485BPOS 1 global-part_c.txt RIVERSOURCE GLOBAL SERIES, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 49 (File No. 33-25824) [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 51 (File No. 811-5696) [X] RIVERSOURCE GLOBAL SERIES, INC. (FORMERLY AXP GLOBAL SERIES, INC.) 50606 Ameriprise Financial Center Minneapolis, Minnesota 55474 Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810 Minneapolis, MN 55402-3268 (612) 330-9283 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on June 2, 2006 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485. If appropriate, check the following box: [ ] This Post-Effective Amendment designates a new effective date for a previously filed Post-Effective Amendment. This filing is not intended to supersede the prospectuses for RiverSource Emerging Markets Fund, RiverSource Global Bond Fund, RiverSource Global Equity Fund and RiverSource Global Technology Fund, Class I prospectus supplements for RiverSource Emerging Markets Fund, RiverSource Global Bond Fund, RiverSource Global Technology Fund, and financial statements for RiverSource Emerging Markets Fund, RiverSource Global Bond Fund, RiverSource Global Equity Fund and RiverSource Global Technology Fund filed in Registrant's Post-Effective Amendment No. 45 to Registration Statement No. 33-25824 filed on or about Dec. 20, 2005. This filing is not intended to supersede the prospectus and Class I prospectus supplement for RiverSource Emerging Markets Bond Fund filed in Registrant's Post-Effective Amendment No. 47 to Registration Statement No. 33-25824 filed on or about Feb. 3, 2006. This filing is not intended to supersede the Statement of Additional Information for RiverSource Emerging Markets Fund, RiverSource Emerging Markets Bond Fund, RiverSource Global Bond Fund, RiverSource Global Equity Fund and RiverSource Global Technology Fund filed in Registrant's 497 filing filed on or about May 31, 2006. Prospectus [RIVERSOURCE LOGO](SM) Investments RIVERSOURCE(SM) ABSOLUTE RETURN CURRENCY AND INCOME FUND PROSPECTUS JUNE 2, 2006 > RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND SEEKS TO PROVIDE SHAREHOLDERS WITH POSITIVE ABSOLUTE RETURN. 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 O MAY LOSE VALUE O NO BANK GUARANTEE ----------------------------------------------------- TABLE OF CONTENTS THE FUND...........................................3p Objective..........................................3p Principal Investment Strategies....................3p Principal Risks....................................4p Past Performance...................................6p Fees and Expenses..................................7p Other Investment Strategies and Risks..............8p Fund Management and Compensation...................9p BUYING AND SELLING SHARES.........................S.1 Buying Shares..................................S.1 Investment Options -- Classes of Shares.....S.1 Sales Charges...............................S.3 Opening an Account..........................S.7 Buying Shares..................................S.8 Exchanging or Selling Shares...................S.8 Exchanges...................................S.9 Selling Shares.............................S.10 VALUING FUND SHARES..............................S.10 DISTRIBUTIONS AND TAXES..........................S.11 Dividends and Capital Gain Distributions.........S.11 Reinvestments....................................S.12 Taxes............................................S.12 GENERAL INFORMATION..............................S.13 -------------------------------------------------------------------------------- 2p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- THE FUND OBJECTIVE RiverSource Absolute Return Currency and Income Fund (the Fund) seeks to provide shareholders with positive absolute return. Because any investment involves risk, achieving this objective cannot be guaranteed. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES The Fund is a non-diversified fund that, under normal market conditions, will invest at least 80% of its net assets (including any borrowings for investment purposes) in short-term debt obligations and forward foreign currency contracts. In pursuit of the Fund's objective, to provide absolute return, the investment manager (RiverSource Investments, LLC), seeks to generate positive total returns from the income produced by the short-term debt obligations, plus (minus) the gain (loss) resulting from fluctuations in the values of various foreign currencies relative to the U.S. dollar. The Fund's investment in short-term debt obligations will consist primarily of U.S. dollar denominated non-government, corporate and structured debt securities rated investment grade, or, if unrated, determined to be of comparable quality by the investment manager. A small portion of the Fund's portfolio may consist of U.S. government securities. In addition to producing income, these holdings will be designated by the Fund, as necessary, to cover obligations with respect to, or that may result from, the Fund's investments in forward currency contracts. The Fund targets a portfolio duration of one to five months but may extend the portfolio duration up to one year. The Fund does not actually take ownership of foreign currencies or sell actual foreign currencies. Rather, through forward currency contracts, the Fund gains economic exposure comparable to the exposure that it would have if it had bought or sold the currencies directly. A forward contract requires the purchase or delivery of a foreign currency at some future date. The price paid for the contract is the current price of the foreign currency in U.S. dollars plus or minus an adjustment based on the interest rate differential between the U.S. dollar and the foreign currency. It is expected that the gross notional value of the Fund's forward foreign currency contracts will be equivalent to at least 80% of the Fund's net assets. The investment manager utilizes a quantitative, proprietary model that uses various fundamental and technical factors, including current and historical data, to rank the anticipated value of several developed countries' currencies relative to the U.S. dollar. The investment manager will enter into long forward currency contracts for a limited number of the currencies that rank higher in the model, and the Fund will experience profits (losses) to the extent the value of the currency appreciates (depreciates) relative to the U.S. dollar. Conversely, the investment manager will enter into short forward currency contracts for a limited number of the currencies that rank lower in the model, and the Fund will experience profits (losses) to the extent the value of the currency depreciates (appreciates) relative to the U.S. dollar. Except to close or reduce existing positions, the Fund will not enter into long and short forward currency contracts in the same currency at the same time. The investment manager runs the model regularly and generally seeks to maintain long and short forward currency contracts with approximately equal gross notional values. -------------------------------------------------------------------------------- 3p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- PRINCIPAL RISKS This Fund is designed for investors with above-average risk tolerance. