and of the High-Yield Fund for the ten-year period ended through December 31, 2007 were 42.88% and (0.62)%, respectively. Thus, a $1,000 investment in Class B shares of the U.S. Government Securities Fund made on December 31, 1997 had a value of $1,429 on December 31, 2007; and a $1,000 investment in Class B shares of the High-Yield Fund made on December 31, 1997 had a value of $994 on December 31, 2007. Class C The annualized yields for the 30-day period ended December 31, 2007 for the Class C shares of the U.S. Government Securities Fund and of the High-Yield Fund were 3.02% and 6.92%, respectively. The annualized yields were computed by dividing each of the U.S. Government Securities Fund's and the High-Yield Fund's net 49 investment income per share earned during the 30-day period by the maximum offering price per share (i.e., the net asset value) on December 31, 2007, which was the last day of the period. The average number of Class C shares of the U.S. Government Securities Fund and the High-Yield Fund was 586,594 and 6,671,822, respectively, which was the average daily number of shares outstanding during the 30-day period that were eligible to receive dividends. Income was computed as discussed above for Class A shares. The average annual total returns for the Class C shares of the U.S. Government Securities Fund for the one- and five-year periods ended December 31, 2007 and the period from May 27, 1999 (commencement of operations) through December 31, 2007 were 4.15%, 1.25% and 3.53%, respectively. The average annual returns for the Class C shares of the High-Yield Fund for the one- and five-year periods ended December 31, 2007 and the period from May 27, 1999 (commencement of operations) through December 31, 2007 were (0.86)%, 7.14% and (0.31)%, respectively. These returns were computed by assuming a hypothetical initial payment of $1,000 in Class C shares of the particular Fund and assuming that all of the dividends and capital gain distributions by each Fund's Class C shares, if any, were reinvested over the relevant time periods. It was then assumed that at the end of the one- and five- year periods and the period since inception, the entire amounts were redeemed, subtracting the 1% CDSC, if applicable. The average annual total return was then calculated by calculating the annual rate required for the initial payment to grow to the amount which would have been received upon such redemption (i.e., the average annual compound rate of return). The cumulative total returns for the Class C shares of the U.S. Government Securities Fund and of the High-Yield Fund for the period May 27, 1999 (commencement of operation of Class C shares) through December 31, 2007 were 34.80% and (2.62)%, respectively. Thus, a $1,000 investment in Class C shares of the U.S. Government Securities Fund and of the High-Yield Fund made on May 27, 1999 had a value of $1,348 and $974, respectively, on December 31, 2007. Class D The annualized yields for the 30-day period ended December 31, 2007 for the Class D shares of the U.S. Government Securities Fund and of the High-Yield Fund were 3.02% and 6.92%, respectively. The annualized yields were computed by dividing each of the U.S. Government Securities Fund's and the High-Yield Fund's net investment income per share earned during the 30-day period by the maximum offering price per share (i.e., the net asset value) on December 31, 2007, respectively, which was the last day of the period. The average number of Class D shares of the U.S. Government Securities Fund and the High-Yield Fund was 1,559,494 and 15,717,805, respectively, which was the average daily number of shares outstanding during the 30-day period that were eligible to receive dividends. Income was computed as discussed above for Class A shares. The average annual total returns for the Class D shares of the U.S. Government Securities Fund for the one-, five- and ten-year periods ended December 31, 2007 were 4.15%, 1.23% and 3.47%, respectively. The average annual total returns for the Class D shares of the High-Yield Fund for the one-, five and ten-year periods ended December 31, 2007 were (0,86)%, 7.15% and (0.12)%, respectively. These returns were computed by assuming a hypothetical initial payment of $1,000 in Class D shares of the particular Fund and assuming that all of the dividends and capital gain distributions paid by each Fund's Class D shares, if any, were reinvested over the relevant time periods. It was then assumed that at the end of one-, five- and ten- year periods, the entire amounts were redeemed, subtracting the 1% CDSC, if applicable. The average annual total return was then calculated by calculating the annual rate required for the initial payment to grow to the amount which would have been received upon such redemption (i.e., the average annual compound rate of return). The cumulative total returns for the Class D shares of the U.S. Government Securities Fund and of the High-Yield Fund for the ten-year period ended December 31, 2007 were 40.59% and (1.21)%, respectively. Thus, a $1,000 investment in Class D shares of the U.S. Government Securities Fund and of the High-Yield Fund made on December 31, 1997 had a value of $1,406 and $988, respectively, on December 31, 2007. Class I The annualized yield for the 30-day period ended December 31, 2007 for the Class I shares of the High-Yield Fund was 8.20%. The annualized yield was computed by dividing the High-Yield Fund's net investment income per share earned during the 30-day period by the maximum offering price per share (i.e., the net asset value) on 50 December 31, 2007, which was the last day of the period. The average number of Class I shares of the High-Yield Fund was 2,255,638, which was the average daily number of shares outstanding during the 30-day period that were eligible to receive dividends. Income was computed as discussed above for Class A shares. The average annual total returns for the Class I shares of the High-Yield Fund for the one- and five-year periods ended December 31, 2007 and for the period November 30, 2001 (commencement of operations) through December 31, 2007 were 1.18%, 58.39% and 5.76%, respectively. These returns were computed by assuming a hypothetical initial payment of $1,000 in Class I shares of the Fund and assuming that all of the dividends and capital gain distributions paid by the Fund's Class I shares, if any, were reinvested over the relevant time period. It was then assumed that the end of the one- and five-year periods and the period since inception, the entire amounts were redeemed. The average annual total return was then calculated by calculating the annual rate required for the initial payment to grow to the amount which would have been received upon such redemption (i.e., the average annual compound rate of return). The cumulative total return for the Class I shares of the High-Yield Fund for the period November 30, 2001 (commencement of operations) through December 31, 2007 was 40.63%. These returns were computed assuming that all of the dividends and capital gain distributions paid by the High-Yield Fund's Class I shares, if any, were reinvested over the relevant time period. Thus, a $1,000 investment in Class I shares of the High-Yield Fund made on November 30, 2001 had a value of $1,406 on December 31, 2007. Class R The annualized yield for the 30-day period ended December 31, 2007 for the Class R shares of the U.S. Government Securities Fund and of the High-Yield Fund were 3.45% and 7.57%, respectively. The average number of Class R shares of the U.S. Government Securities Fund and of the High-Yield Fund were $215,883 and $722,387, respectively, which was the average daily number of shares outstanding during the 30-day period that were eligible to receive dividends. Income was computed as discussed above for Class A shares. The average annual total returns for the Class R shares of the U.S. Government Securities Fund for the one-year period ended December 31, 2007 and for the period from April 30, 2003 (commencement of offering of Class R shares) through December 31, 2007 were 4.63% and 1.77%, respectively. The average annual total returns for the Class R shares of the High-Yield Fund for the one-year period ended December 31, 2007 and for the period from April 30, 2003 (commencement of offering of Class R shares) through December 31, 2007 were (0.37)% and 6.15%, respectively. These returns were computed by assuming a hypothetical initial payment of $1,000 in Class R shares of the particular Fund and assuming that all of the dividends and capital gain distributions paid by the Funds' Class R shares, if any, were reinvested over the relevant time period. It was then assumed that the end of the one-year period and the period since inception, the entire amounts were redeemed, subtracting the 1% CDSC, if applicable. The average annual total return was then calculated by calculating the annual rate required for the initial payment to grow to the amount which would have been received upon such redemption (i.e., the average annual compound rate of return). The cumulative total return for the Class R shares for the U.S. Government Securities Fund and of the High-Yield Fund for the period April 30, 2003 (commencement of offering of shares) through December 31, 2007 were 8.52% and 32.17%, respectively. Thus, a $1,000 investment in the Class R share of U.S. Government Securities Fund and of the High-Yield Fund were made on April 30, 2003 had a value of $1,085 and $1,322, respectively on December 31, 2007. Financial Statements The Funds' Annual Reports to Shareholders for the year ended December 31, 2007 contain portfolios of the investments of each of the Funds as of December 31, 2007, as well as certain other financial information as of that date. The financial statements and notes included in the Annual Reports, which includes the Reports of Independent Registered Public Accounting Firm thereon, are incorporated herein by reference. These Reports will be furnished without charge to investors who request copies of this SAI. 51 General Information Information About Business Trusts. As indicated in this SAI, the Series is organized as a business trust under the laws of the Commonwealth of Massachusetts. Under the Declaration of Trust, the Series' Trustees are authorized to classify or reclassify and issue any shares of beneficial interest of the Series into any number of other funds without further action by shareholders. The 1940 Act requires that where more than one fund exists, each fund must be preferred over all other funds in respect of assets specifically allocated to such fund. As a general matter, the Series will not hold annual or other meetings of the shareholders. This is because the Declaration of Trust provides for shareholder voting only (a) for the election or removal of one or more Trustees if a meeting is called for that purpose, (b) with respect to any contract as to which shareholder approval is required by the 1940 Act, (c) with respect to any termination or reorganization of the Series or any Fund to the extent and as provided in the Declaration of Trust, (d) with respect to any amendment of the Declaration of Trust (other than amendments establishing and designating new funds, abolishing Funds when there are no units thereof outstanding, changing the name of the Series or the name of any Fund, supplying any omission, curing any ambiguity or curing, correcting or supplementing any provision thereof which is internally inconsistent with any other provision thereof or which is defective or inconsistent with the 1940 Act or with the requirements of the Internal Revenue Code or applicable regulations for the Series' obtaining the most favorable treatment thereunder available to regulated investment companies), which amendments require approval by a majority of the shares entitled to vote, (e) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding, or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Series or the shareholders, and (f) with respect to such additional matters relating to the Series as may be required by the 1940 Act, the Declaration of Trust, the By-laws of the Series, any registration of the Series with the SEC or any state, or as the Trustees may consider necessary or desirable. Each Trustee serves until the next meeting of shareholders, if any, called for the purpose of considering the election or reelection of such Trustee or of a successor to such Trustee, and until the election and qualification of his successor, if any, elected at such meeting, or until such Trustee sooner dies, resigns, retires or is removed by the shareholders or two-thirds of the Trustees. The shareholders of the Series have the right, upon the declaration in writing or vote of more than two-thirds of the Series' outstanding shares, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of the record holders of ten percent of its shares. In addition, whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least one percent of the outstanding shares, whichever is less, shall apply to the Trustees in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a meeting for the purpose of voting upon the question of removal of any Trustee or Trustees and accompanied by a form of communication and request which they wish to transmit, the Trustees shall within five business days after receipt of such application either: (1) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the Series; or (2) inform such applicants as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of requests. If the Trustees elect to follow the latter course, the Trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the Trustees shall mail to such applicants and file with the SEC, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so filed, the SEC may, and if demanded by the Trustees or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the SEC shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the SEC shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Trustees shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender. 52 Rule 18f-2 under the 1940 Act provides that any matter required by the provisions of the 1940 Act or applicable state law, or otherwise, to be submitted to the holders of the outstanding voting securities of an investment company such as the Series shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each Fund affected by such matter. Rule 18f-2 further provides that a Fund shall be deemed to be affected by a matter unless it is clear that the interests of such Fund in the matter are substantially identical or that the matter does not significantly affect any interest of such Fund. However, the Rule exempts the selection of independent auditors, the approval of principal distributing contracts and the election of trustees from the separate voting requirements of the Rule. The shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust. The Declaration of Trust also provides for indemnification and reimbursement of expenses out of a Fund's assets for any shareholder held personally liable for obligations of such Series. Custodian. State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri 64105, serves as custodian for the Series. It also maintains, under the general supervision of Seligman, the accounting records and determines the net asset values for each Series of the Fund. Independent Registered Public Accounting Firm. Deloitte & Touche LLP, Independent Registered Public Accounting Firm, has been selected as auditors of the Series. Their address is Two World Financial Center, New York, New York 10281. 53 EX-99.17(G) 12 c50116g.txt (RIVERSOURCE INVESTMENTS LOGO) PROSPECTUS SUPPLEMENT -- MARCH 25, 2009*
RiverSource Short Duration U.S. Government Fund (dated July 30, 2008) S-6042-99 AE
The information following the second paragraph in the Investment Manager section has been revised as follows: Portfolio Manager(s). The portfolio managers responsible for the day-to-day management of the Fund are: Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Leader of the liquid assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass-Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. John G. McColley, Portfolio Manager - - Managed the Fund since 2009. - - Sector Manager, liquid assets sector team. - - Joined RiverSource Investments in 1985. - - Began investment career in 1984. - - BS, Carlson School of Management, University of Minnesota. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. S-6042-5 A (3/09) * Valid until next update. (RIVERSOURCE INVESTMENTS LOGO) (THREADNEEDLE LOGO) PROSPECTUS SUPPLEMENT -- JAN. 22, 2009*
FUND PROSPECTUS DATE FORM # - -------------------------------------------------------------- RiverSource 120/20 Contrarian Equity Fund June 27, 2008 S-6519-99 C RiverSource Absolute Return Currency and Income Fund Dec. 30, 2008 S-6502-99 G RiverSource Balanced Fund Nov. 28, 2008 S-6326-99 AD RiverSource California Tax- Exempt Fund Oct. 30, 2008 S-6328-99 AH RiverSource Disciplined Equity Fund Sept. 29, 2008 S-6263-99 H RiverSource Disciplined International Equity Fund Dec. 30, 2008 S-6506-99 E RiverSource Disciplined Large Cap Growth Fund Nov. 28, 2008 S-6285-99 D RiverSource Disciplined Large Cap Value Fund Nov. 28, 2008 S-6523-99 C RiverSource Disciplined Small and Mid Cap Equity Fund Sept. 29, 2008 S-6505-99 E RiverSource Disciplined Small Cap Value Fund Sept. 29, 2008 S-6397-99 E RiverSource Diversified Bond Fund Oct. 30, 2008 S-6495-99 AC RiverSource Diversified Equity Income Fund Nov. 28, 200 S-6475-99 AD RiverSource Dividend Opportunity Fund Aug. 29, 2008 S-6341-99 AD RiverSource Emerging Markets Bond Fund Dec. 30, 2008 S-6398-99 E RiverSource Equity Value Fund May 30, 2008 S-6382-99 W RiverSource Floating Rate Fund Sept. 29, 2008 S-6501-99 E RiverSource Global Bond Fund Dec. 30, 2008 S-6309-99 AE RiverSource Global Technology Fund Dec. 30, 2008 S-6395-99 N RiverSource Growth Fund Sept. 29, 2008 S-6455-99 AD RiverSource High Yield Bond Fund July 30, 2008 S-6370-99 AD RiverSource Income Builder Basic Income Fund March 31, 2008 S-6394-99 E RiverSource Income Builder Enhanced Income Fund March 31, 2008 S-6394-99 E RiverSource Income Builder Moderate Income Fund March 31, 2008 S-6394-99 E RiverSource Income Opportunities Fund Sept. 29, 2008 S-6266-99 H RiverSource Inflation Protected Securities Fund Sept. 29, 2008 S-6280-99 G RiverSource Intermediate Tax- Exempt Fund Jan. 29, 2008 S-6355-99 T RiverSource Large Cap Equity Fund Sept. 29, 2008 S-6244-99 J RiverSource Large Cap Value Fund Sept. 29, 2008 S-6246-99 J RiverSource Limited Duration Bond Fund Sept. 29, 2008 S-6265-99 H RiverSource Mid Cap Growth Fund Jan. 29, 2008 S-6426-99 AD RiverSource Mid Cap Value Fund Nov. 28, 2008 S-6241-99 K RiverSource Minnesota Tax- Exempt Fund Oct. 30, 2008 S-6328-99 AH RiverSource New York Tax- Exempt Fund Oct. 30, 2008 S-6328-99 AH RiverSource Partners Aggressive Growth Fund July 30, 2008 S-6260-99 J RiverSource Partners Fundamental Value Fund July 30, 2008 S-6236-99 L RiverSource Partners International Select Growth Fund Dec. 30, 2008 S-6243-99 M RiverSource Partners International Select Value Fund Dec. 30, 2008 S-6242-99 M RiverSource Partners International Small Cap Fund Dec. 30, 2008 S-6258-99 K RiverSource Partners Select Value Fund July 30, 2008 S-6240-99 K RiverSource Partners Small Cap Equity Fund July 30, 2008 S-6237-99 L RiverSource Partners Small Cap Growth Fund May 30, 2008 S-6301-99 L RiverSource Partners Small Cap Value Fund July 30, 2008 S-6239-99 L RiverSource Portfolio Builder Aggressive Fund March 31, 2008 S-6282-99 G RiverSource Portfolio Builder Conservative Fund March 31, 2008 S-6282-99 G RiverSource Portfolio Builder Moderate Aggressive Fund March 31, 2008 S-6282-99 G RiverSource Portfolio Builder Moderate Conservative Fund March 31, 2008 S-6282-99 G RiverSource Portfolio Builder Moderate Fund March 31, 2008 S-6282-99 G RiverSource Portfolio Builder Total Equity Fund March 31, 2008 S-6282-99 G RiverSource Precious Metals and Mining Fund May 30, 2008 S-6142-99 AE RiverSource Real Estate Fund Aug. 29, 2008 S-6281-99 G RiverSource Retirement Plus 2010 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2015 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2020 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2025 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2030 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2035 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2040 Fund June 27, 2008 S-6507-99 E RiverSource Retirement Plus 2045 Fund June 27, 2008 S-6507-99 E RiverSource Short Duration U.S. Government Fund July 30, 2008 S-6042-99 AE RiverSource Small Cap Advantage Fund May 30, 2008 S-6427-99 N RiverSource Small Company Index Fund March 31, 2008 S-6357-99 U RiverSource Strategic Allocation Fund Nov. 28, 2008 S-6141-99 AE RiverSource Strategic Income Allocation Fund Nov. 28, 2008 S-6287-99 D RiverSource Tax-Exempt Bond Fund Jan. 29, 2008 S-6310-99 AE RiverSource Tax-Exempt High Income Fund Jan. 29, 2008 S-6430-99 AE RiverSource U.S. Government Mortgage Fund July 30, 2008 S-6245-99 K Threadneedle Emerging Markets Fund Dec. 30, 2008 S-6354-99 V Threadneedle European Equity Fund Dec. 30, 2008 S-6006-99 N Threadneedle Global Equity Fund Dec. 30, 2008 S-6334-99 AG Threadneedle Global Equity Income Fund Dec. 30, 2008 S-6334-99 AG Threadneedle Global Extended Alpha Fund Dec. 30, 2008 S-6334-99 AG Threadneedle International Opportunity Fund Dec. 30, 2008 S-6140-99 AG
- -------------------------------------------------------------------------------- S-6141-10 A (1/09) * Valid until Dec. 30, 2009 Effective February 9, 2009, the section of prospectus "Initial Sales Charge -- Waiver of the sales charge for Class A shares" is replaced with the following: INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of the funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - 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 funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - partners and employees of outside legal counsel to the funds or the funds' directors or trustees who regularly provide advice and services to the funds, or to their directors or trustees. - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another fund in the RiverSource complex of funds; - through or under a wrap fee product or other investment product sponsored by a financial intermediary that charges an account management fee that has, or clears trades through a financial intermediary that has, a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - purchases made through "eligible employee benefit plans" created under section 401(a), 401(k), 457 and 403(b) which: - have at least $1 million in plan assets at the time of investment; - have a plan level or omnibus account that is maintained with the fund or its transfer agent; and - transact directly with the fund or its transfer agent through a third party administrator or third party recordkeeper. For more information regarding waivers of sales charges for Class A purchases, please see the SAI. 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 intermediary with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial intermediary provide this information to the fund when placing your purchase order. Because the current prospectus is available on the funds' website at riversource.com free of charge, information regarding breakpoint discounts is not separately disclosed on the website. S-6141-10 A (1/09) * Valid until Dec. 30, 2009 (RIVERSOURCE INVESTMENTS LOGO) PROSPECTUS SUPPLEMENT -- NOV. 28, 2008
Fund Prospectus date Form # RiverSource Short Duration U.S. Government Fund July 30, 2008 S-6042-99 AE
Effective Nov. 17, 2008, the information following the second paragraph in the Investment Manager section has been revised to state: Portfolio Manager(s). The portfolio managers responsible for the day-to-day management of the Fund are: Jamie Jackson, CFA, Portfolio Manager - - Managed the Fund since 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. Todd White, Portfolio Manager - - Managed the Fund since 2008. - - Leader of the structured assets sector team. - - Joined RiverSource Investments in 2008. - - Managing Director, Global Head of the Asset-Backed and Mortgage-Backed Securities businesses, and North American Head of the Interest Rate business, HSBC, 2004 to 2008; Managing Director and Head of Business for Mortgage Pass-Through and Options, Lehman Brothers, 2000 to 2004. - - Began investment career in 1986. - - BS, Indiana University. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. S-6042-4 A (11/08) (RIVERSOURCE INVESTMENTS LOGO) (THREADNEEDLE LOGO) PROSPECTUS SUPPLEMENT -- NOV. 7, 2008
FUND (Prospectus Date) FORM # - ---------------------------------------------------- RIVERSOURCE 120/20 CONTRARIAN EQUITY FUND (6/27/08) S-6502-99 F RIVERSOURCE 130/30 U.S. EQUITY FUND (6/27/08) S-6502-99 F RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND (6/27/08) S-6502-99 F RIVERSOURCE BALANCED FUND (11/29/07) S-6326-99 AC RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND (10/30/08) S-6328-99 AH RIVERSOURCE CASH MANAGEMENT FUND (9/29/08) S-6320-99 AF RIVERSOURCE DISCIPLINED EQUITY FUND (9/29/08) S-6263-99 H RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND (12/28/07) S-6506-99 D RIVERSOURCE DISCIPLINED LARGE CAP GROWTH FUND (11/29/07) S-6285-99 C RIVERSOURCE DISCIPLINED LARGE CAP VALUE FUND (8/1/08) S-6523-99 A RIVERSOURCE DISCIPLINED SMALL AND MID CAP EQUITY FUND (9/29/08) S-6505-99 E RIVERSOURCE DISCIPLINED SMALL CAP VALUE FUND (9/29/08) S-6397-99 E RIVERSOURCE DIVERSIFIED BOND FUND (10/30/08) S-6495-99 AC RIVERSOURCE DIVERSIFIED EQUITY INCOME FUND (11/29/07) S-6475-99 AC RIVERSOURCE DIVIDEND OPPORTUNITY FUND (8/29/08) S-6341-99 AD RIVERSOURCE EMERGING MARKETS BOND FUND (12/28/07) S-6398-99 D RIVERSOURCE EQUITY VALUE FUND (5/30/08) S-6382-99 W RIVERSOURCE FLOATING RATE FUND (9/29/08) S-6501-99 E RIVERSOURCE GLOBAL BOND FUND (12/28/07) S-6309-99 AD RIVERSOURCE GLOBAL TECHNOLOGY FUND (12/28/07) S-6395-99 M RIVERSOURCE GROWTH FUND (9/29/08) S-6455-99 AD RIVERSOURCE HIGH YIELD BOND FUND (7/30/08) S-6370-99 AD RIVERSOURCE INCOME BUILDER BASIC INCOME FUND (3/31/08) S-6394-99 E RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND (3/31/08) S-6394-99 E RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND (3/31/08) S-6394-99 E RIVERSOURCE INCOME OPPORTUNITIES FUND (9/29/08) S-6266-99 H RIVERSOURCE INFLATION PROTECTED SECURITIES FUND (9/29/08) S-6280-99 G RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND (1/29/08) S-6355-99 T RIVERSOURCE LARGE CAP EQUITY FUND (9/29/08) S-6244-99 J RIVERSOURCE LARGE CAP VALUE FUND (9/29/08) S-6246-99 J RIVERSOURCE LIMITED DURATION BOND FUND (9/29/08) S-6265-99 H RIVERSOURCE MID CAP GROWTH FUND (1/29/08) S-6426-99 AD RIVERSOURCE MID CAP VALUE FUND (11/29/07) S-6241-99 J RIVERSOURCE MINNESOTA TAX-EXEMPT FUND (10/30/08) S-6328-99 AH RIVERSOURCE NEW YORK TAX-EXEMPT FUND (10/30/08) S-6328-99 AH RIVERSOURCE PARTNERS AGGRESSIVE GROWTH FUND (7/30/08) S-6260-99 J RIVERSOURCE PARTNERS FUNDAMENTAL VALUE FUND (7/30/08) S-6236-99 L RIVERSOURCE PARTNERS INTERNATIONAL SELECT GROWTH FUND (12/28/07) S-6243-99 L RIVERSOURCE PARTNERS INTERNATIONAL SELECT VALUE FUND (12/28/07) S-6242-99 L RIVERSOURCE PARTNERS INTERNATIONAL SMALL CAP FUND (12/28/07) S-6258-99 J RIVERSOURCE PARTNERS SELECT VALUE FUND (7/30/08) S-6240-99 K RIVERSOURCE PARTNERS SMALL CAP EQUITY FUND (7/30/08) S-6237-99 L RIVERSOURCE PARTNERS SMALL CAP GROWTH FUND (5/30/08) S-6301-99 L RIVERSOURCE PARTNERS SMALL CAP VALUE FUND (7/30/08) S-6239-99 L RIVERSOURCE PORTFOLIO BUILDER AGGRESSIVE FUND (3/31/08) S-6282-99 G RIVERSOURCE PORTFOLIO BUILDER CONSERVATIVE FUND (3/31/08) S-6282-99 G RIVERSOURCE PORTFOLIO BUILDER MODERATE AGGRESSIVE FUND (3/31/08) S-6282-99 G RIVERSOURCE PORTFOLIO BUILDER MODERATE CONSERVATIVE FUND (3/31/08) S-6282-99 G RIVERSOURCE PORTFOLIO BUILDER MODERATE FUND (3/31/08) S-6282-99 G RIVERSOURCE PORTFOLIO BUILDER TOTAL EQUITY FUND (3/31/08) S-6282-99 G RIVERSOURCE PRECIOUS METALS AND MINING FUND (5/30/08) S-6142-99 AE RIVERSOURCE REAL ESTATE FUND (8/29/08) S-6281-99 G RIVERSOURCE RETIREMENT PLUS 2010 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2015 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2020 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2025 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2030 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2035 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2040 FUND (6/27/08) S-6507-99 E RIVERSOURCE RETIREMENT PLUS 2045 FUND (6/27/08) S-6507-99 E RIVERSOURCE S&P 500 INDEX FUND (3/31/08) S-6434-99 N RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (7/30/08) S-6042-99 AE RIVERSOURCE SMALL CAP ADVANTAGE FUND (5/30/08) S-6427-99 N RIVERSOURCE SMALL COMPANY INDEX FUND (3/31/08) S-6357-99 U RIVERSOURCE STRATEGIC ALLOCATION FUND (11/29/07) S-6141-99 AD RIVERSOURCE STRATEGIC INCOME ALLOCATION FUND (11/29/07) S-6287-99 C RIVERSOURCE TAX-EXEMPT BOND FUND (1/29/08) S-6310-99 AE RIVERSOURCE TAX-EXEMPT HIGH INCOME FUND (1/29/08) S-6430-99 AE RIVERSOURCE TAX-EXEMPT MONEY MARKET FUND (2/29/08) S-6433-99 AE RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND (7/30/08) S-6245-99 K THREADNEEDLE EMERGING MARKETS FUND (12/28/07, amended 3/31/08) S-6354-99 U THREADNEEDLE EUROPEAN EQUITY FUND (12/28/07, amended 3/31/08) S-6006-99 M THREADNEEDLE GLOBAL EQUITY FUND (8/1/08) S-6334-99 AF THREADNEEDLE GLOBAL EQUITY INCOME FUND (8/1/08) S-6334-99 AF THREADNEEDLE GLOBAL EXTENDED ALPHA FUND (8/1/08) S-6334-99 AF THREADNEEDLE INTERNATIONAL OPPORTUNITY FUND (12/28/07, amended 3/31/08) S-6140-99 AF
Effective November 7, 2008, RiverSource Investments, LLC, investment manager to the RiverSource complex of funds, and a wholly owned subsidiary of Ameriprise Financial, Inc., announced the closing of its acquisition of J. & W. Seligman & Co. Incorporated ("Seligman Investments"). Seligman Investments served as investment manager to the Seligman group of funds. The RiverSource Complex of Funds disclosure on the Table of Contents page is revised as follows: RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. The first paragraph in the "Investment Manager" section is revised as follows: RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource funds (including the RiverSource Partners funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for 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 RiverSource Complex of Funds disclosure in the "Buying and Selling Shares" section is revised as follows: RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. FOR ALL FUNDS EXCEPT RIVERSOURCE CASH MANAGEMENT FUND, RIVERSOURCE S&P 500 INDEX FUND AND RIVERSOURCE TAX-EXEMPT MONEY MARKET FUND: Effective Dec. 1, 2008, the "Investment Options Summary" table in the "Buying and Selling Shares" section is revised as follows: INVESTMENT OPTIONS SUMMARY