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: MARKET RISK. The market value of securities and currencies 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 and currencies may fluctuate, sometimes rapidly and unpredictably. CREDIT RISK. 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. INTEREST RATE RISK. 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. FOREIGN CURRENCY RISK. The Fund's exposure to foreign currencies subjects the Fund to constantly changing exchange rates and the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of short positions, that the U.S. dollar will decline in value relative to the currency being sold forward. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and economic or political developments in the U.S. or abroad. As a result, the Fund's exposure to foreign currencies may reduce the returns of the Fund. Trading of foreign currencies also includes the risk of clearing and settling trades which, if prices are volatile, may be difficult. DERIVATIVES RISK. Derivatives (such as forward currency contracts) are financial instruments where value depends upon, or is derived from, the value of something else, such as one or more underlying investments, pools of investments, options, futures, indexes or currencies. Just as with securities in which the Fund invests directly, derivatives are subject to a number of risks, including market, correlation, counterparty liquidity, interest rate and credit risk. In addition, gains or losses involving derivatives may be substantial, because a relatively small price movement in the underlying security, currency or index may result in a substantial gain or loss for the Fund. The Fund will suffer a loss in connection with the investment manager's use of derivative instruments if prices do not move in the direction anticipated by the Fund's investment manager when entering into the derivative instrument. To comply with applicable regulatory requirements, the Fund will designate cash or liquid securities in an amount equal to the value of the Fund's total assets committed to consummating forward currency contracts. If the value of the securities declines or the amount required to meet the Fund's obligations on a forward currency contract increases, additional cash or liquid securities may be required to be designated so that the value of the cash or liquid securities will equal the amount of the Fund's commitments on such contracts. If the Fund is unable to designate cash or liquid securities equal to the amount of the Fund's commitments on such contracts, the Fund may be forced to sell such contracts at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. -------------------------------------------------------------------------------- 4p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- QUANTITATIVE RISK. The quantitative methodology employed by the investment manager has been tested using historical 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. ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers 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. COUNTERPARTY RISK. The risk that a counterparty to a financial instrument entered into by the Fund or held by 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. DIVERSIFICATION RISK. The Fund is non-diversified. A non-diversified fund may invest more of its assets in fewer issuers 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 then a fund that invests more broadly. 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. 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 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. -------------------------------------------------------------------------------- 5p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- 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 exceeding 80% of the Fund's total net assets. Although foreign currency gains currently constitute "qualifying income," the Treasury Department has the authority to issue regulations excluding from the definition of "qualifying income" 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. The Fund is not a money market fund and its net asset value will fluctuate. The Fund is not a complete investment program and you may lose money by investing in 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. PAST PERFORMANCE The Fund is new as of the date of this prospectus and therefore performance information is not available. When available, the Fund intends to compare its performance to the Citigroup 3-month U.S. Treasury Bill Index, an unmanaged index, representing the performance of three-month Treasury bills. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. -------------------------------------------------------------------------------- 6p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS Y Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a) none none none Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) none 5% 1% none
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS Y Management fees 0.89% 0.89% 0.89% 0.89% Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% Other expenses(b) 0.45% 0.46% 0.46% 0.54% Total 1.59% 2.35% 2.35% 1.43% Fee waiver/expense reimbursement 0.12% 0.12% 0.12% 0.12% Net expenses(c) 1.47% 2.23% 2.23% 1.31%
(a) This charge may be reduced depending on the value of your total investments in RiverSource funds. See "Sales Charges." (b) Other expenses are based on estimated amounts for the current fiscal year. Other expenses include an administrative services fee, a transfer agency fee, a custody fee and other nonadvisory expenses and, for Class Y shares, a shareholder service fee. (c) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2006, 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 expenses will not exceed 1.47% for Class A; 2.23% for Class B; 2.23% for Class C and 1.31% for Class Y. -------------------------------------------------------------------------------- 7p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 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 Class A(a) $617 $ 924 Class B $726(b) $ 1,122 Class C $326(b) $ 722 Class Y $133 $ 441
(a) Includes a 4.75% sales charge. (b) Includes the applicable CDSC. You would pay the following expenses if you did not redeem your shares:
1 year 3 years Class A(a) $617 $924 Class B $226 $722 Class C $226 $722 Class Y $133 $441
(a) Includes a 4.75% sales charge. OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may invest in other securities and may use other investment strategies that are not principal investment strategies. For more information on strategies and holdings, and the risks of such strategies, including other derivative instruments that the Fund may use, see the Fund's Statement of Additional Information (SAI). Unusual Market Conditions. During unusual market conditions, the Fund may temporarily have less exposure to forward currency contracts and more exposure to money market securities than during normal market conditions. Although investing in these securities would serve primarily 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. Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. -------------------------------------------------------------------------------- 8p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions is set forth in the SAI. The brokerage commissions 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 derivatives. In addition, 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. 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, institutional trust and custody, and employee benefit plan administration, 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 is 0.89% of the Fund's average daily net assets on the first $1 billion, gradually reducing to 0.70% as assets increase. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement can be found in the Fund's SAI and in the future will be available in the Fund's annual or semiannual report to shareholders. -------------------------------------------------------------------------------- 9p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- Portfolio Manager(s). The portfolio manager responsible for the day-to-day management of the Fund is: Nicholas Pifer, CFA, Portfolio Manager o Managed the Fund since 2006. o Leader of the global sector team. o Joined RiverSource Investments in 2000. o Fixed Income Portfolio Manager, Investment Advisers, Inc., 1997 to 2000. o Began investment career in 1990. o MA, Johns Hopkins University School of Advanced International Studies. The fixed income department of RiverSource Investments is divided into six sector teams, each of which includes a portfolio manager or portfolio managers and several analysts, and each of which specializes in a specific sector of the fixed income market. The Fund's portfolio manager leads the team that specializes in the sector in which the Fund primarily invests. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. -------------------------------------------------------------------------------- 10p --- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND --- 2006 PROSPECTUS -------------------------------------------------------------------------------- BUYING AND SELLING SHARES The RiverSource funds are available through certain 401(k) or other qualified and nonqualified plans, banks, broker-dealers or other financial intermediaries or institutions (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 shares are held. Since the fund may not have a record of your transactions, you should always contact the financial institution through which you purchased the fund to make changes to or give instructions concerning your account or to obtain information about your account. The fund, 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. BUYING SHARES: INVESTMENT OPTIONS -- CLASSES OF SHARES RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND IS CURRENTLY ONLY AVAILABLE TO CERTAIN LIMITED INSTITUTIONAL INVESTORS. SEE THE SAI FOR MORE INFORMATION. The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each class. Not everyone is eligible to buy every class. After determining which classes you are eligible to buy, decide which class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each class. INVESTMENT OPTIONS SUMMARY --------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y(a) -------------------------------------------------------------------------------------------------------- AVAILABILITY Available to Available to Available to Limited to all investors. all investors. all investors. qualifying institutional investors. -------------------------------------------------------------------------------------------------------- INITIAL SALES CHARGE Yes. Payable No. Entire No. Entire No. Entire at time of purchase price purchase price purchase price purchase. is invested in is invested in is invested in Lower sales shares of the shares of the shares of the charge for fund. fund. fund. larger investments. -------------------------------------------------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE (CDSC) No. Maximum 5% 1% CDSC may No. CDSC during apply if you the first year sell shares decreasing to within one 0% after six year after years. purchase. -------------------------------------------------------------------------------------------------------- 12b-1 FEE OR SHAREHOLDER SERVICE FEE(b) Yes. 0.25% Yes. 1.00% Yes. 1.00% Yes. 0.10% -------------------------------------------------------------------------------------------------------- CONVERSIONS TO CLASS A N/A Yes.(c) No. No. --------------------------------------------------------------------------------------------------------
(a) Please see the statement of additional information (SAI) for information on eligibility requirements to purchase Class Y shares. RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund do not offer Class Y shares. (b) For Class A, Class B and Class C shares, 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. For Class Y shares, each fund has a separate shareholder servicing plan not adopted under Rule 12b-1 to pay for servicing-related expenses related to those shares. Because these fees are paid out of a fund's 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, which will vary depending on the original purchase of the Class B shares. -------------------------------------------------------------------------------- S-6400-6 S.1 -------------------------------------------------------------------------------- The distribution and shareholder servicing fees for Class A, Class B, and Class C 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 providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund. Financial institutions receive shareholder servicing fees equal to 0.25% of the average daily net assets of Class A, Class B, and Class C shares sold and held through them. For Class A and Class B shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor begins to pay these fees one year after purchase. Financial institutions also receive distribution fees equal to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay one year after purchase. For Class B shares, the fund's distributor retains the 0.75% distribution fee 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 with the shareholder servicing and distribution fees paid to them by the distributor. The shareholder servicing fees for Class Y shares are used by the distributer to pay for certain service related expenses helping shareholders thoughtfully consider their investment goals and objectively monitor how well the goals are being achieved. The distributer may pay these fees to the financial institutions for providing such services. Your fund also may offer Class I shares exclusively to certain institutional investors. Class I shares are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. DETERMINING WHICH CLASS OF SHARES TO PURCHASE IF YOUR FUND OFFERS CLASS A, CLASS B AND CLASS C SHARES: If your investments in RiverSource funds total $100,000 or more, Class A shares the better option because the sales charge is reduced for larger purchases. If you invest less than $100,000, consider how long you plan to hold your shares. Class B shares have a higher annual distribution fee than Class A shares and a 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. 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. For more information, see the SAI. -------------------------------------------------------------------------------- S.2 -------------------------------------------------------------------------------- BUYING SHARES: 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. Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES
AS A % OF AS A % OF MAXIMUM REALLOWANCE TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED AS A % OF 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***