CONTINGENT PLAN INITIAL SALES DEFERRED SALES DISTRIBUTION AND ADMINISTRATION AVAILABILITY(a) CHARGE CHARGE (CDSC) SERVICE FEE(b) FEE - ---------------------------------------------------------------------------------------------------------------------------------- Class A Available to all Yes. Payable at time of No.(c) Yes. No. investors. purchase. Lower or no 0.25% sales charge for larger investments. - ---------------------------------------------------------------------------------------------------------------------------------- Class B(d),(e) Available to all No. Entire purchase price Maximum 5% CDSC during Yes. No. investors. is invested in shares of the first year decreasing 1.00% the fund. to 0% after six years. - ---------------------------------------------------------------------------------------------------------------------------------- Class C Available to all No. Entire purchase price 1% CSDC may apply if you Yes. No. investors. is invested in shares of sell shares within one 1.00% the fund. year after purchase. - ----------------------------------------------------------------------------------------------------------------------------------
CONTINGENT PLAN INITIAL SALES DEFERRED SALES DISTRIBUTION AND ADMINISTRATION AVAILABILITY(a) CHARGE CHARGE (CDSC) SERVICE FEE(b) FEE - ---------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying investors. - ---------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% investors. - ---------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% investors. - ---------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% investors. - ---------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying investors. - ---------------------------------------------------------------------------------------------------------------------------------- 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) A 1% CDSC may be accessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) 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. (e) 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.) Class B shares of RiverSource Absolute Return Currency and Income Fund are only available for exchanges from Class B shares of another RiverSource fund. FOR ALL FUNDS EXCEPT RIVERSOURCE CASH MANAGEMENT FUND, RIVERSOURCE S&P 500 INDEX FUND AND RIVERSOURCE TAX-EXEMPT MONEY MARKET FUND: Effective Dec. 1, 2008, the following information is added after the section "Sales Charges -- Initial Sales Charge -- Waivers of the sales charge for Class A shares": CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - In an account that has been closed because it falls below the minimum account balance. - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. The following information is added to the section "Exchanges -- Other exchange policies": - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. FOR ALL FUNDS EXCEPT RIVERSOURCE S&P 500 INDEX FUND: Effective Nov. 21, 2008, the Repurchases paragraph in the "Selling Shares" section is revised as follows: REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial 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 following paragraph in the "Additional Services and Compensation" section is revised as follows: Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide 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 reallows 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 and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. S-6495-10 A (11/08) 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) EX-99.17(H) 13 c56927_module.txt EX-17(h) - -------------------------------------------------------------------------------- Seligman U.S. Government Securities Fund - -------------------------------------------------------------------------------- Annual Report December 31, 2008 Seeking High Current Income by Investing in US Government Securities [SELIGMAN INVESTMENTS LOGO] - -------------------------------------------------------------------------------- Table of Contents Interview With Your Portfolio Manager 2 Performance and Portfolio Overview 4 Understanding and Comparing Your Fund's Expenses 7 Portfolio of Investments 8 Statement of Assets and Liabilities 10 Statement of Operations 11 Statements of Changes in Net Assets 12 Notes to Financial Statements 13 Financial Highlights 21 Report of Independent Registered Public Accounting Firm 26 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement 27 Proxy Results 31 Trustees and Officers 32 Additional Fund Information 36 1 Interview With Your Portfolio Manager NOTE: IN CONJUNCTION WITH THE ACQUISITION OF THE FUND'S PREVIOUS INVESTMENT MANAGER BY RIVERSOURCE INVESTMENTS, LLC, THE SELIGMAN INVESTMENT GRADE TEAM IS NO LONGER RESPONSIBLE FOR THE PORTFOLIO MANAGEMENT OF THE FUND. THE FUND IS NOW MANAGED BY RIVERSOURCE INVESTMENTS. Q. HOW DID SELIGMAN U.S. GOVERNMENT SECURITIES FUND PERFORM DURING THE YEAR ENDED DECEMBER 31, 2008? A. For the year ended December 31, 2008, Seligman U.S. Government Securities Fund posted a total return of 8.8%, based on the net asset value of Class A shares. In comparison, the Fund's peers, as measured by the Lipper General US Government Funds Average returned 7.3%. The Barclays Capital Government Bond Index returned 12.4%. The Blended Index, which is comprised of an equal 50% weighting in the Barclays Capital Government Bond Index and the Barclays Capital Fixed-Rate Mortgage Backed Securities Index, returned 10.5%. Q. HOW DID MARKET CONDITIONS AND ECONOMIC EVENTS IMPACT THE PERFORMANCE OF THE FUND DURING THE YEAR? A. The economic landscape during the year ended can be characterized by several major themes: further erosion in the housing market as prices remained on a downward trend, significant selling pressure as a result of deflating consumer confidence, continued large bank and brokerage firm write-offs which accelerated an ongoing flight to quality and credit contraction, and the significant widening of spreads. Weak economic data points released in January in manufacturing, employment, and retail sales fueled fears of global recession and sparked a sharp sell-off in equities. The credit freeze continued as growth slowed and banks and brokers reined in capital as the financial system continued to absorb losses related to subprime debt. The combined crises in housing, the credit market, and the economy spurred an activist Federal Reserve Board (the Fed) and the Administration to take unprecedented steps to shore up the economy. As the year unfolded, concerns regarding the housing market spread to other asset classes. Fears of spreading credit problems led to an overwhelming unwillingness by banks and other financial institutions to lend. Ongoing declines in asset values at financial institutions effectively resulted in a dysfunctional lending market in the US. The collapse of credit growth, along with the continued erosion of household net worth due to weakening housing and equity markets severely hampered consumer spending. In September we witnessed the unfolding of several unprecedented events that affected markets on a global scale. Fannie Mae and Freddie Mac were put into conservatorship. On September 15, Lehman Brothers filed for bankruptcy. The ripple effects of the failing of this 158-year old investment bank were wide-spread. Several cash management funds with exposure to Lehman debt suffered, with the net asset value of the Reserve Primary Fund falling below $1 per share -- "breaking the buck." Credit markets across the globe froze up, which had a significant implication on markets as a whole. Investors started focusing more on higher quality stocks. The downgrading of AIG's credit rating led to a liquidity crisis (its stock price suffered a 95% decline on September 16, 2008) that ended in the largest government bailout of a company in US history. Merrill Lynch quickly sold itself to Bank of America, and commercial banks WAMU and Wachovia were quickly sold to JPMorgan Chase and Wells Fargo, respectively. 2 Interview With Your Portfolio Manager Interest rates fell significantly during the period as investors fled riskier assets for the relative safety of Treasuries, pushing prices higher and yields lower. Away from Treasuries, however, other fixed income sectors posted less-strong results. Securities with credit risk -- especially those with mortgage-related credit risk -- faced significant selling pressure during the July and August "credit panic." Although the market stabilized temporarily in the fall, November brought a fresh round of panic as the market was spooked by increasing talk of an impending recession -- a conversation that continued through the end of the year. Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES MATERIALLY IMPACTED THE FUND'S PERFORMANCE DURING THE YEAR? A. One of the Fund's principal strategies during the year, and one that benefitted the Fund's performance during the year, was to maintain a duration that exceeded that of the benchmark. This strategy was employed to enable the portfolio to participate in the ongoing rally in US Treasuries as investors broadly sought higher quality instruments, as well as in anticipation of continued sluggish growth. Though its allocation to mortgage-backed securities was decreased in the second half of the year, the Fund's exposure to this asset class detracted from the Fund's results, as mortgage-backed securities posted positive returns but underperformed both agency securities and Treasuries during the annual period. That said, issue selection within mortgage-backed securities boosted returns, particularly the Fund's emphasis on premium coupon securities. Higher coupon mortgage-backed securities outperformed lower coupon mortgage-backed securities for the period. At the end of December, we believed that fixed income market fundamentals had taken a back seat in investors' minds to technical factors and to overly-pessimistic fears regarding both liquidity and the U.S. economy, causing rates to decline more than was warranted. Thus, we intend to position the Fund to take advantage of the compelling valuations that we saw in the last months of the period and to participate in the recovery of high quality spread sectors, or non-Treasury sectors, that we anticipate for 2009 when fears have hopefully subsided and liquidity returns to the markets. We expect economic growth prospects and the potential for higher inflation to ultimately recapture investors' attention. - ---------- THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE PORTFOLIO MANAGERS, ARE PROVIDED FOR GENERAL INFORMATION ONLY, AND DO NOT CONSTITUTE SPECIFIC TAX, LEGAL, OR INVESTMENT ADVICE TO, OR RECOMMENDATION FOR, AND PERSON. THERE CAN BE NO GUARANTEE AS TO THE ACCURACY OF MARKET FORECASTS. OPINIONS, ESTIMATES, AND FORECASTS MAY BE CHANGED WITHOUT NOTICE. 3 Performance and Portfolio Overview This section of the report is intended to help you understand the performance of Seligman U.S. Government Securities Fund and to provide a summary of the Fund's portfolio characteristics. PERFORMANCE DATA QUOTED IN THIS REPORT REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE OR INDICATE FUTURE INVESTMENT RESULTS. THE RATES OF RETURN WILL VARY AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. SHARES, IF REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. TOTAL RETURNS OF THE FUND AS OF THE MOST RECENT MONTH-END WILL BE AVAILABLE AT WWW.SELIGMAN.COM(1) BY THE SEVENTH BUSINESS DAY FOLLOWING THAT MONTH-END. Calculations assume reinvestment of distributions, if any. Performance data quoted does not reflect the deduction of taxes that an investor may pay on distributions or the redemption of shares. The chart on page 5 compares $10,000 hypothetical investments made in Class A shares, with and without the initial 4.5% maximum sales charge, and in Class B shares, without contingent deferred sales charge ("CDSC"), to $10,000 investments made in the Barclays Capital Government Bond Index and the Blended Index for the ten-year period ended December 31, 2008. The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. The performance of Class C and Class R shares, which commenced on later dates, and of Class A and Class B shares for other periods, with and without applicable sales charges and CDSCs, is not shown in the chart but is included in the total returns table that follows the chart. The performance of Class C and Class R shares will differ from the performance shown for Class A and Class B shares, based on the differences in sales charges and fees paid by shareholders. RETURNS FOR CLASS A SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE INITIAL 4.5% MAXIMUM SALES CHARGE THAT BECAME EFFECTIVE ON JANUARY 7, 2008. ALTHOUGH FOR ALL PERIODS PRESENTED THE FUND'S CLASS A SHARES REFLECT THE 4.5% MAXIMUM SALES CHARGE, THE ACTUAL RETURNS FOR PERIODS PRIOR TO JANUARY 7, 2008 WOULD HAVE BEEN LOWER IF THE 4.75% MAXIMUM SALES CHARGE THEN IN EFFECT WAS INCURRED. RETURNS FOR CLASS B SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE MAXIMUM 5% CDSC, CHARGED ON REDEMPTIONS MADE WITHIN ONE YEAR OF THE DATE OF PURCHASE, DECLINING TO 1% IN THE SIXTH YEAR AND 0% THEREAFTER. RETURNS FOR CLASS C AND CLASS R SHARES ARE CALCULATED WITH AND WITHOUT THE EFFECT OF THE 1% CDSC, CHARGED ON REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE. RETURNS FOR CLASS C SHARES WOULD HAVE BEEN LOWER FOR PERIODS PRIOR TO JUNE 4, 2007 IF THE 1% INITIAL SALES CHARGE THEN IN EFFECT WAS INCURRED. ON MAY 16, 2008, CLASS D SHARES OF THE FUND WERE CONVERTED TO CLASS C SHARES AT THEIR RESPECTIVE NET ASSET VALUES. EFFECTIVE AT THE CLOSE OF BUSINESS ON MAY 16, 2008, CLASS D SHARES ARE NO LONGER OFFERED BY THE FUND. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. - ---------- (1) The website reference is an inactive textual reference and information contained in or otherwise accessible through the website does not form a part of this report or the Fund's prospectus or statement of additional information. 4 Performance and Portfolio Overview [THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE.]
Class A Class A With Sales Without Sales Class B Barclays Capital Blended Date Charge Charge Without CDSC Govt. Bond Index Index 12/31/1998 $9,555.26 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $9,405.78 $9,843.57 $9,814.64 $ 9,857 $9,977.84 $9,217.73 $9,646.77 $9,601.07 $9,773.22 $ 9,912.9 $9,240.28 $9,670.36 $9,620.42 $9,837.72 $9,991.71 12/31/1999 $9,192.14 $9,619.97 $9,538.67 $9,776.72 $9,979.91 $ 9,419.3 $ 9,857.7 $9,756.88 $10,104.2 $10,215.9 $9,563.06 $10,008.1 $9,902.79 $10,262.9 $10,411.3 $9,841.05 $10,299.1 $10,171.4 $10,545.1 $10,722.4 12/31/2000 $ 10,319 $10,799.3 $ 10,645 $11,071.3 $ 11,198 $10,551.3 $11,042.4 $10,864.4 $11,349.2 $11,491.4 $10,521.7 $11,011.4 $10,798.6 $ 11,322 $11,536.1 $11,068.4 $11,583.5 $11,353.8 $11,942.4 $12,095.1 12/31/2001 $10,937.8 $11,446.9 $11,183.7 $ 11,872 $12,063.5 $10,827.2 $11,331.1 $11,066.9 $11,797.1 $12,085.4 $11,309.1 $11,835.5 $11,536.8 $ 12,321 $ 12,564 $12,048.5 $12,609.2 $12,267.2 $13,141.5 $13,149.7 12/31/2002 $12,085.4 $12,647.9 $12,265.2 $13,236.1 $13,286.4 $12,126.1 $12,690.4 $12,283.9 $13,377.8 $13,418.9 $12,349.5 $12,924.3 $ 12,486 $13,716.2 $13,633.2 $12,306.1 $12,878.9 $12,417.9 $13,606.5 $13,613.4 12/31/2003 $12,154.2 $12,719.9 $12,257.8 $13,546.6 $ 13,647 $12,411.2 $12,988.8 $ 12,476 $13,943.5 $13,977.9 $12,054.8 $12,615.8 $12,112.3 $ 13,528 $13,690.8 $12,278.9 $12,850.3 $12,296.9 $13,948.8 $14,082.2 12/31/2004 $12,287.1 $ 12,859 $12,299.3 $14,017.1 $14,205.6 $12,189.7 $ 12,757 $12,162.6 $13,958.2 $14,167.3 $ 12,463 $ 13,043 $12,428.7 $14,427.2 $14,566.3 $12,254.1 $12,824.4 $12,198.2 $14,291.6 $14,487.1 12/31/2005 $12,285.4 $12,857.1 $ 12,189 $14,387.4 $14,579.1 $12,149.3 $12,714.8 $12,031.6 $14,256.4 $ 14,508 $12,100.1 $12,663.2 $11,960.9 $14,259.3 $14,510.1 $12,467.5 $13,047.8 $12,318.6 $14,764.1 $ 15,030 12/31/2006 $12,564.6 $13,149.3 $12,392.8 $14,888.1 $15,213.4 $12,740.9 $13,333.8 $12,524.6 $15,102.5 $15,443.1 $12,623.7 $13,211.2 $12,405.1 $15,052.6 $15,367.4 $12,954.3 $13,557.2 $12,705.4 $ 15,596 $15,854.5 12/31/2007 $ 13,339 $13,959.8 $13,038.5 $16,177.8 $16,401.5 $13,681.2 $14,317.9 $13,366.6 $ 16,833 $16,937.9 $13,542.1 $14,172.3 $13,187.2 $16,511.5 $ 16,721 $13,721.8 $14,360.4 $13,337.3 $16,828.5 $17,052.1 12/31/2008 $14,523.7 $15,199.6 $14,104.7 $18,183.2 $18,117.9
Investment Results TOTAL RETURNS For Periods Ended December 31, 2008 - --------------------------------------------------------------------------------
AVERAGE ANNUAL ----------------------------------------------------------- CLASS C CLASS R SINCE SINCE SIX ONE FIVE TEN INCEPTION INCEPTION MONTHS* YEAR YEARS YEARS 5/27/99 4/30/03 - --------------------------------------------------------------------------------------------------------------------- CLASS A - --------------------------------------------------------------------------------------------------------------------- With Sales Charge 2.26% 3.82% 2.66% 3.80% n/a n/a - --------------------------------------------------------------------------------------------------------------------- Without Sales Charge 7.12 8.76 3.61 4.28 n/a n/a - --------------------------------------------------------------------------------------------------------------------- CLASS B - --------------------------------------------------------------------------------------------------------------------- With CDSC+ 1.86 3.08 2.47 n/a n/a n/a - --------------------------------------------------------------------------------------------------------------------- Without CDSC 6.86 8.08 2.83 3.66++ n/a n/a - --------------------------------------------------------------------------------------------------------------------- CLASS C - --------------------------------------------------------------------------------------------------------------------- With 1% CDSC 5.71 6.94 n/a n/a n/a n/a - --------------------------------------------------------------------------------------------------------------------- Without CDSC 6.71 7.94 2.83 n/a 3.98% n/a - --------------------------------------------------------------------------------------------------------------------- CLASS R - --------------------------------------------------------------------------------------------------------------------- With 1% CDSC 5.99 7.50 n/a n/a n/a n/a - --------------------------------------------------------------------------------------------------------------------- Without CDSC 6.99 8.50 3.33 n/a n/a 2.92% - --------------------------------------------------------------------------------------------------------------------- BENCHMARKS** - --------------------------------------------------------------------------------------------------------------------- Barclays Capital Government Bond Index 10.13 12.39 6.06 6.16 6.67 5.48 - --------------------------------------------------------------------------------------------------------------------- Blended Index 8.36 10.46 5.83 6.12 6.46 5.36 - --------------------------------------------------------------------------------------------------------------------- Lipper General US Government Funds Average 6.51 7.27 4.18 4.68 5.12 3.63 - ---------------------------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 6. 5 Performance and Portfolio Overview Investment Results NET ASSET VALUE PER SHARE - -------------------------------------------------------------------------------- 12/31/08 6/30/08 12/31/07 - -------------------------------------------------------------------------------- CLASS A $ 7.34 $ 6.94 $ 6.95 - -------------------------------------------------------------------------------- CLASS B 7.36 6.95 6.96 - -------------------------------------------------------------------------------- CLASS C 7.35 6.95 6.96 - -------------------------------------------------------------------------------- CLASS R 7.34 6.94 6.95 - -------------------------------------------------------------------------------- DURATIONooo December 31, 2008 4.1 years ================================================================================ DIVIDEND PER SHARE AND YIELD INFORMATION For Periods Ended December 31, 2008 - -------------------------------------------------------------------------------- DIVIDENDS PAIDo SEC 30-DAY YIELDSoo - ----------------------------------- ------------------------------ $0.208 1.55% - ----------------------------------- ------------------------------ 0.156 0.85 - ----------------------------------- ------------------------------ 0.156 0.85 - ----------------------------------- ------------------------------ 0.192 1.34 - ----------------------------------- ------------------------------ - ---------- * Returns for periods of less than one year are not annualized. ** The Barclays Capital Government Bond Index (the "Barclays Capital Index"), the Blended Index, and the Lipper General US Government Funds Average (the "Lipper Average") are unmanaged benchmarks that assume reinvestment of dividends and exclude the effect of fees, taxes and sales charges. The Barclays Capital Index and the Blended Index also exclude the effect of expenses. The Lipper Average includes funds that invest at least 65% of their assets in US government and government agency issues. The Barclays Capital Index is a benchmark index made up of the Treasury Bond Index and the Agency Bond Index as well as the 1-3 Year Government Index and 20+ Year Treasury Index. The Blended Index is an index created by J.W. Seligman & Co. Incorporated ("JWS"), the Fund's former investment manager. The Blended Index consists of a fifty percent equal weighting in the Barclays Capital Index and the Barclays Capital Fixed-Rate Mortgage Backed Securities Index (the "Barclays Capital MBS Index"), which covers the fixed-rate agency mortgage-backed pass-through securities of the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). In JWS's view, the Blended Index better represents the securities in which the Fund expects to invest since Fund shareholders approved amendments to the Fund's principal investment strategies in October 2005. The Fund's holdings, however, may not be evenly weighted among the securities covered by the Barclays Capital Index and Barclays Capital MBS Index, and the weighting of the Fund's holdings may vary significantly among such securities. The Fund is actively managed and its holdings are subject to change. Investors cannot invest directly in an average or an index. + The CDSC is 5% if you sell your shares within one year of purchase, and 2% for the five-year period. ++ The ten-year return for Class B shares reflects automatic conversion to Class A shares approximately eight years after their date of purchase. o Represents per share amount paid or declared for the year ended December 31, 2008. oo Current yield, representing the annualized yield for the 30-day period ended December 31, 2008, has been computed in accordance with SEC regulations and will vary. ooo Duration is the average amount of time that it takes to receive the interest and principal of a bond or portfolio of bonds. The duration formula is based on a formula that calculates the weighted average of the cash flows (interest and principal payments) of the bond, discounted to present time. Composition of Net Assets - -------------------------------------------------------------------------------- PERCENTAGE OF NET ASSETS ------------------------- 12/31/08 12/31/07 - -------------------------------------------------------------------------------- US Treasury Securities 27.3 21.2 - -------------------------------------------------------------------------------- Other US Full Faith and Credit Obligations 1.6 3.1 - -------------------------------------------------------------------------------- US Government Agency Obligations 18.3 14.0 - -------------------------------------------------------------------------------- Mortgage-Backed Securities 45.7 61.7 - -------------------------------------------------------------------------------- Short-Term Holdings and Other Assets Less Liabilities 7.1 -- - -------------------------------------------------------------------------------- Total 100.0 100.0 ================================================================================ 6 Understanding and Comparing Your Fund's Expenses As a shareholder of the Fund, you incur ongoing expenses, such as management fees, distribution and/or service (12b-1) fees, and other Fund expenses. The information below is intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to compare them with the ongoing expenses of investing in other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing expenses only and do not reflect any transactional costs, such as sales charges (also known as loads) on certain purchases or redemptions. Therefore, the table is useful in comparing ongoing expenses only, and will not help you to determine the relative total expenses of owning different funds. In addition, if transactional costs were included, your total expenses would have been higher. The table is based on an investment of $1,000 invested at the beginning of July 1, 2008 and held for the entire six-month period ended December 31, 2008. ACTUAL EXPENSES The table below provides information about actual expenses and actual account values. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value at the beginning of the period by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During Period" for the Fund's share class that you own to estimate the expenses that you paid on your account during the period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical expenses and hypothetical account values based on the actual expense ratio of each class and an assumed rate of return of 5% per year before expenses, which is not the actual return of any class of the Fund. The hypothetical expenses and account values may not be used to estimate the ending account value or the actual expenses you paid for the period. You may use this information to compare the ongoing expenses of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
ACTUAL HYPOTHETICAL ---------------------------------- ------------------------------------ BEGINNING ENDING ENDING EXPENSES PAID ACCOUNT ANNUALIZED ACCOUNT EXPENSES PAID ACCOUNT DURING PERIOD VALUE EXPENSE VALUE DURING PERIOD VALUE 7/1/08 TO 7/1/08 RATIO* 12/31/08 7/1/08 TO 12/31/08** 12/31/08 12/31/08** - ------------------------------------------------------------------------------------------------------------------------------------ Class A $ 1,000.00 1.41% $ 1,071.20 $ 7.34 $ 1,018.05 $ 7.15 - ------------------------------------------------------------------------------------------------------------------------------------ Class B 1,000.00 2.18 1,068.60 11.34 1,014.18 11.04 - ------------------------------------------------------------------------------------------------------------------------------------ Class C 1,000.00 2.19 1,067.10 11.38 1,014.13 11.09 - ------------------------------------------------------------------------------------------------------------------------------------ Class R 1,000.00 1.68 1,069.90 8.74 1,016.69 8.52 - ------------------------------------------------------------------------------------------------------------------------------------
- ---------- * Expenses of Class B, Class C and Class R shares differ from the expenses of Class A shares due to the differences in 12b-1 fees paid by each share class. See the Fund's prospectus for a description of each share class and its expenses and sales charges. ** Expenses are equal to the annualized expense ratio based on actual expenses for the period July 1, 2008 to December 31, 2008, multiplied by the average account value over the period, multiplied by 184/366 (number of days in the period). 7 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT VALUE US FULL FAITH AND CREDIT OBLIGATIONS 28.9% - --------------------------------------------------------------------------------------------------- US Treasury Bonds: - --------------------------------------------------------------------------------------------------- 1.75%, 1/15/2028 $ 517,060 $ 477,877 - --------------------------------------------------------------------------------------------------- 5.375%, 2/15/2031 375,000 515,391 - --------------------------------------------------------------------------------------------------- 4.5%, 2/15/2036 585,000 777,411 - --------------------------------------------------------------------------------------------------- US Treasury Inflation-Protected Security: - --------------------------------------------------------------------------------------------------- 2%, 1/15/2014 363,469 344,500 - --------------------------------------------------------------------------------------------------- 2%, 1/15/2016 283,798 271,870 - --------------------------------------------------------------------------------------------------- US Treasury Notes: - --------------------------------------------------------------------------------------------------- 2.125%, 4/30/2010 260,000 266,297 - --------------------------------------------------------------------------------------------------- 4.5%, 2/28/2011 175,000+ 189,274 - --------------------------------------------------------------------------------------------------- 4.875%, 6/30/2012 735,000 826,358 - --------------------------------------------------------------------------------------------------- 4.125%, 8/31/2012 2,830,000+ 3,130,690 - --------------------------------------------------------------------------------------------------- 2%, 11/30/2013 3,415,000 3,504,647 - --------------------------------------------------------------------------------------------------- 1.5%, 12/31/2013 3,950,000 3,942,285 - --------------------------------------------------------------------------------------------------- 4%, 2/15/2014 405,000 459,169 - --------------------------------------------------------------------------------------------------- 4.625%, 11/15/2016 1,000,000 1,180,938 - --------------------------------------------------------------------------------------------------- 4.25%, 11/15/2017 3,315,000 3,862,754 - --------------------------------------------------------------------------------------------------- 1.375%, 7/15/2018 251,165 234,977 - --------------------------------------------------------------------------------------------------- 3.75%, 11/15/2018 2,672,000+ 3,025,620 - --------------------------------------------------------------------------------------------------- US Treasury STRIPS Principal 6.5%, 11/15/2026* 2,400,000 1,383,754 - --------------------------------------------------------------------------------------------------- TOTAL US FULL FAITH AND CREDIT OBLIGATIONS (Cost $22,581,796) 24,393,812 - --------------------------------------------------------------------------------------------------- US GOVERNMENT AGENCY OBLIGATIONSo 18.3% - --------------------------------------------------------------------------------------------------- Fannie Mae: - --------------------------------------------------------------------------------------------------- 3.255%, 6/9/2010 580,000 598,379 - --------------------------------------------------------------------------------------------------- 3.25%, 8/12/2010 870,000 901,421 - --------------------------------------------------------------------------------------------------- 4.75%, 11/19/2012 730,000+ 804,027 - --------------------------------------------------------------------------------------------------- 5%, 2/13/2017 2,500,000+ 2,841,022 - --------------------------------------------------------------------------------------------------- 5%, 7/9/2018 500,000+ 487,855 - --------------------------------------------------------------------------------------------------- Federal Home Loan Bank: - --------------------------------------------------------------------------------------------------- 2.625%, 5/20/2011 2,565,000+ 2,624,988 - --------------------------------------------------------------------------------------------------- 3.625%, 10/18/2013 2,000,000 2,106,294 - --------------------------------------------------------------------------------------------------- 5%, 11/17/2017 500,000 574,295 - --------------------------------------------------------------------------------------------------- Freddie Mac: - --------------------------------------------------------------------------------------------------- 6%, 6/15/2011 500,000 554,465 - --------------------------------------------------------------------------------------------------- 5.5%, 8/20/2012 2,610,000+ 2,915,370 - --------------------------------------------------------------------------------------------------- 5%, 7/15/2014 900,000 1,015,163 - --------------------------------------------------------------------------------------------------- TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $14,393,850) 15,423,279 - --------------------------------------------------------------------------------------------------- MORTGAGE-BACKED SECURITIESoo 45.7% - --------------------------------------------------------------------------------------------------- Fannie Maeo: - --------------------------------------------------------------------------------------------------- 4.5%, 12/1/2020 984,015 1,009,978 - --------------------------------------------------------------------------------------------------- 5%, 6/25/2025 2,000,000+ 1,996,232 - --------------------------------------------------------------------------------------------------- 4.841%, 11/1/2034# 1,075,007 1,074,852 - --------------------------------------------------------------------------------------------------- 4.737%, 8/1/2035# 1,298,779 1,296,274 - ---------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 9. 8 Portfolio of Investments December 31, 2008
PRINCIPAL AMOUNT OR SHARES VALUE Fannie Mae: (continued) - ------------------------------------------------------------------------------------------------------- 5.5%, 2/1/2036 $ 1,983,750 $ 2,036,217 - ------------------------------------------------------------------------------------------------------- 5.356%, 4/1/2036# 814,154 830,420 - ------------------------------------------------------------------------------------------------------- 6.047%, 4/1/2036# 1,296,704 1,328,454 - ------------------------------------------------------------------------------------------------------- 5.959%, 8/1/2036# 668,034 683,885 - ------------------------------------------------------------------------------------------------------- 5.82%, 9/1/2037# 972,667 999,044 - ------------------------------------------------------------------------------------------------------- 6.5%, 9/1/2037 2,022,594 2,071,945 - ------------------------------------------------------------------------------------------------------- 6.5%, 12/1/2037 3,570,489+ 3,713,108 - ------------------------------------------------------------------------------------------------------- 6.5%, TBA 1/2009 3,000,000 3,115,782 - ------------------------------------------------------------------------------------------------------- Freddie Maco: - ------------------------------------------------------------------------------------------------------- 6.161%, 8/1/2036# 779,970 791,849 - ------------------------------------------------------------------------------------------------------- 6.109%, 12/1/2036# 1,521,409 1,566,099 - ------------------------------------------------------------------------------------------------------- Freddie Mac Goldo: - ------------------------------------------------------------------------------------------------------- 5%, 5/1/2018 1,377,928 1,422,680 - ------------------------------------------------------------------------------------------------------- 5.5%, 10/1/2018 1,196,107 1,237,400 - ------------------------------------------------------------------------------------------------------- 7%, 4/1/2038 386,101 400,985 - ------------------------------------------------------------------------------------------------------- 6%, TBA 1/2009 1,000,000 1,030,156 - ------------------------------------------------------------------------------------------------------- 4.5%, TBA 1/2009 3,000,000 3,067,500 - ------------------------------------------------------------------------------------------------------- 5.5%, TBA 1/2009 3,250,000 3,326,680 - ------------------------------------------------------------------------------------------------------- 5.5%, TBA 1/2009 2,800,000 2,882,687 - ------------------------------------------------------------------------------------------------------- Ginnie Mae: - ------------------------------------------------------------------------------------------------------- 5%, 5/20/2029 440,232 444,248 - ------------------------------------------------------------------------------------------------------- 5.5%, 10/15/2035 1,597,777 1,650,071 - ------------------------------------------------------------------------------------------------------- Small Business Administration 5.199%, 8/10/2012 493,280 501,515 - ------------------------------------------------------------------------------------------------------- TOTAL MORTGAGE-BACKED SECURITIES (Cost $37,834,163) 38,478,061 - ------------------------------------------------------------------------------------------------------- SHORT TERM HOLDINGS 22.2% - ------------------------------------------------------------------------------------------------------- Federal Home Loan Bank 0.28%, 3/25/2009 2,500,000+ 2,499,745 - ------------------------------------------------------------------------------------------------------- US Treasury Bill 0.50%, 10/22/2009 2,000,000 1,994,742 - ------------------------------------------------------------------------------------------------------- US Treasury Note 3.5%, 8/15/2009 1,500,000 1,529,825 - ------------------------------------------------------------------------------------------------------- SSgA U.S. Treasury Money Market Fund 12,673,821 shs. 12,673,821 - ------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM HOLDINGS (Cost $18,645,168) 18,698,133 - ------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $93,454,977) 115.1% 96,993,285 - ------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES (15.1)% (12,732,996) - ------------------------------------------------------------------------------------------------------- NET ASSETS 100.0% $ 84,260,289 =======================================================================================================
- ---------- * STRIPS (Separate Trading of Registered Interest and Principal of Securities) Principal is purchased at a discount, receives no interest and receives a single payment at maturity. o Securities issued by these agencies are neither guaranteed nor issued by the United States Government. oo Investments in mortgage-backed securities are subject to principal paydowns. As a result of prepayments from refinancing or satisfaction of the underlying mortgage instruments, the average life may be less than the original maturity. This in turn may impact the ultimate yield realized from these investments. # Floating rate security, the interest rate is reset periodically. The interest rate disclosed reflects the rate in effect at December 31, 2008. + At December 31, 2008, these securities with a total value of $24,007,650 were held as collateral for the TBA securities. TBA--To be announced. - ---------- See Notes to Financial Statements. 9 Statement of Assets and Liabilities December 31, 2008 ASSETS: - ------------------------------------------------------------------------------- Investments, at value: - ------------------------------------------------------------------------------- US Full Faith and Credit Obligations (cost $22,581,796) $ 24,393,812 - ------------------------------------------------------------------------------- US Government Agency Obligations (cost $14,393,850) 15,423,279 - ------------------------------------------------------------------------------- Mortgage-Backed Securities (cost $37,834,163) 38,478,061 - ------------------------------------------------------------------------------- Short-Term Holdings (cost $18,645,168) 18,698,133 - ------------------------------------------------------------------------------- Total investments (cost $93,454,977) 96,993,285 - ------------------------------------------------------------------------------- Cash (including restricted cash of $10,000) 27,916 - ------------------------------------------------------------------------------- Receivable for shares of Beneficial Interest sold 936,132 - ------------------------------------------------------------------------------- Dividends and interest receivable 477,354 - ------------------------------------------------------------------------------- Paydown receivable 39,511 - ------------------------------------------------------------------------------- Expenses prepaid to shareholder service agent 4,816 - ------------------------------------------------------------------------------- Other 2,674 - ------------------------------------------------------------------------------- TOTAL ASSETS 98,481,688 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for securities purchased 13,260,070 - ------------------------------------------------------------------------------- Payable for shares of Beneficial Interest repurchased 781,272 - ------------------------------------------------------------------------------- Dividends payable 62,173 - ------------------------------------------------------------------------------- Distribution and service fees (12b-1) payable 37,937 - ------------------------------------------------------------------------------- Management fees payable 35,224 - ------------------------------------------------------------------------------- Accrued expenses and other 44,723 - ------------------------------------------------------------------------------- TOTAL LIABILITIES 14,221,399 - ------------------------------------------------------------------------------- NET ASSETS $ 84,260,289 =============================================================================== COMPOSITION OF NET ASSETS: - ------------------------------------------------------------------------------- Shares of Beneficial Interest, at par ($0.001 par value; unlimited shares authorized; 11,470,030 shares outstanding): - ------------------------------------------------------------------------------- Class A $ 6,702 - ------------------------------------------------------------------------------- Class B 1,215 - ------------------------------------------------------------------------------- Class C 2,944 - ------------------------------------------------------------------------------- Class R 609 - ------------------------------------------------------------------------------- Additional paid-in capital 87,269,498 - ------------------------------------------------------------------------------- Dividends in excess of net investment income (Note 7) (21,148) - ------------------------------------------------------------------------------- Accumulated net realized loss (Note 7) (6,537,839) - ------------------------------------------------------------------------------- Net unrealized appreciation of investments 3,538,308 - ------------------------------------------------------------------------------- NET ASSETS $ 84,260,289 =============================================================================== NET ASSET VALUE PER SHARE: - ------------------------------------------------------------------------------- CLASS A ($49,207,829 / 6,702,682 shares) $ 7.34 - ------------------------------------------------------------------------------- CLASS B ($8,941,291 / 1,215,366 shares) $ 7.36 - ------------------------------------------------------------------------------- CLASS C ($21,645,636 / 2,943,964 shares) $ 7.35 - ------------------------------------------------------------------------------- CLASS R ($4,465,533 / 608,018 shares) $ 7.34 - ------------------------------------------------------------------------------- - ---------- See Notes to Financial Statements. 10 Statement of Operations For the Year Ended December 31, 2008 INVESTMENT INCOME: - ------------------------------------------------------------------------------- Interest $ 2,934,730 - ------------------------------------------------------------------------------- Dividends 332 - ------------------------------------------------------------------------------- Other 244 - ------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 2,935,306 - ------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------------- Distribution and service (12b-1) fees 371,653 - ------------------------------------------------------------------------------- Management fee 355,918 - ------------------------------------------------------------------------------- Shareholder account services 334,511 - ------------------------------------------------------------------------------- Registration 65,833 - ------------------------------------------------------------------------------- Auditing and legal fees 39,360 - ------------------------------------------------------------------------------- Custody and related services 31,533 - ------------------------------------------------------------------------------- Shareholder reports and communications 23,939 - ------------------------------------------------------------------------------- Trustees' fees and expenses 5,509 - ------------------------------------------------------------------------------- Miscellaneous 8,624 - ------------------------------------------------------------------------------- TOTAL EXPENSES 1,236,880 - ------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,698,426 - ------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: - ------------------------------------------------------------------------------- Net realized gain on investments 1,857,879 - ------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 2,454,089 - ------------------------------------------------------------------------------- NET GAIN ON INVESTMENTS 4,311,968 - ------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS $ 6,010,394 =============================================================================== - ---------- See Notes to Financial Statements. 11 Statements of Changes In Net Assets
YEAR ENDED DECEMBER 31, ---------------------------- 2008 2007 - ------------------------------------------------------------------------------------------------------------------- OPERATIONS: - ------------------------------------------------------------------------------------------------------------------- Net investment income $ 1,698,426 $ 2,066,771 - ------------------------------------------------------------------------------------------------------------------- Net realized gain on investments 1,857,879 57,571 - ------------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 2,454,089 1,091,242 - ------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 6,010,394 3,215,584 - ------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: - ------------------------------------------------------------------------------------------------------------------- Net investment income: - ------------------------------------------------------------------------------------------------------------------- Class A (1,132,757) (1,382,704) - ------------------------------------------------------------------------------------------------------------------- Class B (148,122) (181,998) - ------------------------------------------------------------------------------------------------------------------- Class C (234,492) (121,185) - ------------------------------------------------------------------------------------------------------------------- Class D (109,184) (321,812) - ------------------------------------------------------------------------------------------------------------------- Class R (73,871) (51,517) - ------------------------------------------------------------------------------------------------------------------- Total (1,698,426) (2,059,216) - ------------------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income - ------------------------------------------------------------------------------------------------------------------- Class A (120,687) -- - ------------------------------------------------------------------------------------------------------------------- Class B (15,782) -- - ------------------------------------------------------------------------------------------------------------------- Class C (24,984) -- - ------------------------------------------------------------------------------------------------------------------- Class D (11,633) -- - ------------------------------------------------------------------------------------------------------------------- Class R (7,870) -- - ------------------------------------------------------------------------------------------------------------------- Total (180,956) -- - ------------------------------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS (1,879,382) (2,059,216) - ------------------------------------------------------------------------------------------------------------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST: - ------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 14,518,267 6,212,172 - ------------------------------------------------------------------------------------------------------------------- Investment of distributions 1,624,673 1,714,738 - ------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 39,761,476 6,781,291 - ------------------------------------------------------------------------------------------------------------------- Total 55,904,416 14,708,201 - ------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (26,915,633) (16,229,260) - ------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (6,378,414) (5,688,660) - ------------------------------------------------------------------------------------------------------------------- Total (33,294,047) (21,917,920) - ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST 22,610,369 (7,209,719) - ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 26,741,381 (6,053,351) - ------------------------------------------------------------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------------------------------------------------------------- Beginning of year 57,518,908 63,572,259 - ------------------------------------------------------------------------------------------------------------------- END OF YEAR (net of dividends in excess of net investment income of $21,148 and $24,156, respectively) $ 84,260,289 $ 57,518,908 ===================================================================================================================
- ---------- See Notes to Financial Statements. 12 Notes to Financial Statements 1. ORGANIZATION AND MULTIPLE CLASSES OF SHARES -- Seligman U.S. Government Securities Fund (the "Fund") is a series of Seligman High Income Fund Series (the "Series"), which is registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end diversified management investment company (Note 11). The Fund offers the following four classes of shares: Class A shares are sold with an initial sales charge of up to 4.5% (4.75% prior to January 7, 2008) and are subject to a continuing service fee of up to 0.25% on an annual basis. Class A shares purchased in an amount of $1,000,000 or more are sold without an initial sales charge but are subject to a contingent deferred sales charge ("CDSC") of 1% on redemptions made within 18 months of purchase. Effective January 7, 2008, eligible employee benefit plans that have at least $2,000,000 in plan assets may purchase Class A shares at net asset value, but in the event of a plan termination, will be subject to a CDSC of 1% on redemption of shares purchased within 18 months prior to plan termination. Class B shares are sold without an initial sales charge but are subject to a distribution fee of 0.75% and a service fee of up to 0.25% on an annual basis, and a CDSC, if applicable, of 5% on redemptions in the first year of purchase, declining to 1% in the sixth year and 0% thereafter. Class B shares will automatically convert to Class A shares approximately eight years after their date of purchase. If Class B shares of the Fund are exchanged for Class B shares of another Seligman mutual fund, the holding period of the shares exchanged will be added to the holding period of the shares acquired, both for determining the applicable CDSC and the conversion of Class B shares to Class A shares. Class C shares are sold without an initial sales charge but are subject to a distribution fee of up to 0.75% and a service fee of up to 0.25% on an annual basis, and a CDSC, if applicable, of 1% imposed on redemptions made within one year of purchase. The Board of Trustees of the Series approved the automatic conversion of all of the Fund's outstanding Class D shares to Class C shares at their relative net asset values. The conversion was implemented on May 16, 2008. Effective at the close of business on May 16, 2008, the Fund no longer offers Class D shares. The conversion did not affect individual shareholder account values. Class R shares are offered to certain employee benefit plans and are not available to all investors. They are sold without an initial sales charge, but are subject to a distribution fee of up to 0.25% and a service fee of up to 0.25% on an annual basis, and a CDSC, if applicable, of 1% on redemptions made within one year of a plan's initial purchase of Class R shares. All classes of shares represent interests in the same portfolio of investments, have the same rights and are generally identical in all respects except that each class bears its separate distribution and certain other class-specific expenses, and has exclusive voting rights with respect to any matter on which a separate vote of any class is required. 2. SIGNIFICANT ACCOUNTING POLICIES -- The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which require management to make certain estimates and assumptions at the date of the financial statements. Actual results may differ from these estimates. The following summarizes the significant accounting policies of the Fund: A. SECURITY VALUATION AND RISK -- Investments in US Government and Government agency obligations are valued at current market values or, in their absence, at fair values determined in accordance with procedures approved by the trustees. Securities traded on an exchange are valued at last sales prices or, in their absence and in the case of over-the-counter securities, at the mean of bid and asked prices. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value or the price that may be realized upon the actual sale of the security. Short-term holdings maturing in 60 days or less are valued at current market quotations or amortized cost if RiverSource Investments, LLC ("RiverSource" or the "Manager") believes it approximates fair value. Short-term holdings that mature in more than 60 days are valued at current market quotations until the 13 Notes to Financial Statements 60th day prior to maturity and are then valued as described above for securities maturing in 60 days or less. Investments in money market funds are valued at net asset value. On January 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements." SFAS 157 establishes a three-tier hierarchy to classify the assumptions, referred to as inputs, used in valuation techniques (as described above) to measure fair value of the Fund's investments. These inputs are summarized in three broad levels: Level 1 - quoted prices in active markets for identical investments; Level 2 - other significant observable inputs (including quoted prices in inactive markets or for similar investments, interest rates, prepayment speeds, credit risk, etc.); and Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining fair value) (Note 3). Observable inputs are those based on market data obtained from sources independent of the Fund, and unobservable inputs reflect the Fund's own assumptions based on the best information available. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. US government securities are subject to interest rate risk, prepayment risk, credit risk and market risk. Securities that are not guaranteed by the US Government may have increased credit risk, including, but not limited to, the risk of non-payment of principal or interest. B. SECURITIES PURCHASED AND SOLD ON A TBA BASIS -- The Fund may purchase or sell securities (typically mortgage-backed securities) on a to-be-announced (TBA) basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Unsettled TBA commitments are valued at fair value in accordance with the procedures for security valuation described above. The Fund segregates securities as collateral for its obligations to purchase TBA mortgage securities. C. MORTGAGE DOLLAR ROLLS -- The Fund may enter into mortgage dollar roll transactions using TBAs in which the Fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Each mortgage dollar roll is treated as a sale and purchase transaction, with any gain or loss recognized at the time of each sale. The Fund may be exposed to market or credit risk if the price of the security changes unfavorably or the counterparty fails to perform under the terms of the agreement. D. RESTRICTED CASH -- Restricted cash represents deposits that are being held by banks as collateral for letters of credit issued in connection with the Fund's insurance policies. E. MULTIPLE CLASS ALLOCATIONS -- All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based upon the relative value of shares of each class. Class-specific expenses, which include distribution and service (12b-1) fees and any other items that are specifically attributable to a particular class, are charged directly to such class. For the year ended December 31, 2008, distribution and service (12b-1) fees were the only class-specific expenses. F. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Investment transactions are recorded on trade dates. Identified cost of investments sold is used for both financial reporting and federal income tax purposes. Interest income is recorded on an accrual basis. The Fund amortizes premiums and discounts on purchases of portfolio securities for financial reporting purposes. G. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and other distributions to shareholders are recorded on ex-dividend dates. H. TAXES -- There is no provision for federal income tax. The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all taxable net income and net realized gain. Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," requires the Fund to measure and recognize in its financial statements the benefit of a tax position taken (or expected to be 14 Notes to Financial Statements taken) on an income tax return if such position will more likely than not be sustained upon examination based on the technical merits of the position. The Fund files income tax returns in the US Federal jurisdiction, as well as the New York State and New York City jurisdictions. Based upon its review of tax positions for the Fund's open tax years of 2005-2008 in these jurisdictions, the Fund has determined that FIN 48 did not have a material impact on the Fund's financial statements for the year ended December 31, 2008. 3. FAIR VALUE MEASUREMENTS -- A summary of the value of the Fund's investments as of December 31, 2008, based on the level of inputs used in accordance with SFAS 157 (Note 2a), is as follows:
VALUATION INPUTS VALUE - ------------------------------------------------------------------------------------------------------------- Level 1 - Quoted Prices in Active Markets for Identical Investments $ 12,673,821 - ------------------------------------------------------------------------------------------------------------- Level 2 - Other Significant Observable Inputs 84,319,464 - ------------------------------------------------------------------------------------------------------------- Level 3 - Significant Unobservable Inputs -- - ------------------------------------------------------------------------------------------------------------- Total $ 96,993,285 =============================================================================================================