* 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. For a sale with a total market value of $1,000,000 to $3,000,000, the distributor may pay a sales commission up to 1.00%; $3,000,000 to $10,000,000, a sales commission up to 0.50%; and $10,000,000 or more, a sales commission up to 0.25%. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION. You may be able to reduce the sales charge on Class A shares, based on the combined market value of your accounts. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: o Your current investment in a fund, and o Previous investments you and members of your primary household group 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 primary household group 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: o Individual or joint accounts; o 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; o UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; o Revocable trust accounts for which you or a member of your primary household group, individually, is the beneficiary; -------------------------------------------------------------------------------- S.3 -------------------------------------------------------------------------------- o 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 o 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: o 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); o Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; o Investments in Class D, Class E, or Class Y shares; o Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and o Charitable and irrevocable trust accounts. 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 over a period of 13 months or less, you may be able to reduce the front-end sales charges for investments in Class A shares by completing and filing a LOI form. The LOI becomes effective only after the form is processed in good order by the fund. An LOI can be backdated up to a maximum of 90 days. If the LOI is backdated, you may include prior investments in Class A shares that were charged a front-end sales load toward the LOI commitment amount. If the LOI is backdated, the 13-month period begins on the date of the earliest purchase included in the LOI. Holdings More than 90 Days Old. Purchases made more than 90 days before your LOI is processed by the fund will not be counted towards the commitment amount of the LOI and cannot be used as the starting point for the LOI. While these purchases cannot be included in an LOI, they may help you obtain a reduced sales charge on future purchases as described in "Initial Sales Charge -- Rights of Accumulation." -------------------------------------------------------------------------------- S.4 -------------------------------------------------------------------------------- Notification Obligation. You must request the reduced sales charge when you buy shares. 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. You should request that your financial institution provide this information to the fund when placing your purchase order. For more details 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: o current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children and parents. o current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children and parents. o registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children and parents. o portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children and parents. o qualified employee benefit plans offering participants daily access to RiverSource funds. Eligibility must be determined in advance. For assistance, please contact your financial institution. o direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer of Class Y shares in a fund to Class A shares in the same fund. o purchases made: o with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; o through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; o through American Express Personal Trust Services' Asset-Based pricing alternative, provided by American Express Bank, FSB. o shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. 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. You also may view this information about sales charges and breakpoints free of charge on the RiverSource funds website. Go to www.riversource.com/roa. -------------------------------------------------------------------------------- S.5 -------------------------------------------------------------------------------- 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. 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 will complete 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 sales commission of 1% to financial institutions that sell Class C 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 C shares. 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. -------------------------------------------------------------------------------- S.6 -------------------------------------------------------------------------------- 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: o in the event of the shareholder's death; o held in trust for an employee benefit plan; or o held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: o at least 59-1/2 years old AND o 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 o 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. BUYING SHARES: 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. -------------------------------------------------------------------------------- S.7 -------------------------------------------------------------------------------- BUYING SHARES You can establish an account by having your financial institution process your purchase. 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. MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS AND RIVERSOURCE TAX QUALIFIED ACCOUNTS EXCEPT ABSOLUTE RETURN ACCOUNTS THOSE LISTED TO CURRENCY AND THE RIGHT INCOME FUND RIVERSOURCE FLOATING RATE FUND RIVERSOURCE INFLATION PROTECTED SECURITIES FUND -------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $5,000 $1,000 -------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 -------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 $2,500 NONE --------------------------------------------------------------------------------------------------------
* If your fund account balance falls below the minimum account balance for any reason, including a market decline, you will 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 AND RIVERSOURCE TAX QUALIFIED ACCOUNTS EXCEPT ABSOLUTE RETURN ACCOUNTS THOSE LISTED TO CURRENCY AND THE RIGHT INCOME FUND RIVERSOURCE FLOATING RATE FUND RIVERSOURCE INFLATION PROTECTED SECURITIES FUND -------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $5,000 $100 -------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 -------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** NONE $2,500 NONE --------------------------------------------------------------------------------------------------------