4. MANAGEMENT AND DISTRIBUTION SERVICES, AND OTHER RELATED-PARTY TRANSACTIONS -- A. MANAGEMENT AND ADMINISTRATIVE SERVICES -- On November 7, 2008, RiverSource, investment manager to the RiverSource complex of funds, and a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise"), announced the closing of its acquisition (the "Acquisition") of J. & W. Seligman & Co. Incorporated ("JWS"). With the Acquisition completed and shareholders of the Fund having previously approved (at a Special Meeting held earlier in November 2008) a new Investment Management Services Agreement between RiverSource and the Fund, RiverSource is the new investment manager of the Fund effective November 7, 2008. The Manager receives a fee (and, prior to November 7, 2008, JWS received a fee), calculated daily and payable monthly, equal to 0.50% per annum of the Fund's average daily net assets. For the year ended December 31, 2008, RiverSource received $61,258 of such fee and the balance was paid to JWS. Under an Administrative Services Agreement, effective November 7, 2008, Ameriprise administers certain aspects of the Fund's business and other affairs at no cost. Ameriprise provides the Fund with office space, and certain administrative and other services and executive and other personnel as are necessary for Fund operations. Ameriprise pays all of the compensation of Board members of the Fund who are employees or consultants of RiverSource and of the officers and other personnel of the Fund. Ameriprise reserves the right to seek Board approval to increase the fees payable by the Fund under the Administrative Services Agreement. However, Ameriprise anticipates that any such increase in fees would be offset by corresponding decreases in advisory fees under the Investment Management Services Agreement. If an increase in fees under the Administrative Services Agreement would not be offset by corresponding decreases in advisory fees, the Fund will inform shareholders prior to the effectiveness of such increase. Prior to November 7, 2008, administrative services were provided to the Fund by JWS as part of its former management agreement with the Fund. B. DISTRIBUTION SERVICES -- For the year ended December 31, 2008, RiverSource Fund Distributors, Inc. (formerly Seligman Advisors, Inc.) (the "Distributor"), agent for the distribution of the Fund's shares and an affiliate of the Manager, received commissions and concessions of $10,293 from sales of Class A shares. Commissions of $60,052 were also paid to dealers for sales of Class A shares. The Fund has an Administration, Shareholder Services and Distribution Plan (the "Plan") with respect to distribution of its shares. Under the Plan, with respect to Class A shares, service organizations can enter into agreements with the Distributor and receive a continuing fee of up to 0.25% on an annual basis, payable quarterly, of the average daily net assets of the Class A shares attributable to the particular service organizations for providing personal services and/or the maintenance of shareholder accounts. The Distributor charges such fees to the Fund pursuant to the Plan. For the year ended December 31, 2008, fees incurred under the Plan aggregated $103,242, or 0.25% per annum of the average daily net assets of Class A shares. 15 Notes to Financial Statements Under the Plan, with respect to Class B shares, Class C shares, Class D shares (only through May 16, 2008), and Class R shares, service organizations can enter into agreements with the Distributor and receive a continuing fee for providing personal services and/or the maintenance of shareholder accounts of up to 0.25% on an annual basis of the average daily net assets of the Class B, Class C, Class D, and Class R shares for which the organizations are responsible; and, for Class C, Class D, and Class R shares, fees for providing other distribution assistance of up to 0.75% (0.25%, in the case of Class R shares) on an annual basis of such average daily net assets. Such fees are paid monthly by the Fund to the Distributor pursuant to the Plan. For the year ended December 31, 2008, fees incurred under the Plan, equivalent to 1% per annum of the average daily net assets of Class B, Class C, and Class D shares, and 0.50% per annum of average daily net assets of Class R shares amounted to $76,276, $129,748, $46,701, and $15,686, respectively. The Distributor and RiverSource Services, Inc. (formerly Seligman Services, Inc.), also an affiliate of the Manager, are eligible to receive distribution and service (12b-1) fees pursuant to the Plan. For the year ended December 31, 2008, the Distributor and RiverSource Services, Inc. received distribution and service (12b-1) fees of $9,438. The Distributor is entitled to retain any CDSC imposed on certain redemptions of Class A, Class C, Class D and Class R shares. For the year ended December 31, 2008, such charges amounted to $9,328. The Distributor has sold its rights to third parties to collect any CDSC imposed on redemptions of Class B shares. C. TRANSFER AGENT AND SHAREHOLDER SERVICES -- For the year ended December 31, 2008, Seligman Data Corp., which is owned by certain associated investment companies, charged the Fund at cost $334,511 for shareholder account services in accordance with a methodology approved by the Fund's trustees. Costs of Seligman Data Corp. directly attributable to the Fund were charged to the Fund. The remaining charges were allocated to the Fund by Seligman Data Corp. pursuant to a formula based on the Fund's net assets, shareholder transaction volume and number of shareholder accounts. The Series and certain other associated investment companies (together, the "Guarantors") have severally but not jointly guaranteed the performance and observance of all the terms and conditions of a lease entered into by Seligman Data Corp., including the payment of rent by Seligman Data Corp. (the "Guaranty"). The lease and the related Guaranty expire in January 2019. The obligation of the Series to pay any amount due under the Guaranty is limited to a specified percentage of the full amount, which generally is based on the Series' percentage of the expenses billed by Seligman Data Corp. to all Guarantors in the preceding calendar quarter. As of December 31, 2008, the Series' potential obligation under the Guaranty is $527,500. As of December 31, 2008, no event has occurred which would result in the Series becoming liable to make any payment under the Guaranty. The Fund would bear a portion of any payments made by the Series under the Guaranty. A portion of the rent paid by Seligman Data Corp. is charged to the Fund as part of Seligman Data Corp.'s shareholder account services cost. The Series' Board has approved RiverSource Service Corporation ("RSC") as the Fund's new transfer and shareholder service agent, and the termination of the Fund's relationship with Seligman Data Corp., effective on or about May 9, 2009. RSC is an affiliate of RiverSource. The fees and expenses expected to be charged to the Fund by RSC are generally lower than the fees and expenses charged by Seligman Data Corp. Nevertheless, as a result of the termination of the relationship with Seligman Data Corp., the Fund will incur certain non-recurring charges, including charges relating to Seligman Data Corp.'s leases, that would in the aggregate approximate 0.16% of the Fund's net assets as of January 23, 2009 (the "Non-Recurring Charges"). These Non-Recurring Charges will be incurred over a period of several months beginning January 28, 2009. Fund shareholders would bear their proportionate share of the Fund's expenses, including the Non-Recurring Charges. D. TRUSTEES' FEES AND EXPENSES -- Trustees' fees and expenses includes the compensation of Board members who are not employees of RiverSource and the Fund's proportionate share of certain expenses of a company providing limited administrative services to the Fund and the other Seligman 16 Notes to Financial Statements and RiverSource Funds. These expenses include boardroom and office expense, employee compensation, employee health and retirement benefits and certain other expenses. The Series has a compensation arrangement under which trustees who receive fees may elect to defer receiving such fees. Trustees may elect to have their deferred fees accrue interest or earn a return based on the performance of the Fund or other funds in the Seligman and RiverSource Groups of Investment Companies. The cost of such fees and earnings/losses accrued thereon is included in trustees' fees and expenses, and the accumulated balance thereof at December 31, 2008, of $867 is included in accrued expenses and other liabilities. Deferred fees and related accrued earnings are not deductible by the Fund for federal income tax purposes until such amounts are paid. Certain officers and trustees of the Series are officers or directors of the Manager, Ameriprise, the Distributor, RiverSource Services, Inc., RSC, and/or Seligman Data Corp. 5. COMMITTED LINE OF CREDIT -- The Fund is a participant in a joint $200 million committed line of credit that is shared by substantially all open-end funds in the Seligman Group of Investment Companies. The trustees have currently limited the Fund's borrowings to 10% of its net assets. Borrowings pursuant to the credit facility are subject to interest at a rate equal to the overnight federal funds rate plus 0.50%. The Fund incurs a commitment fee of 0.12% per annum on its share of the unused portion of the credit facility. The credit facility may be drawn upon only for temporary purposes and is subject to certain other customary restrictions. The credit facility commitment expires in June 2009, but is renewable annually with the consent of the participating banks. For the year ended December 31, 2008, the Fund did not borrow from the credit facility. 6. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio securities, excluding short-term investments, for the year ended December 31, 2008, amounted to $262,156,724 and $239,615,414, respectively. 7. FEDERAL TAX INFORMATION -- Certain components of income, expense and realized capital gain and loss are recognized at different times or have a different character for federal income tax purposes and for financial reporting purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Fund. As a result of the differences described above, the treatment for financial reporting purposes of distributions made during the year from net investment income or net realized gains may differ from their treatment for federal income tax purposes. Further, the cost of investments also can differ for federal income tax purposes. At December 31, 2008, the cost of investments for federal income tax purposes was $93,517,606. The tax basis cost was greater than the cost for financial reporting purposes due to the deferral of losses on wash sales of $41,407 and the amortization of premium for financial reporting purposes of $21,222. At December 31, 2008, the tax basis components of accumulated losses were as follows: Gross unrealized appreciation of portfolio securities $ 3,547,810 -------------------------------------------------------------------------- Gross unrealized depreciation of portfolio securities (72,131) -------------------------------------------------------------------------- Net unrealized appreciation of portfolio securities 3,475,679 -------------------------------------------------------------------------- Capital loss carryforwards (6,496,525) -------------------------------------------------------------------------- Undistributed ordinary income 866 -------------------------------------------------------------------------- Total accumulated losses $ (3,019,980) -------------------------------------------------------------------------- 17 Notes to Financial Statements At December 31, 2008, the Fund had net capital loss carryforwards for federal income tax purposes of $6,496,525, which are available for offset against future taxable net capital gains, with $2,553,158 expiring in 2012, $1,912,635 expiring in 2013, and $2,030,732 expiring in 2014. Accordingly, no capital gain distributions are expected to be paid to shareholders until net capital gains have been realized in excess of the available capital loss carryforwards. There can be no assurance that the Fund will be able to utilize all of these capital loss carryforwards before they expire. During the year ended December 31, 2008, the Fund utilized $1,655,259 or prior years' capital loss carryforwards to offset current year's net capital gains. For the years ended December 31, 2008 and 2007, all distributions to shareholders were ordinary income for tax purposes. 8. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST -- Transactions in Shares of Beneficial Interest were as follows:
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2008 2007 --------------------------------------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 909,798 $ 6,426,560 330,169 $ 2,250,085 - ---------------------------------------------------------------------------------------------------------------------- Investment of distributions 150,292 1,054,586 164,842 1,120,783 - ---------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 3,237,683 22,768,697 467,532 3,201,817 - ---------------------------------------------------------------------------------------------------------------------- Converted from Class B* 288,533 2,029,969 204,624 1,390,068 - ---------------------------------------------------------------------------------------------------------------------- Total 4,586,306 32,279,812 1,167,167 7,962,753 - ---------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (2,604,040) (18,231,134) (1,329,688) (9,070,085) - ---------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (510,632) (3,577,014) (584,026) (3,980,147) - ---------------------------------------------------------------------------------------------------------------------- Total (3,114,672) (21,808,148) (1,913,714) (13,050,232) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) 1,471,634 $ 10,471,664 (746,547) $ (5,087,479) ====================================================================================================================== CLASS B SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 144,180 $ 1,020,768 19,111 $ 130,412 - ---------------------------------------------------------------------------------------------------------------------- Investment of distributions 20,128 141,355 20,939 142,602 - ---------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 958,803 6,752,264 131,564 901,715 - ---------------------------------------------------------------------------------------------------------------------- Total 1,123,111 7,914,387 171,614 1,174,729 - ---------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (199,495) (1,408,901) (334,128) (2,280,744) - ---------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (97,394) (685,996) (73,597) (500,718) - ---------------------------------------------------------------------------------------------------------------------- Converted to Class A* (287,798) (2,029,290) (204,103) (1,389,467) - ---------------------------------------------------------------------------------------------------------------------- Total (584,687) (4,124,187) (611,828) (4,170,929) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) 538,424 $ 3,790,200 (440,214) $ (2,996,200) ====================================================================================================================== CLASS C SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 352,507 $ 2,477,941 20,200 $ 138,160 - ---------------------------------------------------------------------------------------------------------------------- Investment of distributions 32,096 225,023 14,063 95,830 - ---------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 1,124,403 7,911,952 98,866 676,141 - ---------------------------------------------------------------------------------------------------------------------- Converted from Class D** 1,722,582 12,075,298 -- -- - ---------------------------------------------------------------------------------------------------------------------- Total 3,231,588 22,690,214 133,129 910,131 - ---------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (575,940) (4,047,977) (98,862) (673,174) - ---------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (272,956) (1,916,690) (86,768) (592,383) - ---------------------------------------------------------------------------------------------------------------------- Total (848,896) (5,964,667) (185,630) (1,265,557) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) 2,382,692 $ 16,725,547 (52,501) $ (355,426) ======================================================================================================================
- ---------- See footnotes on page 19. 18 Notes to Financial Statements
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2008+ 2007 --------------------------------------------------------- CLASS D SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 204,553 $ 1,441,119 327,306 $ 2,233,964 - ---------------------------------------------------------------------------------------------------------------------- Investment of dividends 17,454 122,831 44,836 305,278 - ---------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 315,869 2,231,550 291,266 1,990,662 - ---------------------------------------------------------------------------------------------------------------------- Total 537,876 3,795,500 663,408 4,529,904 - ---------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (321,774) (2,271,590) (521,512) (3,550,798) - ---------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (25,539) (180,119) (90,173) (615,412) - ---------------------------------------------------------------------------------------------------------------------- Converted to Class C** (1,722,581) (12,075,298) -- -- - ---------------------------------------------------------------------------------------------------------------------- Total (2,069,894) (14,527,007) (611,685) (4,166,210) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) (1,532,018) $(10,731,507) 51,723 $ 363,694 ====================================================================================================================== CLASS R SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------- Net proceeds from sales of shares 447,837 $ 3,151,200 214,181 $ 1,458,949 - ---------------------------------------------------------------------------------------------------------------------- Investment of distributions 11,530 80,878 7,386 50,247 - ---------------------------------------------------------------------------------------------------------------------- Exchanged from associated funds 13,679 97,013 1,605 10,955 - ---------------------------------------------------------------------------------------------------------------------- Total 473,046 3,329,091 223,172 1,520,151 - ---------------------------------------------------------------------------------------------------------------------- Cost of shares repurchased (136,565) (956,031) (96,174) (654,459) - ---------------------------------------------------------------------------------------------------------------------- Exchanged into associated funds (2,667) (18,595) -- -- - ---------------------------------------------------------------------------------------------------------------------- Total (139,232) (974,626) (96,174) (654,459) - ---------------------------------------------------------------------------------------------------------------------- Increase 333,814 $ 2,354,465 126,998 $ 865,692 ======================================================================================================================
- ---------- * Automatic conversion of Class B shares to Class A shares approximately eight years after their initial purchase date. The amount of dividends accrued on Class B shares between the last dividend payment date and the conversion date is invested in Class A shares and is included in the conversion from Class B amount. ** Effective May 16, 2008, Class D shares were converted to Class C shares. + January 1, 2008 to May 16, 2008, in the case of Class D shares. 9. OTHER MATTERS -- In late 2003, JWS conducted an extensive internal review concerning mutual fund trading practices. JWS's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies then managed by JWS (the "Seligman Funds"); this arrangement was in the process of being closed down by JWS before September 2003. JWS identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, JWS, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. JWS also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York ("NYAG"). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against JWS and the Distributor relating to frequent trading in the Seligman Funds. JWS responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that JWS had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against JWS, the Distributor, Seligman Data Corp. and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by JWS is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by JWS to the Seligman Funds were excessive. The 19 Notes to Financial Statements NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by JWS and not by the Seligman Funds. If the NYAG obtains injunctive relief, each of JWS, RiverSource and their affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies, including those funds in the RiverSource complex. Neither JWS nor RiverSource believes that the foregoing legal action or other possible actions will have a material adverse impact on JWS, RiverSource or their current and former clients, including the Seligman Funds and other investment companies managed by RiverSource; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. 10. RECENT ACCOUNTING PRONOUNCEMENT -- 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 November 15, 2008. As of December 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. 11. SUBSEQUENT EVENTS -- On January 8, 2009, the Series' Board approved in principle the merger of the Fund into RiverSource Short Duration U.S. Government Fund. The completion of the merger is subject to approval by shareholders of the Fund. It is currently anticipated that proxy materials regarding the merger will be distributed to shareholders of the Fund during the first or second quarter of 2009, and that a special meeting of shareholders to consider such merger will be scheduled for the second quarter of 2009. 20 Financial Highlights The tables below are intended to help you understand each Class's financial performance for the periods presented. Certain information reflects financial results for a single share of Beneficial Interest of a Class that was held throughout the periods shown. Per share amounts are calculated using average shares outstanding during the period. Total return shows the rate that you would have earned (or lost) on an investment in each Class, assuming you reinvested all your dividends and capital gain distributions, if any. Total returns do not reflect any sales charges, fees or transaction costs on your investments or taxes investors may incur on distributions or on the redemption of shares, and are not annualized for periods of less than one year.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- CLASS A 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA: - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 6.95 $ 6.80 $ 6.89 $ 7.10 $ 7.23 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM INVESTMENT OPERATIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 0.18 0.26 0.24 0.20 0.19 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.42 0.15 (0.09) (0.20) (0.11) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 0.60 0.41 0.15 -- 0.08 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.18) (0.26) (0.24) (0.20) (0.19) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income (0.03) -- -- (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (0.21) (0.26) (0.24) (0.21) (0.21) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 7.34 $ 6.95 $ 6.80 $ 6.89 $ 7.10 ==================================================================================================================================== TOTAL RETURN 8.76% 6.10% 2.33% --% 1.09% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (000s omitted) $ 49,208 $ 36,335 $ 40,676 $ 44,402 $ 47,553 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 1.46% 1.52% 1.42% 1.50% 1.31% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 2.62% 3.80% 3.55% 2.90% 2.66% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02% - ------------------------------------------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 25. 21 Financial Highlights
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- CLASS B 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA: - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 6.96 $ 6.82 $ 6.90 $ 7.12 $ 7.25 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM INVESTMENT OPERATIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 0.13 0.21 0.19 0.15 0.14 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.43 0.14 (0.08) (0.21) (0.11) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 0.56 0.35 0.11 (0.06) 0.03 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.13) (0.21) (0.19) (0.15) (0.14) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income (0.03) -- -- (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (0.16) (0.21) (0.19) (0.16) (0.16) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 7.36 $ 6.96 $ 6.82 $ 6.90 $ 7.12 ==================================================================================================================================== TOTAL RETURN 8.08% 5.15% 1.73% (0.88)% 0.34% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (000s omitted) $ 8,941 $ 4,713 $ 7,619 $ 13,986 $ 24,045 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 2.22% 2.28% 2.17% 2.26% 2.06% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 1.86% 3.04% 2.80% 2.14% 1.91% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02% - ------------------------------------------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 25. 22 Financial Highlights
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- CLASS C 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA: - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 6.96 $ 6.82 $ 6.90 $ 7.11 $ 7.25 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM INVESTMENT OPERATIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 0.13 0.21 0.19 0.15 0.14 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.42 0.14 (0.08) (0.20) (0.12) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 0.55 0.35 0.11 (0.05) 0.02 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.13) (0.21) (0.19) (0.15) (0.14) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income (0.03) -- -- (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (0.16) (0.21) (0.19) (0.16) (0.16) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 7.35 $ 6.96 $ 6.82 $ 6.90 $ 7.11 ==================================================================================================================================== TOTAL RETURN 7.94% 5.15% 1.84% (0.74)% 0.20% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (000s omitted) $ 21,646 $ 3,906 $ 4,185 $ 6,016 $ 9,764 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 2.22% 2.28% 2.17% 2.26% 2.06% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 1.86% 3.04% 2.80% 2.14% 1.91% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02% - ------------------------------------------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 25. 23 Financial Highlights
1/1/08 YEAR ENDED DECEMBER 31, TO ----------------------------------------- CLASS D 5/16/08* 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA: - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 6.96 $ 6.82 $ 6.90 $ 7.11 $ 7.24 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM INVESTMENT OPERATIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 0.07 0.21 0.19 0.15 0.14 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.05 0.14 (0.08) (0.20) (0.11) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 0.12 0.35 0.11 (0.05) 0.03 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.07) (0.21) (0.19) (0.15) (0.14) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income -- -- -- (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (0.07) (0.21) (0.19) (0.16) (0.16) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 7.01 $ 6.96 $ 6.82 $ 6.90 $ 7.11 ==================================================================================================================================== TOTAL RETURN 1.70% 5.15% 1.70% (0.74)% 0.34% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (000s omitted) -- $10,660 $ 10,091 $ 10,992 $ 11,556 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 2.25%+ 2.28% 2.17% 2.26% 2.06% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 2.59%+ 3.04% 2.80% 2.14% 1.91% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 327.26%o 204.04% 347.09% 286.60% 133.02% - ------------------------------------------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 25. 24 Financial Highlights
YEAR ENDED DECEMBER 31, ------------------------------------------------------- CLASS R 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA: - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 6.95 $ 6.81 $ 6.89 $ 7.10 $ 7.23 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM INVESTMENT OPERATIONS: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 0.17 0.24 0.22 0.18 0.17 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 0.41 0.14 (0.08) (0.20) (0.11) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS 0.58 0.38 0.14 (0.02) 0.06 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income (0.17) (0.24) (0.22) (0.18) (0.17) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income (0.02) -- -- (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (0.19) (0.24) (0.22) (0.19) (0.19) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 7.34 $ 6.95 $ 6.81 $ 6.89 $ 7.10 ==================================================================================================================================== TOTAL RETURN 8.50% 5.63% 2.21% (0.25)% 0.82% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (000s omitted) $ 4,466 $ 1,905 $ 1,002 $ 671 $ 440 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 1.72% 1.78% 1.67% 1.76% 1.56% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets 2.36% 3.54% 3.30% 2.64% 2.41% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 327.26% 204.04% 347.09% 286.60% 133.02% - ------------------------------------------------------------------------------------------------------------------------------------
- --------- * Date of conversion to Class C shares. + Annualized. o Computed at the Fund level for the year ended December 31, 2008. See Notes to Financial Statements. 25 Report of Independent Registered Public Accounting Firm THE TRUSTEES AND SHAREHOLDERS OF SELIGMAN U.S. GOVERNMENT SECURITIES FUND OF SELIGMAN HIGH INCOME FUND SERIES: We have audited the accompanying statement of assets and liabilities of Seligman U.S. Government Securities Fund, one of the funds constituting Seligman High Income Fund Series (the "Fund"), including the portfolio of investments, as of December 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Seligman U.S. Government Securities Fund of Seligman High Income Fund Series as of December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 27, 2009 26 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement BACKGROUND On July 7, 2008, RiverSource Investments, LLC ("RiverSource"), a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise"), entered into a stock purchase agreement with the shareholders of J. & W. Seligman & Co. Incorporated ("Seligman") under which RiverSource would acquire all of the outstanding capital stock of Seligman (the "Transaction"). The consummation of the Transaction resulted in the automatic termination of the Fund's management agreement with Seligman (the "Seligman Management Agreement"). In anticipation of the termination of the Seligman Management Agreement, at a meeting held on July 29, 2008, the trustees of Seligman High Income Fund Series then serving, of which the Fund is a separate series, unanimously approved an investment management agreement between the Fund and RiverSource (the "Proposed Advisory Agreement"). At the special meeting of shareholders of the Fund held on November 3, 2008, the shareholders approved the Proposed Advisory Agreement. The Transaction closed on November 7, 2008, and upon the closing, RiverSource became the investment advisor to the Fund. BOARD CONSIDERATIONS Prior to their approval of the Proposed Advisory Agreement, the trustees requested and evaluated extensive materials from, and were provided materials and information about the Transaction and matters related to the proposed approval by, Seligman, RiverSource and Ameriprise. In consultation with experienced counsel, who advised on the legal standards for consideration by the trustees, the trustees reviewed the Proposed Advisory Agreement with RiverSource. The independent trustees also discussed the proposed approval with counsel in private sessions. At their meetings on June 12, 2008, July 17, 2008 and July 29, 2008, the trustees discussed the Transaction with Seligman, and the Transaction and RiverSource's plans and intentions regarding the Fund with representatives of Ameriprise and RiverSource. The trustees considered all factors they believed relevant, including the specific matters discussed below. In their deliberations, the trustees did not identify any particular information that was all-important or controlling, and trustees may have attributed different weights to the various factors. The trustees determined that the selection of RiverSource to advise the Fund, and the overall arrangements between the Fund and RiverSource as provided in the Proposed Advisory Agreement, including the proposed advisory fee and the related administration arrangements between the Fund and Ameriprise, were fair and reasonable in light of the services to be performed, expenses incurred and such other matters as the trustees considered relevant. The material factors and conclusions that formed the basis for the trustees' determination included, in addition, the factors discussed in further detail below: (i) the reputation, financial strength and resources of RiverSource, and its parent, Ameriprise; (ii) the capabilities of RiverSource with respect to compliance and its regulatory histories; (iii) an assessment of RiverSource's compliance system by the Fund's Chief Compliance Officer; (iv) that RiverSource and Ameriprise assured the trustees that following the Transaction there will not be any diminution in the nature, quality and extent of services provided to the Fund or its shareholders; (v) that within the past year the trustees had performed a full annual review of the Seligman Management Agreement, as required by the Investment Company Act of 1940 ("1940 Act"), for the Fund and had determined that they were satisfied with the nature, extent and quality of services provided thereunder and that the management fee rate for the Fund was satisfactory; (vi) the potential benefits to the Fund of the combination of RiverSource and Seligman to the Fund, including: greater resources to attract and retain high quality investment personnel; greater depth and breadth of investment management capabilities, including a new team of portfolio managers for the Fund; a 27 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement continued high level of service to the Fund; and the potential for realization of economies of scale over time since the Fund will be part of a much larger fund complex; (vii) the fact that the Fund's total advisory and administrative fees would not increase by virtue of the Proposed Advisory Agreement, but would remain the same; (viii) that RiverSource, and not the Fund, would bear the costs of obtaining all approvals of the Proposed Advisory Agreement; (ix) the qualifications of the personnel of RiverSource and Ameriprise that would provide advisory and administrative services to the Fund; (x) the terms and conditions of the Proposed Advisory Agreement, including the trustees' review of differences from the Seligman Management Agreement; (xi) that RiverSource and Ameriprise have agreed to refrain from imposing or seeking to impose, for a period of two years after the closing of the Transaction, any "unfair burden" (within the meaning of Section 15(f) of 1940 Act) on the Fund; and (xii) that certain members of RiverSource's management have a significant amount of experience integrating other fund families. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED In considering the nature, extent and quality of the services to be provided under the Proposed Advisory Agreement, the trustees of the Fund considered, among other things, the expected impact of the Transaction on the operations of the Fund, the information provided by RiverSource with respect to the nature, extent and quality of services to be provided by it, RiverSource's compliance programs and compliance records, and presentations provided on the quality of RiverSource's investment research capabilities and the other resources it and Ameriprise have indicated that they would dedicate to performing services for the Fund. The trustees noted the professional experience and qualifications of the new portfolio management team proposed for the Fund and other senior personnel of RiverSource. The trustees considered a report by, the Fund's Chief Compliance Officer, assessing RiverSource's compliance system, which was followed by a private session with the Fund's Chief Compliance Officer. They also discussed RiverSource's compliance system with the Chief Compliance Officer for the funds managed by RiverSource. The trustees also considered RiverSource's presentation on the selection of brokers and dealers for portfolio transactions. As administrative services (provided under the Seligman Management Agreement) would be provided to the Fund by Ameriprise at no additional cost under a new administrative services agreement rather than pursuant to the Proposed Advisory Agreement, the trustees considered Ameriprise's capability to provide such administrative services as well as RiverSource's and Ameriprise's roles in coordinating the activities of the Fund's other service providers. The trustees noted that Ameriprise intended to continue Seligman's practice of sub-contracting administrative services provided by Seligman for the Fund to State Street Bank and Trust Company for the foreseeable future. The trustees concluded that, overall, they were satisfied with assurances from RiverSource and Ameriprise as to the expected nature, extent and quality of the services to be provided to the Fund under the Proposed Advisory Agreement and the new administrative services agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY In considering the costs of services to be provided by RiverSource under the Proposed Advisory Agreement, the trustees considered, among other things, the projected pre-tax, pre-distribution expense profitability of RiverSource's proposed relationship with the Fund and discussed the assumptions of RiverSource and the limitations of the information provided. The trustees noted that RiverSource had undertaken to provide 28 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement profitability information in connection with future contract continuances. The trustees also considered RiverSource's financial condition based on information provided by it. The trustees noted that the proposed fee under the Proposed Advisory Agreement was the same as provided under the Seligman Management Agreement. The trustees recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors. In reviewing the projected profitability information, the trustees considered the effect of fall-out benefits on RiverSource's expenses. The trustees concluded that they were satisfied that RiverSource's estimated future profitability from its relationship with the Fund was not excessive. FALL-OUT BENEFITS The trustees reviewed information about RiverSource's practices with respect to allocating portfolio brokerage for brokerage and research services. The trustees also considered that broker-dealer affiliates of RiverSource, including a broker-dealer affiliate of Seligman (which became an affiliate of RiverSource following the closing of the Transaction) will receive 12b-1 fees from the Fund in respect of shares held in certain accounts, and that the Fund's distributor (which also became a subsidiary of RiverSource following the closing of the Transaction) retains a portion of the 12b-1 fees from the Fund and receives a portion of the sales charges on sales or redemptions of certain classes of shares of the Fund. The trustees recognized that RiverSource's profitability would be somewhat lower without these benefits. The trustees noted that RiverSource may derive reputational and other benefits from its association with the Fund. INVESTMENT RESULTS The trustees received and reviewed detailed performance information on the Fund at each regular Board meeting during the year in addition to the information received for the meeting regarding approval of the Proposed Advisory Agreement. The trustees noted that a new portfolio manager was being proposed by RiverSource for the Fund and that it was proposed that the new manager would use an investment process derived from that used with RiverSource Short Duration U.S. Government Bond Fund, modified to comply with the Fund's investment strategy as disclosed in its prospectus. The trustees discussed the portfolio management team, its investment strategy and process and historical performance record with representatives of RiverSource. The trustees reviewed performance information on the Fund covering a wide range of periods, including the first six months of the calendar year, the preceding seven calendar years and annualized one-, three- and five-year rolling periods ending June 30, 2008. The trustees reviewed information comparing the Fund to the Lipper General U.S. Government Funds Average and the Lehman Brothers U.S. Government Bond Index, as well as performance relative to the other funds in the Lipper General U.S. Government Funds Average and to a group of competitor funds selected by Seligman, as well as performance information of RiverSource Short Duration U.S. Government Bond Fund. The trustees noted the performance results of RiverSource fund presented were generally better than that of the Fund, although not for all periods, including the first six months of 2008. The trustees also noted that the RiverSource fund generally trailed its benchmarks for the periods presented. The trustees recognized that it is not possible to predict what effect, if any, consummation of the Transaction would have on the future performance of the Fund. MANAGEMENT FEE AND OTHER EXPENSES The trustees considered the proposed advisory fee rate to be paid by the Fund to RiverSource, which is the same as the management fee rate paid by the Fund under the Seligman Management Agreement. The trustees recognized that it is difficult to make comparisons of advisory and management fees because there are variations in the services that are included in the fees paid by other funds. 29 Matters Relating to the Trustees' Consideration of the Approval of the Investment Management Services Agreement In considering the proposed advisory fee rate, the trustees noted that the management fee rate under the Seligman Management Agreement covers administrative services provided by Seligman, whereas the Proposed Advisory Agreement does not include such services, but that Ameriprise will provide such services to the Fund pursuant to a separate administrative services agreement initially without a fee. The trustees further considered that the administrative fees, since they are not included in an advisory agreement, could be increased without stockholder approval, although RiverSource noted that, at that time, it did not have an intention to seek an increase, and that any such administrative fee increase would require board approval. The trustees also noted RiverSource's and Ameriprise's covenants in the Transaction's stock purchase agreement regarding compliance with Section 15(f) of the 1940 Act. The trustees compared the Fund's proposed advisory fee rate to the rate paid by other funds in the Fund's Lipper category. The Fund's peer group consisted of those funds in the Lipper General U.S. Government Fund category having net assets in a range that more closely corresponds to the net assets of the Fund (the "peer group"). The information showed that the Fund's current effective management fee rate was lower than the average and the median for the funds in the peer group. The trustees also reviewed the Fund's total expense ratio as compared to the fees and expenses of funds within its peer group. In considering the expense ratios of the Fund, the trustees noted that the Fund has elected to have shareholder services provided at cost by Seligman Data Corp. ("SDC"). SDC provides services exclusively to the Seligman Group of Funds, and the trustees believed that the arrangement with SDC has provided the Fund and its shareholders with a consistently high level of service. The trustees noted that RiverSource had previously indicated that no changes to the arrangements with SDC were being proposed at the time by RiverSource. The trustees also noted that the Fund's expense ratio was the highest in the peer group and was considerably higher than the median and the average for the peer group. Seligman noted that costs were somewhat high for the Fund as a result of the Fund's small size relative to the funds in its peer group, a large number of small shareholder accounts due in part to the fact that the Fund is a core fund for many retirement plans. The trustees concluded that the Fund's expense ratio was acceptable in light of the high quality of service that the Fund receives and the other factors considered. ECONOMIES OF SCALE The trustees noted that the management fee schedule for the Fund does not contain breakpoints that reduce the fee rate on assets above specified levels. The trustees recognized that there is no direct relationship between the economies of scale realized by funds and those realized by their investment advisers as assets increase. The trustees do not believe that there is a uniform methodology for establishing breakpoints that give effect to fund-specific economies of scale with respect to services provided by fund advisers. The trustees also observed that in the investment company industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply, and that the advisory agreements for many competitor funds do not have breakpoints at all. The trustees noted that RiverSource had indicated that no changes to the Fund's breakpoint arrangements were proposed to be made at the time. Having taken these factors into account, the trustees concluded that the Fund's breakpoint arrangements were acceptable under the Fund's circumstances. The trustees also recognized that the Fund may benefit from certain economies of scale over time from becoming a part of the larger RiverSource fund complex, based on potential future synergies of operations. 30 Proxy Results Shareholders of Seligman U.S. Government Securities Fund voted on two proposals at a Special Meeting of Shareholders held on November 3, 2008. Shareholders voted in favor of each of the proposals. The description of each proposal and number of shares voted are as follows: PROPOSAL 1 To consider and vote upon the proposed Investment Management Services Agreement with RiverSource Investments, LLC: FOR AGAINST ABSTAIN - -------------------------------------------------------------------------------- 5,257,504.319 242,183.305 198,436.573 - -------------------------------------------------------------------------------- PROPOSAL 2 (combined votes of both Funds in the Series) To elect ten trustees to the Board: FOR WITHHELD - -------------------------------------------------------------------------------- Kathleen Blatz 51,198,749.236 2,437,544.928 - -------------------------------------------------------------------------------- Arne H. Carlson 51,131,650.856 2,504,643.308 - -------------------------------------------------------------------------------- Pamela G. Carlton 51,203,587.404 2,432,706.760 - -------------------------------------------------------------------------------- Patricia M. Flynn 51,212,005.780 2,424,288.384 - -------------------------------------------------------------------------------- Anne P. Jones 51,129,788.135 2,506,506.029 - -------------------------------------------------------------------------------- Jeffrey Laikind 51,183,153.004 2,453,141.160 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 51,247,061.722 2,389,232.442 - -------------------------------------------------------------------------------- Catherine James Paglia 51,200,482.648 2,435,811.516 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 51,166,054.471 2,470,239.693 - -------------------------------------------------------------------------------- William F. Truscott 51,230,947.413 2,405,346.751 - -------------------------------------------------------------------------------- 31 Trustees and Officers Shareholders elect a Board of Trustees that oversees the Fund's operations. In connection with the acquisition of the Fund's prior investment manager, J. & W. Seligman & Co. Incorporated, by RiverSource Investments, LLC, shareholders of the Fund voted at a Special Meeting of Shareholders held on November 3, 2008 to elect 10 members to the Fund's Board. Messrs. Maher and Richie served on the Fund's Board prior to the acquisition and will continue to do so. Each member of the Board oversees 163 portfolios in the fund complex managed by RiverSource Investments, which includes 59 Seligman Funds and 104 RiverSource Funds. The address of each Director is 901 S. Marquette Ave., Minneapolis, MN 55402. Independent Trustees
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS HELD WITH FUND AND OTHER INFORMATION - ------------------------------------------------------------------------------------------------------------------------ KATHLEEN BLATZ (54)1,2,6,7 Attorney. Formerly, Chief Justice, Minnesota Supreme Court, 1998-2006. o Trustee: From November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ ARNE H. CARLSON (74)1,2,3,5,6 Formerly, Chairman, RiverSource Funds, 1999-2006; Governor of Minnesota. o Trustee: From November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ PAMELA G. CARLTON (54)4,6,7 President, Springboard - Partners in Cross Cultural Leadership (consulting o Trustee: From company). November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ PATRICIA M. FLYNN (58)1,3,6 Trustee Professor of Economics and Management, Bentley College. Formerly, Dean, o Trustee: From McCallum Graduate School of Business, Bentley College. November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ ANNE P. JONES (73)1,2,6,7 Attorney and Consultant. o Trustee: From November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ JEFFREY LAIKIND, CFA (73)4,6,7 Director, American Progressive Insurance. Formerly, Managing Director, Shikiar o Director: From Asset Management. November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ STEPHEN R. LEWIS, JR. (69)1,2,3,4,6 President Emeritus and Professor of Economics, Carleton College; Director, o Trustee and Chairman Valmont Industries, Inc. (manufactures irrigation systems). of the Board: From November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ JOHN F. MAHER (64)4,6,7 Retired President and Chief Executive Officer, and former Director, Great o Trustee: December 2006 Western Financial Corporation (bank holding company) and its principal to Date subsidiary, Great Western Bank (a federal savings bank). - ------------------------------------------------------------------------------------------------------------------------
- ---------- See footnotes on page 33. 32 Trustees and Officers Independent Trustees (continued)
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS AND OTHER HELD WITH FUND INFORMATION - ------------------------------------------------------------------------------------------------------------------------ CATHERINE JAMES PAGLIA (56)2,3,4,5,6 Director, Enterprise Asset Management, Inc. (private real estate and asset o Trustee: From management company). November 7, 2008 - ------------------------------------------------------------------------------------------------------------------------ LEROY C. RICHIE (66)3,4,6 Counsel, Lewis & Munday, P.C. (law firm); Director, Vibration Control o Trustee: 2000 to Date Technologies, LLC (auto vibration technology); Lead Outside Director, Digital Ally Inc. (digital imaging) and Infinity, Inc. (oil and gas exploration and production); Director and Chairman, Highland Park Michigan Economic Development Corp.; and Chairman, Detroit Public Schools Foundation; Director, OGE Energy Corp. (energy and energy services provider). Formerly, Chairman and Chief Executive Officer, Q Standards Worldwide, Inc. (library of technical standards); Director, Kerr-McGee Corporation (diversified energy and chemical company); Trustee, New York University Law Center Foundation; and Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. - ------------------------------------------------------------------------------------------------------------------------ ALISON TAUNTON-RIGBY (64)3,4,5,6 Chief Executive Officer and Director, RiboNovix, Inc. since 2003 o Trustee: From (biotechnology); Director, Idera Pharmaceutical, Inc. (biotechnology); November 7, 2008 Healthways, Inc. (health management programs). Formerly, President, Forester Biotech. - ------------------------------------------------------------------------------------------------------------------------ Interested Trustee* - ------------------------------------------------------------------------------------------------------------------------ WILLIAM F. TRUSCOTT (48)*6 President - US Asset Management and Chief Investment Officer, Ameriprise o Trustee and Vice Financial, Inc. and President, Chairman of the Board, and Chief Investment President: Officer, RiverSource Investments, LLC; Director, President and Chief Executive From November 7, 2008 Officer, Ameriprise Certificate Company; and Chairman of the Board, Chief Executive Officer, and President, RiverSource Distributors, Inc. Formerly, Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc.; and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005. - ------------------------------------------------------------------------------------------------------------------------
- ---------- * Mr. Truscott is considered an "interested person" of the Fund, as defined in the Investment Company Act of 1940, as amended, by virtue of his position with Ameriprise Financial, Inc. and its affiliates. Member: 1 Board Governance Committee 2 Compliance Committee 3 Contracts Committee 4 Distribution Committee 5 Executive Committee 6 Investment Review Committee 7 Joint Audit Committee 33 Trustees and Officers Fund Officers The Board appoints 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 a Trustee and Vice President of the Fund, the Fund's other officers are:
NAME, (AGE), POSITION(S) HELD WITH FUND, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------------------ PATRICK T. BANNIGAN (43) Director and Senior Vice President -- Asset Management, Products and Marketing, o President: From RiverSource Investments, LLC; Director and Vice President -- Asset Management, November 7, 2008 Products and Marketing, RiverSource Distributors, Inc. Formerly, Managing o 172 Ameriprise Financial Director and Global Head of Product, Morgan Stanley Investment Management, Center 2004-2006; President, Touchstone Investments, 2002-2004. Minneapolis, MN 55474 - ------------------------------------------------------------------------------------------------------------------------ MICHELLE M. KEELEY (44) Executive Vice President -- Equity and Fixed Income, Ameriprise Financial, Inc. o Vice President: From and RiverSource Investments, LLC; Vice President -- Investments, Ameriprise November 7, 2008 Certificate Company. Formerly, Senior Vice President -- Fixed Income, o 172 Ameriprise Financial Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, Center 2004-2006. Minneapolis, MN 55474 - ------------------------------------------------------------------------------------------------------------------------ AMY K. JOHNSON (43) Vice President -- Asset Management and Trust Company Services, RiverSource o Vice President: From Investments, LLC. Formerly, Vice President -- Operations and Compliance, November 7, 2008 RiverSource Investments, LLC, 2004-2006; Director of Product Development -- o 5228 Ameriprise Financial Mutual Funds, Ameriprise Financial, Inc., 2001-2004. Center Minneapolis, MN 55474 - ------------------------------------------------------------------------------------------------------------------------ SCOTT R. PLUMMER (49) Vice President and Chief Counsel -- Asset Management, Ameriprise Financial, o Vice President, General Inc.; Chief Counsel, RiverSource Distributors, Inc. and Chief Legal Officer an Counsel and Secretary: Assistant Secretary, RiverSource Investments, LLC; Vice President, General From November 7, 2008 Counsel, and Secretary, Ameriprise Certificate Company. Formerly, Vice o 5228 Ameriprise Financial President -- Asset Management Compliance, Ameriprise Financial, Inc., Center 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Minneapolis, MN 55474 Management, 2002-2004. - ------------------------------------------------------------------------------------------------------------------------ LAWRENCE P. VOGEL (52) Treasurer of each of the investment companies of the Seligman Group of Funds o Treasurer: 2000 to Date since 2000; and Treasurer, Seligman Data Corp. since 2000. Formerly, Senior o 100 Park Avenue Vice President, J. & W. Seligman & Co. Incorporated and Vice President of each New York, NY 10017 of the investment companies of the Seligman Group of Funds, 1992-2008. - ------------------------------------------------------------------------------------------------------------------------
34 Trustees and Officers Fund Officers (continued)
NAME, (AGE), POSITION(S) HELD WITH FUND, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------------------ ELEANOR T.M. HOAGLAND (56) Chief Compliance Officer, RiverSource Investments, LLC (J. & W. Seligman & Co. o Chief Compliance Incorporated prior to November 7, 2008), of each of the investment companies of Officer: 2004 to Date the Seligman Group of Funds since 2004; Money Laundering Prevention Officer and o Money Laundering Identity Theft Prevention Officer, RiverSource Investments, LLC for each of the Prevention Officer investment companies of the Seligman Group of Funds since November 7, 2008. and Identity Theft Formerly, Managing Director, J. & W. Seligman & Co. Incorporated and Vice Prevention Officer: President of each of the investment companies of the Seligman Group of Funds, From November 7, 2008 2004-2008. o 100 Park Avenue New York, NY 10017 - ------------------------------------------------------------------------------------------------------------------------
The Fund's Statement of Additional Information (SAI) includes additional information about Fund trustees and is available, without charge, upon request. You may call toll-free (800) 221-2450 in the US or call collect (212) 682-7600 outside the US to request a copy of the SAI, to request other information about the Fund, or to make shareholder inquiries. 35 Additional Fund Information FUND SYMBOLS Class A: SUSGX Class B: SXGMX Class C: SGVCX Class R: SGVRX MANAGER FROM NOVEMBER 7, 2008 RiverSource Investments, LLC 200 Ameriprise Financial Center Minneapolis, MN 55474 UNTIL NOVEMBER 6, 2008 J. & W. Seligman & Co. Incorporated 100 Park Avenue New York, NY 10017 GENERAL DISTRIBUTOR RiverSource Fund Distributors, Inc. (formerly Seligman Advisors, Inc.) 100 Park Avenue New York, NY 10017 SHAREHOLDER SERVICE AGENT Seligman Data Corp. 100 Park Avenue New York, NY 10017 MAIL INQUIRIES TO: P.O. Box 9759 Providence, RI 02940-9759 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP IMPORTANT TELEPHONE NUMBERS (800) 221-2450 Shareholder Services (800) 445-1777 Retirement Plan Services (212) 682-7600 Outside the United States (800) 622-4597 24-Hour Automated Telephone Access Service - -------------------------------------------------------------------------------- QUARTERLY SCHEDULE OF INVESTMENTS A complete schedule of portfolio holdings owned by the Fund will be filed with the SEC for the first and third quarter of each fiscal year on Form N-Q, and will be available to shareholders (i) without charge, upon request, by calling toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US or (ii) on the SEC's website at WWW.SEC.GOV.(1) In addition, the Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. Certain of the information contained in the Fund's Form N-Q is also made available to shareholders on Seligman's website at WWW.SELIGMAN.COM.(1) PROXY VOTING A description of the policies and procedures used by the Fund to determine how to vote proxies relating to portfolio securities as well as information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended December 31 of each year will be available (i) without charge, upon request, by calling toll-free (800) 221-2450 in the US or collect (212) 682-7600 outside the US and (ii) on the SEC's website at WWW.SEC.GOV.(1) Information for each new 12-month period ending June 30 will be available no later than August 31 of that year. - ---------- (1) These website references are inactive textual references and information contained in or otherwise accessible through these websites does not form a part of this report or the Fund's prospectus or statement of additional information. 36 - -------------------------------------------------------------------------------- ------------------------------------ [LOGO] GO PAPERLESS -- SIGN UP FOR E-DELIVERY AT WWW.SELIGMAN.COM ------------------------------------ This report is intended only for the information of shareholders or those who have received the offering prospectus covering shares of Beneficial Interest of Seligman U.S. Government Securities Fund, which contains information about the investment objectives, risks, charges, and expenses of the Fund, each of which should be considered carefully before investing or sending money. - -------------------------------------------------------------------------------- TXUSG2 12/08 EX-99.17(I) 14 c50116h.txt Annual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ANNUAL REPORT FOR THE PERIOD ENDED MAY 31, 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. (SINGLE STRATEGY FUNDS ICON) TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance............... 2 Manager Commentary.................. 5 The Fund's Long-term Performance ... 10 Fund Expenses Example............... 12 Portfolio of Investments............ 14 Financial Statements................ 22 Notes to Financial Statements....... 26 Report of Independent Registered Public Accounting Firm........... 45 Federal Income Tax Information...... 47 Board Members and Officers.......... 51 Approval of Investment Management Services Agreement............... 55 Proxy Voting........................ 57
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 1 YOUR FUND AT A GLANCE ---------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose 4.27% (excluding sales charge) for the 12 months ended May 31, 2008. > The Fund underperformed its benchmark, the Lehman Brothers 1-3 Year Government Index, which gained 7.27% during the same period. > The Fund underperformed the Lipper Short U.S. Government Funds Index, representing the Fund's peer group, which advanced 5.23% during the same time frame. ANNUALIZED TOTAL RETURNS (for period ended May 31, 2008) - --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------------------------------------------------- RiverSource Short Duration U.S. Government Fund Class A (excluding sales charge) +4.27% +3.45% +2.39% +3.66% - ---------------------------------------------------------------------------------- Lehman Brothers 1-3 Year Government Index (unmanaged) +7.27% +4.68% +3.30% +4.77% - ---------------------------------------------------------------------------------- Lipper Short U.S. Government Funds Index +5.23% +3.88% +2.74% +4.16% - ----------------------------------------------------------------------------------