** If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. If approved by the distributor, these minimums may be waived for accounts that are managed by an investment professional (for example, discretionary wrap accounts). 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. EXCHANGING OR SELLING SHARES You can sell or exchange 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 exchange policies and sale procedures. IMPORTANT: Payments sent by a bank authorization, check or money order that are not guaranteed may take up to ten days to clear. This may cause your redemption request to fail to process if the requested amount includes unguaranteed funds. -------------------------------------------------------------------------------- S.8 -------------------------------------------------------------------------------- EXCHANGES You may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund. Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. 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 will be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. MARKET TIMING IS FREQUENT OR SHORT-TERM TRADING 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. 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' BOARDS HAVE ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING. EACH FUND SEEKS TO ENFORCE THIS POLICY AS FOLLOWS: o 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. 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 seeks the assistance of financial institutions in applying similar restrictions on the sub-accounts of their participants or clients. o 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. -------------------------------------------------------------------------------- S.9 -------------------------------------------------------------------------------- o 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: o Exchanges must be made into the same class of shares of the new fund. o If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. o Once the fund receives your exchange request, you cannot cancel it. o Shares of the new fund may not be used on the same day for another exchange or redemption. 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 and use all or part of the redemption 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 redemption 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 limited or withdrawn at any time and use of this option may have tax consequences. Each 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, refer to the sections on "Buying Shares" and "Exchanging/Selling Shares," or contact your financial institution. -------------------------------------------------------------------------------- S.10 -------------------------------------------------------------------------------- The NAV is the value of a single share of a fund. The NAV is determined by dividing the value of a 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. 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 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 qualifying dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include non-qualifying 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 qualifying dividend income. Capital gains are realized when a security is sold for a higher price than was paid for it. 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 are included in net investment income. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. -------------------------------------------------------------------------------- S.11 -------------------------------------------------------------------------------- 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. 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 for more than one year). You may not create a tax loss, based on paying a sales charge, by exchanging shares within 91 days of purchase. 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 more information, see the SAI. FOR TAXABLE FUNDS. Distributions 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. 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. Selling shares held in an IRA or qualified retirement account may subject you to federal taxes, penalties and reporting requirements. Please consult your tax advisor. o 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. Dividends distributed from capital gain distributions and other income earned are not exempt from federal income taxes. Distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. -------------------------------------------------------------------------------- S.12 -------------------------------------------------------------------------------- Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum taxes. To the extent the fund earns such income, it will flow through to its shareholders and may be taxable to those shareholders who are subject to the alternative minimum tax. 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. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult your financial institution to determine availability of RiverSource funds. Currently, RiverSource funds may be purchased or sold through affiliated broker-dealers of RiverSource Investments and through certain unaffiliated financial institutions. 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 (the custodian or Ameriprise Trust Company), provides custody services to all but a limited number of the RiverSource funds, for which U.S. Bank National Association provides custody services. In addition, Ameriprise Trust Company is paid for certain transaction fees and out-of-pocket expenses incurred while providing 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." -------------------------------------------------------------------------------- S.13 -------------------------------------------------------------------------------- Distribution and Shareholder Services. RiverSource Distributors, Inc. (expected to be operational mid-2006), 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474 and Ameriprise Financial Services, 70100 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (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 for Class A, Class B and Class C shares. 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 and Expenses." Separately, for Class Y shares, the Fund pays fees under a non-12b-1 shareholder servicing agreement for certain shareholder services. A portion of these fees (or the full fee) may be paid to the financial institutions that provide the services. Fees paid by a fund for these services are set forth under "Other Expenses" in the expense table under "Fees and Expenses." More information on how these distribution and shareholder servicing 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, which 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. PAYMENTS TO FINANCIAL INSTITUTIONS RiverSource Investments and its affiliates may make additional cash payments out of their own resources to financial institutions, including inter-company allocation of resources to affiliated broker-dealers such as Ameriprise Financial Services (and its licensed representatives), in connection with selling fund shares or providing services to the fund or its shareholders. These payments and inter-company allocations are in addition to any 12b-1 distribution and/or shareholder service fees or other amounts paid by the fund under distribution or shareholder servicing plans, or paid by the fund under its transfer agency and administrative services agreements for shareholder account maintenance, sub-accounting, recordkeeping or other services provided directly by the financial institution. In exchange for these payments and inter-company allocations, RiverSource Investments and its affiliates may -------------------------------------------------------------------------------- S.14 -------------------------------------------------------------------------------- receive preferred access to registered representatives of a financial institution (for example, the ability to make presentations in branch offices or at conferences) or preferred access to customers of the financial institution (for example, the ability to advertise or directly interact with the financial institution's customers in order to sell the fund). These arrangements are sometimes referred to as "revenue sharing payments." In some cases, these arrangements may create an incentive for a financial institution or its representatives to recommend or sell shares of a fund and may create a conflict of interest between a financial institution's financial interest and its duties to its customers. Please contact the financial institution through which you are purchasing shares of the fund for details about any payments it may receive in connection with selling fund shares or providing services to the fund. These payments and inter-company allocations are usually calculated based on a percentage of fund sales, and/or as a percentage of fund assets attributable to a particular financial institution. These payments may also be negotiated based on other criteria or factors including, but not limited to, the financial institution's affiliation with the investment manager, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships and the scope and quality of services it provides. The amount of payment or inter-company allocation may vary by financial institution and by type of sale (e.g., purchases of different share classes or purchases of the fund through a qualified plan or through a wrap program), and may be significant. From time to time, RiverSource Investments and its affiliates may make other reimbursements or payment to financial institutions or their 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. 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.15 -------------------------------------------------------------------------------- AFFILIATED FUNDS OF FUNDS. RiverSource Investments also serves as investment manager to RiverSource funds that provide asset-allocation services to shareholders by investing in shares of other RiverSource funds (Funds of Funds). A fund may experience relatively large purchases or redemptions from the Funds of Funds. Although RiverSource Investments seeks to minimize the impact of these transactions by structuring them over a reasonable period of time or through other measures, a fund may experience increased expenses as it buys and sells securities to manage transactions for the Funds of Funds. In addition, because the Funds of Funds may own a substantial portion of a fund, a redemption by the Funds of Funds could cause a 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 will report to the Board on the steps it has taken to manage any potential conflicts. 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 or arbitration 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 or arbitration 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. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. -------------------------------------------------------------------------------- S.16 -------------------------------------------------------------------------------- THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY This fund can be purchased from Ameriprise Financial Services or from a limited number of other 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 1-202-942-8090). 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, Washington, D.C. 20549-0102. Investment Company Act File #811-3178 TICKER SYMBOL Class A: -- Class B:-- Class C: -- Class I:-- Class Y: -- [RIVERSOURCE LOGO](SM) Investments S-6502-99 A (6/06) RIVERSOURCE(SM) ABSOLUTE RETURN CURRENCY AND INCOME FUND SUPPLEMENT TO THE JUNE 2, 2006 PROSPECTUS This supplement describes the Fund's Class I shares. The caption headings used in this Supplement correspond to the caption headings used in the prospectus. You may purchase Class I shares only if you are an eligible investor, as described under the caption "Buying and Selling Shares" below. PAST PERFORMANCE Class I has not been in existence for a full calendar year, and therefore performance information is not shown. FEES AND EXPENSES Fund investors pay various expenses. The table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. The table is supplemented as follows: SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I Maximum sales charge (load) imposed on purchases (as a percentage of offering price) none Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) none
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS I Management fees 0.89% Distribution (12b-1) fees 0.00% Other expenses(a) 0.32% Total 1.21% Fee waiver/expense reimbursement 0.09% Net expenses(b) 1.12%
(a) Other expenses are based on estimated amounts for the current fiscal year. Other expenses include an administrative services fee, a custody fee and other nonadvisory expenses. (b) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2006, 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 expenses will not exceed 1.12% for Class I. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table is supplemented as follows:
1 YEAR 3 YEARS Class I $114 $375
BUYING AND SELLING SHARES The description of Investment Options is supplemented as follows: If you are an eligible investor, you may purchase Class I shares at net asset value without an initial sales charge or CDSC on redemption. Class I shares do not have annual distribution and service fees, and do not convert to any other class of shares. The following eligible investors may purchase Class I shares: o Any fund distributed by RiverSource Distributors, Inc. (expected to be operational mid-2006) and Ameriprise Financial Services, if the fund seeks to achieve its investment objective by investing primarily in shares of the Fund and other RiverSource funds. o Endowments, foundations, and defined benefit plans with a minimum investment of $5 million. In addition, the distributor, in its sole discretion, may accept investments from other purchasers not listed above. The discussion of buying and selling shares is supplemented as follows: You may purchase, sell or exchange Class I shares only through the distributor or an authorized financial institution. You may exchange your Class I shares only for Class I shares of another RiverSource fund. S-6502-79 A (6/06) PART B. STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 2, 2006 RIVERSOURCE(SM) GLOBAL SERIES, INC. RiverSource Absolute Return Currency and Income Fund This is the SAI for the fund listed above. This SAI is not a prospectus. It should be read together with the appropriate current prospectus dated June 2, 2006. The current prospectus for the fund also is incorporated in this SAI by reference. For a free copy of the prospectus, contact your financial institution or write to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474, call (888) 791-3380 or visit www.riversource.com/funds. The fund is governed by a Board of Directors ("Board") that meets regularly to review a wide variety of matters affecting the funds. Detailed information about fund governance, the fund's 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.