(See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 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 table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 2 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- STYLE MATRIX - ----------------------------------------
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - ---------------------------------------- Weighted average life(1) 3.4 years - -------------------------------------------- Effective duration(2) 1.9 years - -------------------------------------------- Weighted average bond rating(3) AAA - --------------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - ----------------------------------------
Total Net expenses(a) - ------------------------------------------------------- Class A 1.04% 0.89% - ------------------------------------------------------- Class B 1.80% 1.65% - ------------------------------------------------------- Class C 1.80% 1.65% - ------------------------------------------------------- Class I 0.60% 0.51% - ------------------------------------------------------- Class R4 0.90% 0.76% - ------------------------------------------------------- Class W 1.06% 0.96% - -------------------------------------------------------
(a) 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. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. Shares of the RiverSource Short Duration U.S. Government Fund are not insured or guaranteed by the U.S. government. There are risks associated with an investment in a bond fund, including the impact of interest rates and credit. These and other risk considerations are discussed in the fund's prospectus. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT MAY 31, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/19/95) +4.27% +3.45% +2.39% +3.66% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) +3.48% +2.68% +1.63% +2.88% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) +3.49% +2.68% +1.63% N/A +3.17% - -------------------------------------------------------------------------------------------- Class I (inception 3/4/04) +4.45% +3.82% N/A N/A +2.97% - -------------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) +4.41% +3.62% +2.57% +3.82% N/A - -------------------------------------------------------------------------------------------- Class W (inception 12/1/06) +4.21% N/A N/A N/A +3.77% - -------------------------------------------------------------------------------------------- WITH SALES CHARGE Class A (inception 8/19/95) -0.77% +1.78% +1.39% +3.13% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) -1.52% +1.41% +1.27% +2.88% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) +2.49% +2.68% +1.63% N/A +3.17% - --------------------------------------------------------------------------------------------
AT JUNE 30, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/19/95) +4.02% +3.35% +2.38% +3.59% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) +3.23% +2.58% +1.61% +2.81% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) +3.24% +2.58% +1.61% N/A +3.11% - -------------------------------------------------------------------------------------------- Class I (inception 3/4/04) +4.20% +3.72% N/A N/A +2.89% - -------------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) +4.16% +3.52% +2.55% +3.75% N/A - -------------------------------------------------------------------------------------------- Class W (inception 12/1/06) +3.96% N/A N/A N/A +3.49% - -------------------------------------------------------------------------------------------- WITH SALES CHARGE Class A (inception 8/19/95) -1.01% +1.68% +1.37% +3.06% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) -1.77% +1.32% +1.25% +2.81% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) +2.24% +2.58% +1.61% N/A +3.11% - --------------------------------------------------------------------------------------------
On March 3, 2008, the maximum sales charge for Class A shares changed from 4.75% to 3.00%. Class A share performance reflects the maximum sales charge of 4.75%, which was in effect at the beginning of all periods. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are available to institutional investors only. Class W shares are offered through qualifying discretionary accounts. * For classes with less than 10 years performance. - -------------------------------------------------------------------------------- 4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT MANAGER COMMENTARY ------------------------------------------------------------- Dear Shareholders, RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose 4.27% (excluding sales charge) for the 12 months ended May 31, 2008. The Fund underperformed its benchmark, the Lehman Brothers 1-3 Year Government Index (Lehman Index), which gained 7.27% for the same period. The Fund also underperformed the Lipper Short U.S. Government Funds Index, representing the Fund's peer group, which advanced 5.23% during the same time frame. SIGNIFICANT PERFORMANCE FACTORS The annual period ended May 31, 2008 was marked by chaos in the financial markets and volatile interest rates as a result of the 2007 subprime mortgage crisis and its aftermath. A classic flight to quality seized the U.S. fixed income market as investor aversion to risk remained elevated. During the last few months of the annual period, inflation became an additional concern for the fixed income market, with oil, gasoline and food prices reaching record highs. The Federal Reserve Board (the Fed) responded to the fallout from the chaos and concern by taking a variety of strong and decisive actions. The Fed embarked on an aggressive interest rate cutting campaign beginning in September 2007 to address the tighter credit markets and the ongoing downturn in the housing market. In all, the Fed cut the targeted federal funds rate a total of 325 basis points (3.25%). The Fed also introduced several new tools to provide liquidity to the financial system at large and the mortgage market in particular. For the annual period overall, interest rates fell significantly, as investors fled riskier assets for the relative safety of U.S. Treasuries, pushing yields sharply lower. While yields moved lower across the yield curve, they did so more significantly in the shorter segments than at the long-term end, SECTOR DIVERSIFICATION (at May 31, 2008; % of portfolio assets) - ----------------------------------------------------------------- Asset-Backed 1.6% - -------------------------------------------------------------- Commercial Mortgage-Backed 1.6% - -------------------------------------------------------------- Mortgage-Backed(1) 54.7% - -------------------------------------------------------------- U.S. Government Obligations & Agencies 19.2% - -------------------------------------------------------------- Other(2) 22.9% - --------------------------------------------------------------
(1) Of the 54.7%, 5.6% is due to forward commitment mortgage-backed securities activity. Short-term securities are held as collateral for these commitments. (2) Cash & Cash Equivalents(3). (3) Of the 22.9%, 1.7% is due to security lending activity and 21.2% is the Fund's cash equivalent position. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 5 MANAGER COMMENTARY (continued) ------------------------------------------------- causing the U.S. Treasury yield curve to steepen over the annual period. Away from Treasuries, other fixed income sectors posted positive but comparatively weaker results. The primary contributor to the Fund's performance was its exposure to Treasury Inflation Protected Securities, or TIPS. TIPS outperformed nominal Treasury securities, or non-inflation protected Treasury securities, as inflationary pressures grew and actual inflation came in higher than expected during the period. Also, issue selection within mortgage-backed securities boosted returns, particularly the Fund's emphasis on premium coupon securities. Higher coupon mortgage-backed securities outperformed lower coupon mortgage-backed securities for the period. Still, these positives were more than outweighed by the impact of yield curve positioning, which detracted from performance over the period. As mentioned, while U.S. Treasury yields moved lower across the yield curve, they did so more significantly in the shorter segments than at the long-term end, causing the U.S. Treasury yield curve to steepen over the annual period. The Fund, however, had a more modest exposure to the 1-3 year portion of the yield curve, which outperformed, and a more sizable allocation to the 10-year segment of the yield curve, which lagged. The Fund's sizable exposure to mortgage-backed securities and agency securities also detracted from results, as these spread, or non-Treasury sectors of the fixed income market, posted positive returns but underperformed Treasuries during the annual period. An exposure to non- QUALITY BREAKDOWN (at May 31, 2008; % of portfolio assets excluding cash equivalents and equities) - ----------------------------------------------------------------- AAA bonds 99.3% - -------------------------------------------------------------- AA bonds 0.7% - --------------------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. - -------------------------------------------------------------------------------- 6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- As always, our strategy is to provide added portfolio value with a moderate amount of risk. agency mortgage-backed securities also detracted, as this sector of the fixed income market was especially hurt due to concerns regarding credit broadly, and residential credit in particular, grew. CHANGES TO THE FUND'S PORTFOLIO During the first half of the annual period, we shifted to a somewhat more aggressive strategy within the Fund's allocation to both mortgage- backed securities and agency securities, as spreads, or the difference in yields between these securities and U.S. Treasuries, widened and valuations reached compelling levels. In the last months of the fiscal year, we increased the Fund's position in TIPS, as actual and anticipated inflation pressures rose. We strategically adjusted the Fund's duration relative to the Lehman Index throughout the annual period, as market conditions shifted. The Fund ended the period with a duration slightly longer than the Lehman Index. The Fund's portfolio turnover rate for the 12-month period was 209%.* OUR FUTURE STRATEGY At the end of May, the market for high quality spread, or non-Treasury, securities finally appeared to be improving, and even lower quality bonds had rebounded from their lows. While economic growth over the coming months may not be as strong as earlier in the cycle, we expect the U.S. economy to narrowly avoid recession this year, as the economic stimulus package passed by Congress should help keep economic growth positive. However, we do believe that low interest rates and a weakened currency have combined to * A significant portion of the turnover was the result of rolling-maturity mortgage securities, processing of prepayments and opportunistic changes we made at the margin in response to valuations or market developments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 7 MANAGER COMMENTARY (continued) ------------------------------------------------- form an inflation problem that may weigh heavily on consumers and financial markets in the second half of this year and into 2009. To accommodate for this pressure, we believe that the Fed will eventually have to increase interest rates, and Treasury yields should continue to drift higher. In this environment, we intend to maintain the Fund's exposure to TIPS. We also believe the most compelling opportunities at the end of the annual period were in high-quality spread products, as they were priced at historically wide levels. We therefore view the Fund as well-positioned for a recovery in high quality spread, or non-Treasury, sectors of the fixed income market. Having begun in the last months of the annual period, we expect this recovery to continue over the months ahead, as fears ultimately subside and liquidity returns to the markets. Among its mortgage-backed holdings, we intend to maintain the Fund's premium coupon bias, as prepayments are expected to remain slow. We also view select pockets of non-agency mortgage-backed securities as attractively priced, though our focus is on those securities within this sector with superior credit enhancements. We intend to maintain the Fund's current duration positioning for the near term. As always, our strategy is to provide added portfolio value with a moderate amount of risk. Quality issues and security selection remain a priority as we continue to seek attractive buying opportunities. (PHOTO - JAMIE (PHOTO - SCOTT JACKSON) KIRBY) Jamie Jackson, Scott Kirby CFA(R) Portfolio Manager Portfolio Manager
Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- 8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT THIS PAGE LEFT BLANK INTENTIONALLY THE FUND'S LONG-TERM PERFORMANCE ----------------------------------------------- The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Short Duration U.S. Government Fund Class A shares (from 6/1/98 to 5/31/08) as compared to the performance of two widely cited performance indices, the Lehman Brothers 1-3 Year Government Index and the Lipper Short U.S. Government Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects a maximum sales charge of 4.75%, which changed to 3.00% effective March 3, 2008. Such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS - --------------------------------------------------------------------------------
Results at May 31, 2008 1 YEAR 3 YEARS 5 YEARS 10 YEARS RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (INCLUDES SALES CHARGE(1)) CLASS A CUMULATIVE VALUE OF $10,000 $9,923 $10,544 $10,715 $13,642 - ----------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN -0.77% +1.78% +1.39% +3.13% - ----------------------------------------------------------------------------------------------- LEHMAN BROTHERS 1-3 YEAR GOVERNMENT INDEX(2) Cumulative value of $10,000 $10,727 $11,471 $11,763 $15,941 - ----------------------------------------------------------------------------------------------- Average annual total return +7.27% +4.68% +3.30% +4.77% - ----------------------------------------------------------------------------------------------- LIPPER SHORT U.S. GOVERNMENT FUNDS INDEX(3) Cumulative value of $10,000 $10,523 $11,210 $11,447 $15,035 - ----------------------------------------------------------------------------------------------- Average annual total return +5.23% +3.88% +2.74% +4.16% - -----------------------------------------------------------------------------------------------
Results for other share classes can be found on page 4. - -------------------------------------------------------------------------------- 10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND LINE GRAPH)
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND LEHMAN BROTHERS 1-3 YEAR LIPPER SHORT U.S. CLASS A (INCLUDES SALES GOVERNMENT INDEX(2) GOVERNMENT FUNDS INDEX(3) CHARGE(1)) ($13,642) ($15,941) ($15,035) -------------------------- ------------------------ ------------------------- 1998 $ 9,525 $10,000 $10,000 1999 9,915 10,528 10,481 2000 9,914 10,952 10,868 2001 10,924 12,054 11,932 2002 11,554 12,826 12,557 2003 12,120 13,550 13,135 2004 12,091 13,640 13,144 2005 12,323 13,896 13,411 2006 12,447 14,156 13,647 2007 13,084 14,861 14,288 2008 13,642 15,941 15,035
(1) On March 3, 2008, the maximum sales charge for Class A changed from 4.75% to 3.00%. Class A share performance reflects the maximum sales charge of 4.75%, which was in effect at the beginning of all periods. (2) 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. (3) 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. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 11 FUND EXPENSES EXAMPLE ---------------------------------------------------------- (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds' expense ratio as of the most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended May 31, 2008. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT - --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED DEC. 1, 2007 MAY 31, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------- Class A - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,007.30 $4.44 .89% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.44 $4.47 .89% - ------------------------------------------------------------------------------------------- Class B - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,003.50 $8.22 1.65% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.27 1.65% - ------------------------------------------------------------------------------------------- Class C - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,003.50 $8.22 1.65% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.27 1.65% - ------------------------------------------------------------------------------------------- Class I - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,009.20 $2.55 .51% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.33 $2.56 .51% - ------------------------------------------------------------------------------------------- Class R4 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,008.00 $3.79 .76% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,021.08 $3.82 .76% - ------------------------------------------------------------------------------------------- Class W - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,007.00 $4.74 .95% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.14 $4.77 .95% - -------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Based on the actual return for the six months ended May 31, 2008: +0.73% for Class A, +0.35% for Class B, +0.35% for Class C, +0.92% for Class I, +0.80% for Class R4 and +0.70% for Class W. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 13 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 FEDERAL INCOME TAX INFORMATION ------------------------------------------------- (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. Fiscal year ended May 31, 2008 CLASS A
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 38.48%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01634 July 25, 2007............................................... 0.01800 Aug. 24, 2007............................................... 0.01800 Sept. 24, 2007.............................................. 0.01700 Oct. 26, 2007............................................... 0.01750 Nov. 26, 2007............................................... 0.01750 Dec. 17, 2007............................................... 0.01630 Jan. 28, 2008............................................... 0.01630 Feb. 27, 2008............................................... 0.01557 March 27, 2008.............................................. 0.01340 April 28, 2008.............................................. 0.01220 May 28, 2008................................................ 0.01330 Total distributions......................................... $0.19141
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 47 CLASS B
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 38.48%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01330 July 25, 2007............................................... 0.01497 Aug. 24, 2007............................................... 0.01504 Sept. 24, 2007.............................................. 0.01393 Oct. 26, 2007............................................... 0.01433 Nov. 26, 2007............................................... 0.01441 Dec. 17, 2007............................................... 0.01421 Jan. 28, 2008............................................... 0.01219 Feb. 27, 2008............................................... 0.01257 March 27, 2008.............................................. 0.01053 April 28, 2008.............................................. 0.00905 May 28, 2008................................................ 0.01034 Total distributions......................................... $0.15487
CLASS C
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 38.48%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01331 July 25, 2007............................................... 0.01505 Aug. 24, 2007............................................... 0.01505 Sept. 24, 2007.............................................. 0.01395 Oct. 26, 2007............................................... 0.01434 Nov. 26, 2007............................................... 0.01442 Dec. 17, 2007............................................... 0.01422 Jan. 28, 2008............................................... 0.01213 Feb. 27, 2008............................................... 0.01258 March 27, 2008.............................................. 0.01054 April 28, 2008.............................................. 0.00907 May 28, 2008................................................ 0.01036 Total distributions......................................... $0.15502
- -------------------------------------------------------------------------------- 48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT CLASS I
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 38.48%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01787 July 25, 2007............................................... 0.01949 Aug. 24, 2007............................................... 0.01949 Sept. 24, 2007.............................................. 0.01855 Oct. 26, 2007............................................... 0.01911 Nov. 26, 2007............................................... 0.01906 Dec. 17, 2007............................................... 0.01736 Jan. 28, 2008............................................... 0.01838 Feb. 27, 2008............................................... 0.01708 March 27, 2008.............................................. 0.01485 April 28, 2008.............................................. 0.01379 May 28, 2008................................................ 0.01480 Total distributions......................................... $0.20983
CLASS R4
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 38.48%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01690 July 25, 2007............................................... 0.01850 Aug. 24, 2007............................................... 0.01851 Sept. 24, 2007.............................................. 0.01754 Oct. 26, 2007............................................... 0.01805 Nov. 26, 2007............................................... 0.01804 Dec. 17, 2007............................................... 0.01666 Jan. 28, 2008............................................... 0.01702 Feb. 27, 2008............................................... 0.01609 March 27, 2008.............................................. 0.01390 April 28, 2008.............................................. 0.01276 May 28, 2008................................................ 0.01383 Total distributions......................................... $0.19780
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 49 CLASS W
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 38.48%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01615 July 25, 2007............................................... 0.01771 Aug. 24, 2007............................................... 0.01771 Sept. 24, 2007.............................................. 0.01678 Oct. 26, 2007............................................... 0.01729 Nov. 26, 2007............................................... 0.01731 Dec. 17, 2007............................................... 0.01616 Jan. 28, 2008............................................... 0.01592 Feb. 27, 2008............................................... 0.01529 March 27, 2008.............................................. 0.01319 April 28, 2008.............................................. 0.01190 May 28, 2008................................................ 0.01310 Total distributions......................................... $0.18851
The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares. - -------------------------------------------------------------------------------- 50 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT BOARD MEMBERS AND OFFICERS ----------------------------------------------------- Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. 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. INDEPENDENT BOARD MEMBERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme None 901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney Minneapolis, MN 55402 Age 53 - ----------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Funds, None 901 S. Marquette Ave. since 1999 1999-2006; former Governor of Minneapolis, MN 55402 Minnesota Age 73 - ----------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member President, Springboard -- Partners None 901 S. Marquette Ave. since 2007 in Cross Cultural Leadership Minneapolis, MN 55402 (consulting company) Age 53 - ----------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and None 901 S. Marquette Ave. since 2004 Management, Bentley College; former Minneapolis, MN 55402 Dean, McCallum Graduate School of Age 57 Business, Bentley College - ----------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant None 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 73 - ----------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 72 - ----------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 Chair of the irrigation systems) Age 69 Board since 2007 - -----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 51 INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None 901 S. Marquette Ave. since 2004 Management, Inc. (private real Minneapolis, MN 55402 estate and asset management Age 55 company) - ----------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer and Idera 901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc. Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology); Age 64 President, Forester Biotech Healthways, Inc. (health management programs) - -----------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- William F. Truscott Board member President -- U.S. Asset Management None 53600 Ameriprise since 2001, and Chief Investment Officer, Financial Center Vice President Ameriprise Financial, Inc. and Minneapolis, MN 55474 since 2002 President, Chairman of the Board Age 47 and Chief Investment Officer, RiverSource Investments, LLC since 2005; Director, President, and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - -----------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The SAI has additional information about the Fund's Board members and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting riversource.com/funds. - -------------------------------------------------------------------------------- 52 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are: FUND OFFICERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------ Patrick T. Bannigan President since Director and Senior Vice President, Asset 172 Ameriprise 2006 Management, Products and Marketing, Financial Center RiverSource Investments, LLC since 2006; Minneapolis, MN 55474 Director and Vice President -- Asset Age 42 Management, Products and Marketing, RiverSource Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - ------------------------------------------------------------------------------------------ Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed 172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and Financial Center RiverSource Investments, LLC since 2006; Vice Minneapolis, MN 55474 President -- Investments, Ameriprise Age 44 Certificate Company since 2003; Senior Vice President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - ------------------------------------------------------------------------------------------ Amy K. Johnson Vice President Vice President -- Asset Management and Trust 5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC Financial Center since 2006; Vice President -- Operations and Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC, Age 42 2004-2006; Director of Product Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - ------------------------------------------------------------------------------------------ Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting, 105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief Financial Center Financial Officer, RiverSource Distributors, Minneapolis, MN 55474 Inc. since 2006 Age 52 - ------------------------------------------------------------------------------------------ Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset 5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors, Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General Age 48 Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - ------------------------------------------------------------------------------------------ Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Officer since Officer, RiverSource Investments, LLC since Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset Minneapolis, MN 55474 Management, 2003-2006; Director of Finance, Age 47 Voyageur Asset Management, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 53 FUND OFFICERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------ Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering 2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since Financial Center Officer since 2004; Manager Anti-Money Laundering, Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004; Age 44 Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 54 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT ---------------------------------------------------------------------- RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the Fund. Under an investment management services agreement (the "IMS Agreement") RiverSource Investments provides investment advice and other services to the Fund and all RiverSource funds (collectively, the "Funds"). On an annual basis, the Fund's Board of Directors (the "Board"), including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource Investments prepared detailed reports for the Board and its Contracts Committee in March and April 2008, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource Investments addressing the services RiverSource Investments provides and Fund performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts, Investment Review and Compliance Committees in determining whether to continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource Investments: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource Investments, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource Investments, including, in particular, the continued investment in, and resources dedicated to, the Fund's operations, particularly in the areas of trading systems, new product initiatives, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource Investments, the Board considered the quality of the administrative and transfer agency services provided by RiverSource Investments' affiliates to the Fund. The Board also reviewed the financial condition of RiverSource Investments (and its affiliates) and each entity's ability to carry out its responsibilities under the IMS Agreement. The Board also discussed the acceptability of the terms of the IMS Agreement (including the relatively broad scope of services required to be performed by RiverSource Investments). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality, particularly in light of recent market conditions. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 55 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT (continued) ---------------------------------------------------------- Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board concluded that RiverSource Investments and its affiliates were in a position to continue to provide a high quality and level of services to the Fund. Investment Performance: For purposes of evaluating the nature, extent and quality of services provided under the IMS Agreement, the Board carefully reviewed the investment performance of the Fund. In this regard, the Board considered: (i) detailed reports containing data prepared by an independent organization showing, for various periods, the performance of the Fund, the performance of a benchmark index, the percentage ranking of the Fund among its comparison group and the net assets of the Fund; and (ii) a report detailing the Fund's performance over various periods (including since inception), recent Fund inflows (and outflows) and a comparison of the Fund's net assets from December 2006 to December 2007. The Board observed that the Fund's investment performance reflected the interrelationship of particularly volatile market conditions with the investment strategies employed by the portfolio management team. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource Investments and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the IMS Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (prepared by an independent organization) showing a comparison of the Fund's expenses with median expenses paid by funds in its peer group, as well as data showing the Fund's contribution to RiverSource Investments' profitability. The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that the Fund's total expense ratio (after considering proposed expense caps/waivers) was slightly below the peer group's median expense ratio shown in the reports. Based on its review, the Board concluded that the Fund's management fee was fair and reasonable in light of the extent and quality of services that the Fund receives. - -------------------------------------------------------------------------------- 56 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- The Board also considered the expected profitability of RiverSource Investments and its affiliates in connection with RiverSource Investments providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource Investments and Ameriprise Financial from managing and operating the Fund, including data showing comparative profitability over the past two years. The Board also considered the services acquired by the investment manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource Investments as the Fund grows and took note of the extent to which Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 10, 2008, the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement. PROXY VOTING ---------------------------------------------------------------------- The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 57 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6042 AE (7/08)
EX-99.17(J) 15 c50116i.txt Semiannual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED NOVEMBER 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. (SINGLE STRATEGY FUNDS ICON) TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance.............. 4 Manager Commentary................. 9 Fund Expenses Example.............. 14 Portfolio of Investments........... 16 Statement of Assets and Liabilities...................... 26 Statement of Operations............ 27 Statements of Changes in Net Assets........................... 28 Financial Highlights............... 29 Notes to Financial Statements...... 35 Proxy Voting....................... 49
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 3 YOUR FUND AT A GLANCE ---------------------------------------------------------- (UNAUDITED) FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares declined 2.30% (excluding sales charge) for the six months ended Nov. 30, 2008. > The Fund underperformed its benchmark, the Barclays Capital 1-3 Year Government Index (formerly known as Lehman Brothers 1-3 Year Government Index), which gained 3.62%. > The Fund underperformed the Lipper Short U.S. Government Funds Index, representing the Fund's peer group, which advanced 0.93% during the same time frame. ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2008) - --------------------------------------------------------------------------------
6 months* 1 year 3 years 5 years 10 years - ----------------------------------------------------------------------------- RiverSource Short Duration U.S. Government Fund Class A (excluding sales charge) -2.30% -1.59% +2.57% +2.00% +3.07% - ----------------------------------------------------------------------------- Barclays Capital 1-3 Year Government Index (unmanaged)(1) +3.62% +5.87% +5.72% +4.01% +4.74% - ----------------------------------------------------------------------------- Lipper Short U.S. Government Funds Index(2) +0.93% +2.57% +4.03% +2.97% +3.88% - -----------------------------------------------------------------------------
* Not annualized. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 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 table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- (1) The Barclays Capital 1-3 Year Government Index (formerly known as 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. (2) 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. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 5 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- STYLE MATRIX - --------------------------------------------------------------------------------
DURATION SHORT INT. LONG x HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - -------------------------------------------------------------------------------- Weighted average life(1) 3.4 years - -------------------------------------- Effective duration(2) 1.8 years - -------------------------------------- Weighted average bond rating(3) AAA - --------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - --------------------------------------------------------------------------------
Total Net fund fund expenses expenses(a) - ---------------------------------------- Class A 1.04% 0.89% - ---------------------------------------- Class B 1.80% 1.65% - ---------------------------------------- Class C 1.80% 1.65% - ---------------------------------------- Class I 0.60% 0.51% - ---------------------------------------- Class R4 0.90% 0.76% - ---------------------------------------- Class W 1.06% 0.96% - ----------------------------------------
(a) 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. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. Shares of the RiverSource Short Duration U.S. Government Fund are not insured or guaranteed by the U.S. government. There are risks associated with an investment in a bond fund, including the impact of interest rates and credit. These and other risk considerations are discussed in the fund's prospectus. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer- term securities. - -------------------------------------------------------------------------------- 6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT NOV. 30, 2008 SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** Class A (inception 8/19/85) -2.30% -1.59% +2.57% +2.00% +3.07% N/A - ------------------------------------------------------------------------------------ Class B (inception 3/20/95) -2.67% -2.33% +1.81% +1.24% +2.30% N/A - ------------------------------------------------------------------------------------ Class C (inception 6/26/00) -2.67% -2.32% +1.81% +1.24% N/A +2.65% - ------------------------------------------------------------------------------------ Class I (inception 3/4/04) -2.12% -1.22% +2.88% N/A N/A +2.19% - ------------------------------------------------------------------------------------ Class R4 (inception 3/20/95) -2.24% -1.46% +2.73% +2.17% +3.23% N/A - ------------------------------------------------------------------------------------ Class W (inception 12/1/06) -2.55% -1.86% N/A N/A N/A +1.49% - ------------------------------------------------------------------------------------ With sales charge Class A (inception 8/19/85) -5.30% -6.28% +0.90% +1.02% +2.54% N/A - ------------------------------------------------------------------------------------ Class B (inception 3/20/95) -7.47% -7.08% +0.55% +0.88% +2.30% N/A - ------------------------------------------------------------------------------------ Class C (inception 6/26/00) -3.63% -3.27% +1.81% +1.24% N/A +2.65% - ------------------------------------------------------------------------------------
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 7 YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AT DEC. 31, 2008 SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** Class A (inception 8/19/85) -1.95% -1.53% +2.52% +1.94% +3.03% N/A - ------------------------------------------------------------------------------------ Class B (inception 3/20/95) -2.33% -2.28% +1.75% +1.18% +2.25% N/A - ------------------------------------------------------------------------------------ Class C (inception 6/26/00) -2.32% -2.27% +1.76% +1.18% N/A +2.64% - ------------------------------------------------------------------------------------ Class I (inception 3/4/04) -1.77% -1.36% +2.83% N/A N/A +2.21% - ------------------------------------------------------------------------------------ Class R4 (inception 3/20/95) -1.89% -1.40% +2.68% +2.11% +3.19% N/A - ------------------------------------------------------------------------------------ Class W (inception 12/1/06) -1.99% -1.59% N/A N/A N/A +1.65% - ------------------------------------------------------------------------------------ With sales charge Class A (inception 8/19/85) -4.97% -6.24% +0.85% +0.97% +2.50% N/A - ------------------------------------------------------------------------------------ Class B (inception 3/20/95) -7.15% -7.04% +0.50% +0.82% +2.25% N/A - ------------------------------------------------------------------------------------ Class C (inception 6/26/00) -3.29% -3.22% +1.76% +1.18% N/A +2.64% - ------------------------------------------------------------------------------------
On March 3, 2008, the maximum sales charge for Class A shares changed from 4.75% to 3.00%. Class A share performance for each period of one year, three years, five years, ten years and since inception reflects the maximum sales charge of 4.75%, which was in effect at the beginning of each of those periods. Class A share performance for each six-month period reflects the maximum sales charge of 3.00%, which was in effect at the beginning of each of those periods. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are available to institutional investors only. Class W shares are offered through qualifying discretionary accounts. *Not annualized. **For classes with less than 10 years performance. - -------------------------------------------------------------------------------- 8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT MANAGER COMMENTARY ------------------------------------------------------------- (UNAUDITED) Dear Shareholders, RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares declined 2.30% (excluding sales charge) for the six months ended Nov. 30, 2008. The Fund underperformed its benchmark, the Barclays Capital 1-3 Year Government Index (Barclays Index) (formerly known as Lehman Brothers 1-3 Year Government Index), which gained 3.62%. The Fund also underperformed the Lipper Short U.S. Government Funds Index, representing the Fund's peer group, which advanced 0.93% during the same time frame. SIGNIFICANT PERFORMANCE FACTORS U.S. economic and financial market conditions deteriorated dramatically during the semiannual period. The Federal Reserve (the Fed) left interest rates unchanged through the summer, as prior rate cuts were given a chance to work their way into the system. During these months, oil prices increased dramatically, resulting in elevated readings for headline inflation. In September 2008, conditions changed for the worse. Asset write-downs led to a loss of confidence in banks and brokers as well as in government agencies. This led to the abrupt collapse of Lehman Brothers and intervention from the Treasury Department to maintain the viability of mortgage lenders Fannie Mae and Freddie Mac. Oil, gas and other commodity prices dropped substantially, but fears of inflation gave way to fears of deflation. These events, among others, affected the broad credit markets and led to a loss of confidence and a material worsening in the real economy. SECTOR DIVERSIFICATION (at Nov. 30, 2008; % of portfolio assets) - --------------------------------------------------------------------- Asset-Backed 1.4% - ------------------------------------------------ Commercial Mortgage-Backed 1.2% - ------------------------------------------------ Mortgage-Backed(1) 51.5% - ------------------------------------------------ U.S. Government Obligations & Agencies 43.2% - ------------------------------------------------ Other(2) 2.7% - ------------------------------------------------
(1) Of the 51.5%, 4.8% is due to forward commitment mortgage-backed securities activity. Short-term are held as collateral for these commitments. (2) Cash & Cash Equivalents. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 9 MANAGER COMMENTARY (continued) ------------------------------------------------- As a result of these conditions, the flight to quality that began in the prior fiscal year intensified during this semiannual period, with investor risk aversion remaining high. The Fed and the Treasury waged an aggressive campaign to stabilize credit markets and stimulate lending. As part of this campaign, the Fed cut the targeted federal funds rate by a total of 100 basis points (1.00%) during the six-month period, bringing it to 1.00%. For the semiannual period overall, interest rates declined across the Treasury yield curve, reflecting the flight to quality. Non-Treasury sectors of the fixed income market underperformed their Treasury counterparts, as investors shed credit risk. Overall, high-quality issues dramatically outperformed low-quality issues. The primary contributor to the Fund's performance was its exposure to U.S. agency subordinated debt. U.S. agency subordinated debt prices had become distressed based on the view that the federal government would not include the securities in programs to support the agencies. However, subordinated debt payments were explicitly supported along with senior debt obligations when the U.S. government intervened. Subordinated debt is debt that ranks below other securities with regard to claims on assets or earnings, but, which typically offers a higher rate of return than senior debt due to the increased inherent risk. Subordinated debt of U.S. agencies is widely considered to be comparatively less risky and of greater quality than that of banks or other issuers. QUALITY BREAKDOWN (at Nov. 30, 2008; % of portfolio assets excluding cash equivalents and equities) - --------------------------------------------------------------------- AAA bonds 96.9% - ------------------------------------------------- AA bonds 0.5% - ------------------------------------------------- A bonds 2.6% - -------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. - -------------------------------------------------------------------------------- 10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- Detracting from the Fund's results was its exposure to mortgage-backed securities, as non-Treasury sector of the fixed income market posted positive returns but significantly underperformed Treasuries during the semiannual period. Mortgage-backed securities with longer-dated maturities also suffered from the fact that the yield curve steepened during the period, meaning that yields moved lower more dramatically in the shorter segments than at the longer- term end of the yield curve and thus shorter maturities outperformed longer maturities. A portion of the mortgage-backed securities held by the Fund were not issued by government agencies. These non-agency mortgage-backed securities were hurt by a lack of liquidity and experienced more dramatic price depreciation than those mortgage securities backed by the federal government. Exposure to commercial mortgage-backed securities also detracted from the Fund's results during the six-month period, as spreads, or the difference in yields between these securities and Treasuries, widened. Finally, the Fund's position in Treasury Inflation Protected Securities, or TIPS, hurt its performance. TIPS underperformed nominal Treasury securities, or non-inflation protected Treasury securities, as deflationary fears emerged in October and November. CHANGES TO THE FUND'S PORTFOLIO During the semiannual period, we reduced the Fund's exposure to non-agency mortgage-backed securities. We then used the proceeds to increase the Fund's position in U.S. agency subordinated debt, given what we consider to be subordinated debt's characteristics as an attractive high quality investment. We also believe that the effects of Given this view, we intend to maintain our bias toward securities that we believe to have been left with particularly attractive yield profiles due to the recent drying up of market liquidity. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 11 MANAGER COMMENTARY (continued) ------------------------------------------------- government intervention on select U.S. agencies have yet to be fully realized. This shift in allocation helped the Fund's performance for the semiannual period overall. The Fund's portfolio turnover rate for the six-month period was 118%.* OUR FUTURE STRATEGY In evaluating prices in the fixed income market at the end of November, we found that investors are generally pricing securities with the expectation of a depression-like economy. We believe this scenario is unlikely for two major reasons. First, American financial institutions have already taken over $600 billion in losses and write-downs. This compares to previous periods of credit stress, most recently in Japan, in which banks delayed the realization of losses only to prolong the ensuing drag on economic growth. Second, U.S. and foreign governments have taken bold action to stabilize their banking systems and inject capital into markets. These moves stand in stark contrast to the Great Depression, when government action was oft-criticized as too little, too late. In light of these factors, Treasury bonds appear overpriced, while we find valuations in non-Treasury sectors as quite attractive. Given this view, we intend to maintain our bias toward securities that we believe to have been left with particularly attractive yield profiles due to the recent drying up of market liquidity. These securities include both agency and non-agency mortgage-backed securities, high quality commercial mortgage-backed securities, TIPS and U.S. agency subordinated debt. We believe these securities may offer significant yield benefits over the near term. We further believe that when conditions eventually improve, many of the securities in the Fund could experience significant price appreciation. - -------------------------------------------------------------------------------- 12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- As always, our strategy is to provide added portfolio value with a moderate amount of risk. Quality issues and security selection remain a priority as we continue to seek attractive buying opportunities. Jamie Jackson, CFA(R) Todd White Portfolio Manager Portfolio Manager
*A significant portion of the turnover was the result of rolling-maturity mortgage securities, processing of prepayments and opportunistic changes we made at the margin in response to valuations or market developments. Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 13 FUND EXPENSES EXAMPLE ---------------------------------------------------------- (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the expense ratio of each of the acquired funds as of the acquired fund's most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Nov. 30, 2008. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JUNE 1, 2008 NOV. 30, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------ Class A - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 977.00 $4.39 .89% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,020.49 $4.48 .89% - ------------------------------------------------------------------------------------------ Class B - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 973.30 $8.12 1.65% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,016.70 $8.30 1.65% - ------------------------------------------------------------------------------------------ Class C - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 973.30 $8.12 1.65% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,016.70 $8.30 1.65% - ------------------------------------------------------------------------------------------ Class I - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 978.80 $2.52 .51% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,022.39 $2.57 .51% - ------------------------------------------------------------------------------------------ Class R4 - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 977.60 $3.75 .76% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,021.14 $3.83 .76% - ------------------------------------------------------------------------------------------ Class W - ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 974.50 $4.73 .96% - ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,020.14 $4.84 .96% - ------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Nov. 30, 2008: -2.30% for Class A, -2.67% for Class B, -2.67% for Class C, -2.12% for Class I, -2.24% for Class R4 and -2.55% for Class W. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 15 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- NOV. 30, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (82.2%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) U.S. GOVERNMENT OBLIGATIONS & AGENCIES (25.7%) Federal Home Loan Bank 12-29-08 5.13% $24,390,000 $24,441,614 04-09-09 2.32 225,000 226,138 Federal Home Loan Mtge Corp 06-13-18 4.88 5,405,000 5,736,449 Federal Natl Mtge Assn 04-09-13 3.25 18,880,000 19,000,908 01-02-14 5.13 16,915,000 17,386,759 11-15-30 6.63 1,945,000 2,438,911 U.S. Treasury 06-30-10 2.88 5,730,000 5,910,850 10-31-10 1.50 57,750,000 58,336,509 12-15-10 4.38 10,550,000(i) 11,295,094 11-15-18 3.75 25,300,000 27,003,803 U.S. Treasury Inflation-Indexed Bond 01-15-14 2.00 17,769,221(j) 15,998,571 01-15-15 1.63 22,919,000(j) 20,085,473 ------------ Total 207,861,079 - ---------------------------------------------------------------------- ASSET-BACKED (1.5%) Capital Auto Receivables Asset Trust Series 2006-SN1A Cl A4B 03-20-10 1.56 3,250,000(d,h) 3,204,317 Countrywide Asset-backed Ctfs Series 2007-7 Cl 2A2 10-25-37 1.56 2,600,000(h) 2,036,939 Residential Asset Securities Series 2007-KS3 Cl AI2 04-25-37 1.58 4,050,000(h) 3,555,310 Soundview Home Equity Loan Trust Series 2006-EQ1 Cl A2 10-25-36 1.51 3,900,000(h) 3,177,283 ------------ Total 11,973,849 - ---------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED (1.2%)(f) Federal Home Loan Mtge Corp Multifamily Structured Pass-Through Ctfs Series K001 Cl A2 04-25-16 5.65 5,879,459 5,718,829 Federal Natl Mtge Assn #381990 10-01-09 7.11 4,059,446 4,077,332 ------------ Total 9,796,161 - ---------------------------------------------------------------------- MORTGAGE-BACKED (53.8%)(f,k) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 03-25-37 6.18 1,782,292(g) 910,858 American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03-25-47 1.56 3,232,332(g) 707,095 American Home Mtge Investment Trust Collateralized Mtge Obligation Series 2007-1 Cl GA1C 05-25-47 1.59 4,168,407(g) 1,397,706 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01-25-37 6.00 3,236,559 1,565,559 Barclays Capital LLC Trust Collateralized Mtge Obligation Series 2007-AA4 Cl 11A1 06-25-47 6.20 1,288,492(g) 953,577 Bear Stearns Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-5 Cl 3A1 08-25-47 5.98 2,050,079(g) 1,175,883 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 1,407,266 1,167,355
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03-25-36 6.00% $5,506,983 $2,765,541 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-OA11 Cl A3B1 09-25-46 1.58 3,491,021(h) 2,083,813 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-22 Cl 2A16 09-25-37 6.50 4,480,708 2,006,519 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11-25-37 6.50 4,486,403 2,143,659 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06-25-47 1.75 5,484,812(h) 1,381,370 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 1.90 3,706,134(h) 865,782 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-HYB8 Cl 4A1 12-20-35 5.56 3,069,596(g) 1,404,402 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 4,093,993(d) 3,357,259 Federal Home Loan Mtge Corp 12-01-38 6.00 2,000,000(e) 2,043,124 12-01-38 6.50 12,000,000(e) 12,344,999 Federal Home Loan Mtge Corp #1G0847 07-01-35 4.71 7,007,898(g) 7,022,871 Federal Home Loan Mtge Corp #1G2264 10-01-37 6.01 5,943,966(g) 6,066,472 Federal Home Loan Mtge Corp #1G2598 01-01-37 6.10 2,234,343(g) 2,288,004 Federal Home Loan Mtge Corp #1J0614 09-01-37 5.70 3,110,668(g) 3,145,227 Federal Home Loan Mtge Corp #783049 03-01-35 4.85 5,637,612(g) 5,596,536 Federal Home Loan Mtge Corp #A18107 01-01-34 5.50 2,972,429 3,020,698 Federal Home Loan Mtge Corp #C00351 07-01-24 8.00 225,992 239,170 Federal Home Loan Mtge Corp #C00385 01-01-25 9.00 372,290 409,359 Federal Home Loan Mtge Corp #C80329 08-01-25 8.00 65,120 69,022 Federal Home Loan Mtge Corp #E00398 10-01-10 7.00 199,635 204,515 Federal Home Loan Mtge Corp #E81240 06-01-15 7.50 2,902,216 3,046,587 Federal Home Loan Mtge Corp #E90650 07-01-12 5.50 102,663 105,330 Federal Home Loan Mtge Corp #E92454 11-01-17 5.00 2,474,442 2,521,832 Federal Home Loan Mtge Corp #G00363 06-01-25 8.00 291,984 309,477 Federal Home Loan Mtge Corp #G00501 05-01-26 9.00 494,258 543,982 Federal Home Loan Mtge Corp #G10669 03-01-12 7.50 1,058,163 1,107,991 Federal Home Loan Mtge Corp #G11243 04-01-17 6.50 11,195,847 11,585,737 Federal Home Loan Mtge Corp #G12100 11-01-13 5.00 2,613,148 2,645,386 Federal Home Loan Mtge Corp #M30074 09-01-09 6.50 27,440 27,780 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 11 Cl B 01-01-20 15.05 6,687(b) 1,622 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 237 Cl IO 05-15-36 14.70 1,060,392(b) 171,982
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2471 Cl SI 03-15-32 44.63% $1,268,415(b) $148,654 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2783 Cl MI 03-15-25 78.62 2,222,458(b) 39,513 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2617 Cl HD 06-15-16 7.00 5,515,532 5,781,864 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 3346 Cl FA 02-15-19 1.65 8,677,977(h) 8,305,051 Federal Natl Mtge Assn 12-01-38 5.00 2,500,000(e) 2,516,405 12-01-38 5.50 8,000,000(e) 8,132,496 12-01-38 6.00 10,000,000(e) 10,221,880 Federal Natl Mtge Assn #125032 11-01-21 8.00 122,323 129,456 Federal Natl Mtge Assn #190129 11-01-23 6.00 890,053 916,033 Federal Natl Mtge Assn #190353 08-01-34 5.00 6,382,017 6,435,011 Federal Natl Mtge Assn #190785 05-01-09 7.50 32,237 32,668 Federal Natl Mtge Assn #190988 06-01-24 9.00 195,601 211,378 Federal Natl Mtge Assn #254384 06-01-17 7.00 279,842(i) 294,129 Federal Natl Mtge Assn #254454 08-01-17 7.00 496,026 521,351 Federal Natl Mtge Assn #254723 05-01-23 5.50 8,198,373 8,367,873 Federal Natl Mtge Assn #254748 04-01-13 5.50 4,473,645 4,588,283 Federal Natl Mtge Assn #254757 05-01-13 5.00 6,057,250 6,110,765 Federal Natl Mtge Assn #254774 05-01-13 5.50 1,389,294 1,416,125 Federal Natl Mtge Assn #255501 09-01-14 6.00 560,227 586,506 Federal Natl Mtge Assn #303885 05-01-26 7.50 427,007 451,048 Federal Natl Mtge Assn #313007 07-01-11 7.50 129,461 133,613 Federal Natl Mtge Assn #336512 02-01-26 6.00 62,122 64,005 Federal Natl Mtge Assn #357485 02-01-34 5.50 12,314,086 12,544,836 Federal Natl Mtge Assn #407327 01-01-14 5.50 355,442 364,978 Federal Natl Mtge Assn #456374 12-01-13 5.50 604,883 621,112 Federal Natl Mtge Assn #508402 08-01-14 6.50 242,175(i) 249,358 Federal Natl Mtge Assn #545818 07-01-17 6.00 11,673,144 11,978,221 Federal Natl Mtge Assn #545864 08-01-17 5.50 9,747,354 9,989,792 Federal Natl Mtge Assn #545910 08-01-17 6.00 1,804,974 1,852,049 Federal Natl Mtge Assn #555063 11-01-17 5.50 6,915,094 7,091,373 Federal Natl Mtge Assn #555367 03-01-33 6.00 8,978,406 9,205,572 Federal Natl Mtge Assn #579485 04-01-31 6.50 2,151,518(i) 2,235,226 Federal Natl Mtge Assn #593829 12-01-28 7.00 1,463,747 1,536,028 Federal Natl Mtge Assn #601416 11-01-31 6.50 757,578 787,062 Federal Natl Mtge Assn #630993 09-01-31 7.50 2,104,990 2,220,562 Federal Natl Mtge Assn #648040 06-01-32 6.50 2,067,362 2,138,773 Federal Natl Mtge Assn #648349 06-01-17 6.00 6,186,610 6,347,947 Federal Natl Mtge Assn #651284 07-01-17 6.00 1,212,490 1,244,295