Page 2 TABLE OF CONTENTS Mutual Fund Checklist..............................................................p. 3 Fundamental and Nonfundamental Investment Policies.................................p. 4 Investment Strategies and Types of Investments.....................................p. 5 Information Regarding Risks and Investment Strategies..............................p. 6 Securities Transactions...........................................................p. 34 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager......p. 36 Valuing Fund Shares...............................................................p. 36 Portfolio Holdings Disclosure.....................................................p. 37 Proxy Voting......................................................................p. 38 Investing in a Fund...............................................................p. 39 Selling Shares....................................................................p. 42 Pay-out Plans.....................................................................p. 42 Taxes ............................................................................p. 43 Agreements........................................................................p. 45 Organizational Information........................................................p. 50 Board Members and Officers .......................................................p. 53 Independent Registered Public Accounting Firm.....................................p. 56 Appendix A: Description of Ratings...............................................p. 57 LIST OF TABLES 1. Investment Strategies and Types of Investments................................p. 5 2. Class A Sales Charge.........................................................p. 40 3. Investment Management Services Agreement Fee Schedule........................p. 45 4. Portfolio Managers...........................................................p. 47 5. Administrative Services Agreement Fee Schedule...............................p. 48 6. Fund History Table for All Publicly Offered RiverSource Funds................p. 50 7. Board Members................................................................p. 53 8. Fund Officers................................................................p. 54 9. Board Member Holdings - All Funds............................................p. 55
Page 3 MUTUAL FUND CHECKLIST o Mutual funds are NOT guaranteed or insured by any bank or government agency. You can lose money. o Mutual funds ALWAYS carry investment risks. Some types carry more risk than others. o A higher rate of return typically involves a higher risk of loss. o Past performance is not a reliable indicator of future performance. o ALL mutual funds have costs that lower investment return. o You can buy some mutual funds by contacting them directly. Others, like these, are sold mainly through brokers, banks, financial planners, or insurance agents. If you buy through these financial professionals, you generally will pay a sales charge. o Shop around. Compare a mutual fund with others of the same type before you buy. OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING DEVELOP A FINANCIAL PLAN Have a plan -- even a simple plan can help you take control of your financial future. Review your plan with your financial advisor at least once a year or more frequently if your circumstances change. DOLLAR-COST AVERAGING An investment technique that works well for many investors is one that eliminates random buy and sell decisions. One such system is dollar-cost averaging. Dollar-cost averaging involves building a portfolio through the investment of fixed amounts of money on a regular basis regardless of the price or market condition. This may enable an investor to smooth out the effects of the volatility of the financial markets. By using this strategy, more shares will be purchased when the price is low and less when the price is high. As the accompanying chart illustrates, dollar-cost averaging tends to keep the average price paid for the shares lower than the average market price of shares purchased, although there is no guarantee. While this does not ensure a profit and does not protect against a loss if the market declines, it is an effective way for many shareholders who can continue investing through changing market conditions to accumulate shares to meet long-term goals. REGULAR MARKET PRICE SHARES INVESTMENT OF A SHARE ACQUIRED ------------------------------------------------------------------------------- $100 $ 6.00 16.7 100 4.00 25.0 100 4.00 25.0 100 6.00 16.7 100 5.00 20.0 ------------------------------------------------------------------------------- $500 $25.00 103.4 AVERAGE MARKET PRICE OF A SHARE OVER 5 PERIODS: $5.00 ($25.00 DIVIDED BY 5) THE AVERAGE PRICE YOU PAID FOR EACH SHARE: $4.84 ($500 DIVIDED BY 103.4) DIVERSIFY Diversify your portfolio. By investing in different asset classes and different economic environments you help protect against poor performance in one type of investment while including investments most likely to help you achieve your important goals. UNDERSTAND YOUR INVESTMENT Know what you are buying. Make sure you understand the potential risks, rewards, costs, and expenses associated with each of your investments. Page 4 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. FUNDAMENTAL POLICIES Fundamental policies are policies that can be changed only with shareholder approval. Unless holders of a majority of the outstanding voting securities agree to make the change, the fund will not: o 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. o 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. o 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. o Issue senior securities, except as permitted under the 1940 Act. o 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. o 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. o 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. NONFUNDAMENTAL POLICIES Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The following are guidelines that may be changed by the Board at any time: o The fund will not invest more than 10% of its net assets in securities that are illiquid whether or not registration or the filing of a notification under the Securities Act of 1933 or the taking of Page 5 similar action under other securities laws relating to the sale of securities is required. A risk of any such investment is that it might not be able to be easily liquidated. For the purpose of this policy, repurchase agreements with maturities greater than seven days and non-negotiable fixed time deposits will be treated as illiquid securities. o The fund will not make additional investments while any borrowing remains outstanding. o The fund will not invest in a company to manage or control it. o No more than 5% of the fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o The fund will not invest more than 10% of its total assets in the securities of investment companies, unless a higher amount is permitted under an SEC exemptive order. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS This table shows many of the various investment strategies and investments that many funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager may make on behalf of a fund. For a description of principal risks, please see the prospectus. 