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #662866 11-01-17 6.00% $1,062,928 $1,094,739 Federal Natl Mtge Assn #665752 09-01-32 6.50 1,174,133 1,214,691 Federal Natl Mtge Assn #670782 11-01-12 5.00 237,174 238,999 Federal Natl Mtge Assn #670830 12-01-12 5.00 330,824 338,122 Federal Natl Mtge Assn #671415 01-01-10 5.00 351,675 351,902 Federal Natl Mtge Assn #678940 02-01-18 5.50 1,856,424 1,904,564 Federal Natl Mtge Assn #686227 02-01-18 5.50 2,528,653 2,594,469 Federal Natl Mtge Assn #696837 04-01-18 5.50 2,739,943 2,810,300 Federal Natl Mtge Assn #704610 06-01-33 5.50 9,936,371(i) 10,122,567 Federal Natl Mtge Assn #712602 06-01-13 5.00 714,348 721,090 Federal Natl Mtge Assn #722325 07-01-33 4.96 4,476,063(g) 4,500,854 Federal Natl Mtge Assn #725232 03-01-34 5.00 9,441,311(i) 9,525,608 Federal Natl Mtge Assn #725425 04-01-34 5.50 8,731,157 8,904,273 Federal Natl Mtge Assn #725431 08-01-15 5.50 6,492,835 6,667,040 Federal Natl Mtge Assn #725773 09-01-34 5.50 7,400,391 7,534,440 Federal Natl Mtge Assn #730632 08-01-33 4.02 1,532,183(g) 1,510,787 Federal Natl Mtge Assn #735212 12-01-34 5.00 5,669,459 5,716,536 Federal Natl Mtge Assn #735578 06-01-35 5.00 4,331,665 4,364,926 Federal Natl Mtge Assn #739243 09-01-33 6.00 2,706,417 2,782,363 Federal Natl Mtge Assn #739331 09-01-33 6.00 1,409,724 1,444,511 Federal Natl Mtge Assn #743524 11-01-33 5.00 2,841,728 2,867,101 Federal Natl Mtge Assn #745275 02-01-36 5.00 995,350 1,002,993 Federal Natl Mtge Assn #753508 11-01-33 5.00 2,866,414 2,892,007 Federal Natl Mtge Assn #791447 10-01-34 6.00 4,334,878(i) 4,439,138 Federal Natl Mtge Assn #797046 07-01-34 5.50 2,692,051 2,740,815 Federal Natl Mtge Assn #799769 11-01-34 5.05 3,566,443(g) 3,569,581 Federal Natl Mtge Assn #801344 10-01-34 5.03 3,843,481(g) 3,851,667 Federal Natl Mtge Assn #815463 02-01-35 5.50 1,750,823 1,782,537 Federal Natl Mtge Assn #832641 09-01-35 6.00 6,022,126 6,161,321 Federal Natl Mtge Assn #849082 01-01-36 5.82 2,559,620(g) 2,583,889 Federal Natl Mtge Assn #849170 01-01-36 5.95 3,017,448(g) 3,052,241 Federal Natl Mtge Assn #878661 02-01-36 5.50 7,268,229 7,348,861 Federal Natl Mtge Assn #883267 07-01-36 6.50 4,209,791 4,349,120 Federal Natl Mtge Assn #887403 07-01-36 7.00 2,515,995 2,635,569 Federal Natl Mtge Assn #888989 06-01-37 6.05 5,696,176(g) 5,851,509 Federal Natl Mtge Assn #902818 11-01-36 5.91 2,014,549(g) 2,044,223 Federal Natl Mtge Assn #919341 05-01-37 6.50 3,310,688 3,406,756 Federal Natl Mtge Assn #928771 10-01-37 8.00 5,776,833(i) 6,083,937 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 163 Cl 2 07-25-22 34.02 493,783(b) 72,472
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-18 Cl SE 02-25-32 46.58% $2,642,309(b) $287,233 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-26 Cl MI 03-25-23 13.70 1,529,182(b) 209,004 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 25.88 3,553,978(b) 408,092 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 9.86 1,835,688(b) 225,112 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-81 Cl LI 11-25-13 59.80 1,251,315(b) 11,045 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 36 Cl 2 08-01-18 15.66 3,987(b) 876 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 367 Cl 2 01-01-36 12.99 2,652,947(b) 434,371 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 379 Cl 2 05-01-37 13.46 5,139,714(b) 814,725 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 70 Cl 2 01-15-20 27.28 177,082(b) 32,598 Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series G-15 Cl A 06-25-21 2.49 23,502(c) 21,765 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2002-52 Cl FG 09-25-32 1.90 7,459,317(h) 7,323,500 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12-25-26 8.00 1,741,536 1,859,467 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-94 Cl QB 07-25-23 5.50 1,451,559 1,450,382 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-W11 Cl A1 06-25-33 6.29 107,620(g) 105,377 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2004-60 Cl PA 04-25-34 5.50 3,031,541 3,097,939 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-60 Cl JF 10-25-35 1.83 5,258,851(h) 5,092,865 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2006-90 Cl FE 09-25-36 1.85 6,697,825(h) 6,554,519 Govt Natl Mtge Assn 12-01-38 5.50 5,000,000(e) 5,068,750 Govt Natl Mtge Assn #615740 08-15-13 6.00 618,862 642,152
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Govt Natl Mtge Assn #781507 09-15-14 6.00% $2,980,624 $3,070,300 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-62 Cl IC 03-20-29 76.25 970,053(b) 13,505 Govt Natl Mtge Assn Collateralized Mtge Obligation Series 2006-32 Cl A 01-16-30 5.08 8,548,708 8,626,292 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2004-4 Cl 3A 06-19-34 3.97 390,964(g) 176,121 Lehman XS Trust Series 2006-16N Cl A1B 11-25-46 1.52 1,998,462(h) 1,800,303 Merrill Lynch Alternative Note Asset Collateralized Mtge Obligation Series 2007-OAR1 Cl A1 02-25-37 1.57 5,139,861(h) 1,948,002 Morgan Stanley Mtge Loan Trust Series 2006-13AX Cl A1 10-25-36 1.49 2,770,542(h) 2,529,017 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-AR3 Cl A1A 02-25-46 3.48 1,800,546(g) 758,151 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10-25-35 5.00 5,316,554 4,719,754 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-14 Cl 2A1 12-25-35 5.50 2,849,488 2,019,909 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05-25-35 5.50 3,819,619 3,500,922 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03-25-36 5.11 3,408,850(g) 2,288,186 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-11 Cl A68 08-25-37 6.00 4,573,963 2,275,918 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-15 Cl A1 11-25-37 6.00 3,136,295 1,956,141 ------------ Total 434,616,183 - ---------------------------------------------------------------------- TOTAL BONDS (Cost: $699,538,131) $664,247,272 - ----------------------------------------------------------------------
MONEY MARKET FUND (2.9%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 0.69% 23,204,156(l) $23,204,156 - ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $23,204,156) $23,204,156 - -------------------------------------------------------------------------------------
SHORT-TERM SECURITIES (19.5%) AMOUNT EFFECTIVE PAYABLE AT ISSUER YIELD MATURITY VALUE(a) U.S. GOVERNMENT AGENCIES Federal Home Loan Bank Disc Nts 12-01-08 0.10% $23,100,000 $23,099,808 12-04-08 0.22 45,000,000 44,998,374 12-05-08 0.35 16,000,000 15,998,911 12-09-08 0.35 21,300,000 21,297,722 12-12-08 0.18 12,000,000 11,999,160 12-15-08 0.20 24,900,000 24,897,649 12-23-08 0.20 15,000,000 14,997,917 - ------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $157,290,520) $157,289,541 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $880,032,807)(m) $844,740,969 =====================================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - ------------------------------------------------------------------------------------ U.S. Long Bond, 20-year 30 $3,824,531 March 2009 $70,963 U.S. Treasury Note, 2- year 696 150,901,500 April 2009 1,150,951 U.S. Treasury Note, 5- year (806) (94,069,017) April 2009 (1,151,720) U.S. Treasury Note, 10- year (585) (70,766,719) March 2009 (1,960,133) - ------------------------------------------------------------------------------------ Total $(1,889,939) - ------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Nov. 30, 2008. (c) 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 Nov. 30, 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 Nov. 30, 2008, the value of these securities amounted to $6,561,576 or 0.8% of net assets. (e) At Nov. 30, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $39,811,910. See Note 1 to the financial statements. - -------------------------------------------------------------------------------- 22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2008. (h) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2008. (i) At Nov. 30, 2008, investments in securities included securities valued at $3,974,282 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (j) 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. (k) Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitments at Nov. 30, 2008:
PRINCIPAL SETTLEMENT PROCEEDS SECURITY AMOUNT DATE RECEIVABLE VALUE -------------------------------------------------------------------------- Federal Natl Mtge Assn 12-01-23 5.50% $9,275,000 12-16-08 $9,347,823 $9,434,419
(l) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Nov. 30, 2008. (m) At Nov. 30, 2008, the cost of securities for federal income tax purposes was approximately $880,033,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $10,781,000 Unrealized depreciation (46,073,000) ----------------------------------------------------------- Net unrealized depreciation $(35,292,000) -----------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to implement more uniform reporting relating to the fair valuation of securities for financial statement purposes. Mutual funds are required to implement the requirements of this standard for fiscal years beginning after Nov. 15, 2007. While uniformity of presentation is the objective of the standard, industry implementation has just begun and it is likely that there will be a range of practices utilized and it will be some period of time before industry practices become more uniform. For this reason care should be exercised in interpreting this information and/or using it for comparison with other mutual funds. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund's own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. The following table is a summary of the inputs used to value the Fund's investments as of Nov. 30, 2008:
FAIR VALUE AT NOV. 30, 2008 ---------------------------------------------------------- LEVEL 1 LEVEL 2 QUOTED PRICES OTHER LEVEL 3 IN ACTIVE SIGNIFICANT SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL - ---------------------------------------------------------------------------------- Investments in securities $283,039,953 $535,498,045 $26,202,971 $844,740,969 Other financial instruments* (1,889,939) -- -- (1,889,939) - ---------------------------------------------------------------------------------- Total $281,150,014 $535,498,045 $26,202,971 $842,851,030 - ----------------------------------------------------------------------------------
* Other financial instruments are derivative instruments, such as futures, which are valued at the unrealized appreciation/depreciation on the instrument. The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
INVESTMENTS IN SECURITIES - --------------------------------------------------------------- Balance as of May 31, 2008 $16,535,423 Accrued discounts/premiums 67,191 Realized gain (loss) 57,803 Change in unrealized appreciation (depreciation) (18,039,725) Net purchases (sales) (4,057,608) Transfers in and/or out of Level 3 31,639,887 - --------------------------------------------------------------- Balance as of Nov. 30, 2008 $26,202,971 - ---------------------------------------------------------------
- -------------------------------------------------------------------------------- 24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 25 STATEMENT OF ASSETS AND LIABILITIES ------------------------------------------- NOV. 30, 2008 (UNAUDITED)
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $856,828,651) $ 821,536,813 Affiliated money market fund (identified cost $23,204,156) 23,204,156 - --------------------------------------------------------------------------------- Total investments in securities (identified cost $880,032,807) 844,740,969 Capital shares receivable 1,158,621 Dividends and accrued interest receivable 3,717,190 Receivable for investment securities sold 9,632,333 - --------------------------------------------------------------------------------- Total assets 859,249,113 - --------------------------------------------------------------------------------- LIABILITIES Forward sale commitments, at value (proceeds receivable $9,347,823) 9,434,419 Dividends payable to shareholders 211,503 Capital shares payable 829,806 Payable for securities purchased on a forward-commitment basis 39,811,910 Variation margin payable on futures contracts 271,205 Accrued investment management services fees 21,210 Accrued distribution fees 151,076 Accrued transfer agency fees 6,779 Accrued administrative services fees 3,009 Accrued plan administration services fees 901 Other accrued expenses 536,061 - --------------------------------------------------------------------------------- Total liabilities 51,277,879 - --------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 807,971,234 - --------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 1,776,823 Additional paid-in capital 1,040,002,565 Excess of distributions over net investment income (405,936) Accumulated net realized gain (loss) (196,133,845) Unrealized appreciation (depreciation) on investments (37,268,373) - --------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 807,971,234 - ---------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $586,444,617 128,981,199 $4.55(1) Class B $129,748,319 28,536,267 $4.55 Class C $ 11,782,382 2,591,394 $4.55 Class I $ 75,499,402 16,585,126 $4.55 Class R4 $ 4,491,730 987,307 $4.55 Class W $ 4,784 1,053 $4.54 - -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $4.69. 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. - -------------------------------------------------------------------------------- 26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT STATEMENT OF OPERATIONS ------------------------------------------------------- SIX MONTHS ENDED NOV. 30, 2008 (UNAUDITED)
INVESTMENT INCOME Income: Interest $ 17,037,461 Income distributions from affiliated money market fund 23,236 Fee income from securities lending 18,062 - ------------------------------------------------------------------------------- Total income 17,078,759 - ------------------------------------------------------------------------------- Expenses: Investment management services fees 1,878,923 Distribution fees Class A 693,019 Class B 677,700 Class C 50,390 Class W 6 Transfer agency fees Class A 485,661 Class B 126,244 Class C 9,135 Class R4 1,113 Class W 5 Administrative services fees 266,869 Plan administration services fees -- Class R4 5,565 Compensation of board members 11,206 Custodian fees 44,285 Printing and postage 75,730 Registration fees 42,884 Professional fees 26,084 Other 14,422 - ------------------------------------------------------------------------------- Total expenses 4,409,241 Expenses waived/reimbursed by the Investment Manager and its affiliates (524,130) Earnings and bank fee credits on cash balances (7,837) - ------------------------------------------------------------------------------- Total net expenses 3,877,274 - ------------------------------------------------------------------------------- Investment income (loss) -- net 13,201,485 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (182,563) Futures contracts (3,083,493) - ------------------------------------------------------------------------------- Net realized gain (loss) on investments (3,266,056) Net change in unrealized appreciation (depreciation) on investments (29,529,063) - ------------------------------------------------------------------------------- Net gain (loss) on investments (32,795,119) - ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(19,593,634) - -------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 27 STATEMENTS OF CHANGES IN NET ASSETS -------------------------------------------
SIX MONTHS ENDED YEAR ENDED NOV. 30, 2008 MAY 31, 2008 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 13,201,485 $ 29,999,961 Net realized gain (loss) on investments (3,266,056) 1,099,985 Net change in unrealized appreciation (depreciation) on investments (29,529,063) (800,569) - -------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (19,593,634) 30,299,377 - -------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (9,784,923) (21,333,414) Class B (1,872,486) (5,699,109) Class C (139,514) (312,941) Class I (1,533,283) (2,868,438) Class R4 (81,464) (183,760) Class W (85) (196) - -------------------------------------------------------------------------------------------------- Total distributions (13,411,755) (30,397,858) - -------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 182,560,078 206,496,511 Class B shares 23,689,161 42,734,598 Class C shares 4,097,991 2,621,382 Class I shares 10,485,286 69,048,377 Class R4 shares 1,153,076 2,801,130 Reinvestment of distributions at net asset value Class A shares 8,862,362 19,605,781 Class B shares 1,752,952 5,406,615 Class C shares 127,929 299,079 Class I shares 1,530,476 2,844,139 Class R4 shares 81,164 185,296 Payments for redemptions Class A shares (120,593,889) (200,741,788) Class B shares (48,699,121) (105,920,795) Class C shares (1,632,259) (3,568,542) Class I shares (25,970,322) (33,540,963) Class R4 shares (1,308,523) (2,086,457) - -------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 36,136,361 6,184,363 - -------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 3,130,972 6,085,882 Net assets at beginning of period 804,840,262 798,754,380 - -------------------------------------------------------------------------------------------------- Net assets at end of period $ 807,971,234 $ 804,840,262 - -------------------------------------------------------------------------------------------------- Excess of distributions over net investment income $ (405,936) $ (195,666) - --------------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .19(b) .19 .15 .12 Net gains (losses) (both realized and unrealized) (.19) .01 .05 (.10) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.11) .20 .24 .05 .09 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.19) (.19) (.16) (.12) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $586 $539 $514 $641 $894 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.03%(e) 1.04% 1.03% 1.06% 1.01% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .89%(e) .89% .89% .89% .93% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.47%(e) 3.93% 3.99% 3.27% 2.49% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(i) (2.30%)(j) 4.27% 5.12% 1.00% 1.92% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.88% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 29 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.19) .01 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.13) .16 .20 .01 .05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.15) (.15) (.12) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $130 $159 $216 $338 $588 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.79%(e) 1.80% 1.79% 1.82% 1.76% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.68% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.72%(e) 3.18% 3.23% 2.50% 1.73% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(i) (2.67%)(j) 3.48% 4.34% .26% 1.16% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(b) .15(b) .15 .12 .08 Net gains (losses) (both realized and unrealized) (.19) .02 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.13) .17 .20 .01 .05 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.16) (.15) (.12) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $10 $10 $15 $24 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.79%(e) 1.80% 1.80% 1.83% 1.77% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.68% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.70%(e) 3.18% 3.24% 2.51% 1.73% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return(i) (2.67%)(j) 3.49% 4.34% .26% 1.16% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.64% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 31 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.74 $4.69 $4.79 $4.83 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09(b) .20(b) .20 .17 .14 Net gains (losses) (both realized and unrealized) (.19) .01 .05 (.10) (.04) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.10) .21 .25 .07 .10 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.21) (.20) (.17) (.14) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.74 $4.69 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $75 $93 $55 $62 $31 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .60%(e) .60% .59% .62% .57% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .51%(e) .51% .54% .58% .57% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.87%(e) 4.23% 4.37% 3.66% 2.98% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return (2.12%)(i) 4.45% 5.50% 1.56% 2.06% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.50% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007 2006 2005 Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .19(b) .19 .16 .13 Net gains (losses) (both realized and unrealized) (.19) .02 .05 (.11) (.03) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.11) .21 .24 .05 .10 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.20) (.19) (.16) (.13) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $4 $19 $100 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .90%(e) .90% .86% .88% .84% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .76%(e) .76% .72% .72% .76% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.61%(e) 4.06% 4.09% 3.27% 2.66% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 118% 209% 168% 194% 169% - -------------------------------------------------------------------------------------------------------------- Total return (2.24%)(i) 4.41% 5.31% 1.19% 2.10% - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Nov. 30, 2008 were less than 0.01% of average net assets. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.75% for the year ended May 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 33 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007(b) Net asset value, beginning of period $4.74 $4.73 $4.75 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(c) .18(c) .08 Net gains (losses) (both realized and unrealized) (.20) .02 (.02) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.12) .20 .06 - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.19) (.08) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.54 $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) 1.05%(f) 1.06% 1.00%(f) - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .96%(f) .95% .95%(f) - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.42%(f) 3.87% 4.02%(f) - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(i) 118% 209% 168% - -------------------------------------------------------------------------------------------------------------- Total return (2.55%)(j) 4.21% 1.42%(j) - --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 42% for the six months ended Nov. 30, 2008. (j) Not annualized. (k) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- (UNAUDITED AS TO NOV. 30, 2008) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Short Duration U.S. Government Fund (the Fund) is a series of RiverSource Government Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Government Income Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests in direct obligations of the U.S. government, such as Treasury bonds, bills and notes, and of its agencies and instrumentalities. The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. However, Class B shares are closed to new investors and new purchases. - - Class C shares may be subject to a CDSC. - - Class I and Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. - - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At Nov. 30, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares, and the Investment Manager owned 100% of Class W shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES Effective June 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. There was no impact to the Fund's net assets or results of operations upon adoption. The fair valuation measurements disclosure can be found following the Notes to Portfolio of Investments. All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. 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- - -------------------------------------------------------------------------------- 36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- commitments. At Nov. 30, 2008, the Fund has outstanding when-issued securities of $39,811,910. 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 (OTC options) where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain OTC 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. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When 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 - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- the amount of premium received or paid. At Nov. 30, 2008, and for the six months then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of the market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. FORWARD SALE COMMITMENTS The Fund may enter into forward sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of forward sale commitments are not received until the contractual settlement date. During the time a forward sale commitment is outstanding, equivalent deliverable securities, or an offsetting forward purchase commitment deliverable on or before the sale commitment date, are used to satisfy the commitment. Unsettled forward sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Valuation of securities" above. The forward sale commitment is "marked-to- market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the forward sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the market price established at the date the commitment was entered into. Forward sale commitments outstanding at period end are listed in the Notes to Portfolio of Investments. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their - -------------------------------------------------------------------------------- 38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures 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 purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. RECENT ACCOUNTING PRONOUNCEMENT In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Nov. 30, 2008, - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared 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 0.25% annually as the Fund's assets increase. The management fee for the six months ended Nov. 30, 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), 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 six months ended Nov. 30, 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 six months ended Nov. 30, 2008, other expenses paid to this company were $773. COMPENSATION OF BOARD MEMBERS Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though - -------------------------------------------------------------------------------- 40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- 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. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has agreements with RiverSource Distributors, Inc. and RiverSource Fund Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class W shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $4,413,000 and $93,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $227,688 for Class A, $57,443 for Class B and $2,956 for Class C for the six months ended Nov. 30, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the six months ended Nov. 30, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 0.89% Class B............................................. 1.65 Class C............................................. 1.65 Class I............................................. 0.51 Class R4............................................ 0.76 Class W............................................. 0.96
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A.......................................... $125,291 Class B.......................................... 31,366 Class C.......................................... 2,271 Class R4......................................... 1,113
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4............................................ $41
The management fees waived/reimbursed at the Fund level were $364,048. 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. - -------------------------------------------------------------------------------- 42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- EARNINGS AND BANK FEE CREDITS During the six months ended Nov. 30, 2008, the Fund's transfer agency fees were reduced by $7,837 as a result of bank fee credits from overnight cash balances. CUSTODIAN FEES 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, but including mortgage dollar rolls) aggregated $815,780,340 and $779,795,527, respectively, for the six months ended Nov. 30, 2008. Realized gains and losses are determined on an identified cost basis. Income from securities lending amounted to $18,062 for the six months ended Nov. 30, 2008. Expenses paid to the Investment Manager as securities lending agent were $2,082 for the six months ended Nov. 30, 2008, which are included in other expenses on the Statement of Operations. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. At Nov. 30, 2008, the Fund had no securities out on loan. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED NOV. 30, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------- Class A 39,190,190 1,910,155 (25,947,081) 15,153,264 Class B 5,093,131 377,456 (10,396,940) (4,926,353) Class C 883,133 27,573 (351,175) 559,531 Class I 2,239,651 328,995 (5,524,202) (2,955,556) Class R4 247,071 17,462 (280,491) (15,958) - ---------------------------------------------------------------------------------
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 - ---------------------------------------------------------------------------------
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 $230,939,099 and $220,636,917, respectively, for the six months ended Nov. 30, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Nov. 30, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on - -------------------------------------------------------------------------------- 44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the six months ended Nov. 30, 2008 Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $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. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); - -------------------------------------------------------------------------------- 46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, each of Seligman, RiverSource Investments and their affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies including those funds in the RiverSource complex of funds. Neither Seligman nor RiverSource Investments believes that the foregoing legal action or other possible actions will have a material adverse impact on Seligman, RiverSource Investments or their current or former clients, including the Seligman Funds and other investment companies managed by RiverSource Investments; however, there can be no assurance of this or that these matters and any related publicity will - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 47 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. 9. SUBSEQUENT EVENT Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the securities lending agent for the Fund. - -------------------------------------------------------------------------------- 48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT PROXY VOTING ------------------------------------------------------------------- The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 49 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., and RiverSource Fund Distributors, Inc., Members FINRA, and managed by RiverSource Investments, LLC. RiverSource is part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6442 Z (1/09)
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