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. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS: A black circle indicates that the investment strategy or type of investment generally is authorized for the fund. TABLE 1. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS ------------------------------------------------------------------------------- INVESTMENT STRATEGY TAXABLE FIXED INCOME ------------------------------------------------------------------------------- Agency and government securities o ------------------------------------------------------------------------------- Borrowing o ------------------------------------------------------------------------------- Cash/money market instruments o ------------------------------------------------------------------------------- Collateralized bond obligations o ------------------------------------------------------------------------------- Commercial paper o ------------------------------------------------------------------------------- Common stock o ------------------------------------------------------------------------------- Convertible securities o ------------------------------------------------------------------------------- Corporate bonds o ------------------------------------------------------------------------------- Debt obligations o ------------------------------------------------------------------------------- Depositary receipts o ------------------------------------------------------------------------------- Derivative instruments (including options and futures) o ------------------------------------------------------------------------------- Exchange-traded funds o ------------------------------------------------------------------------------- Foreign currency transactions o ------------------------------------------------------------------------------- Floating Rate Loans o ------------------------------------------------------------------------------- Foreign securities o ------------------------------------------------------------------------------- Funding agreements o ------------------------------------------------------------------------------- High yield debt securities (junk bonds) o ------------------------------------------------------------------------------- Illiquid and restricted securities o ------------------------------------------------------------------------------- Indexed securities o ------------------------------------------------------------------------------- Inflation protected securities o ------------------------------------------------------------------------------- Inverse floaters o ------------------------------------------------------------------------------- Investment companies o ------------------------------------------------------------------------------- Lending of portfolio securities o ------------------------------------------------------------------------------- Loan participations o ------------------------------------------------------------------------------- Mortgage-and asset-backed securities o ------------------------------------------------------------------------------- Page 6 ------------------------------------------------------------------------------- INVESTMENT STRATEGY TAXABLE FIXED INCOME ------------------------------------------------------------------------------- Mortgage dollar rolls o ------------------------------------------------------------------------------- Municipal obligations o ------------------------------------------------------------------------------- Preferred stock o ------------------------------------------------------------------------------- Real estate investment trusts o ------------------------------------------------------------------------------- Repurchase agreements o ------------------------------------------------------------------------------- Reverse repurchase agreements o ------------------------------------------------------------------------------- Short sales ------------------------------------------------------------------------------- Sovereign debt o ------------------------------------------------------------------------------- Structured investments o ------------------------------------------------------------------------------- Swap agreements o ------------------------------------------------------------------------------- Variable- or floating-rate securities o ------------------------------------------------------------------------------- Warrants o ------------------------------------------------------------------------------- When-issued securities and forward commitments o ------------------------------------------------------------------------------- Zero-coupon, step-coupon and pay-in-kind securities o ------------------------------------------------------------------------------- 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 fund, please see the 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 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. 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 Page 7 in the fund. In many instances, issuers of floating rate loans offer to furnish Confidential Information to prospective purchases 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. DERIVATIVES RISK. Derivatives are financial instruments where value depends upon, or is derived from, the value of something else, such as underlying investments, pools of investments, options, futures, indexes or currencies. Just as with securities in which the fund invests directly, derivatives are subject to a number of risks, including market, liquidity, interest rate and credit risk. In addition, gains or losses involving derivatives may be substantial, because a relatively small price movement in the underlying security, currency or index may result in a substantial gain or loss for the fund. The fund will suffer a loss in connection with the use of derivative instruments if prices do not move in the direction anticipated by the fund's portfolio managers when entering into the derivative instrument. 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. FOREIGN/EMERGING MARKETS RISK. The following are all components of foreign/emerging markets risk: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rates between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development Page 8 and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. GEOGRAPHIC CONCENTRATION RISK. The fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the fund may be more volatile than a more geographically diversified fund. For state-specific funds. Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub-divisions of the state, each fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax-exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. 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 RISK. Also known as purchasing power risk, inflation risk reflects the effects of continually rising prices on investments. If an investment's return is lower than the rate of inflation, your money will have less purchasing power as time goes on. 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 Page 9 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. 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. 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. MID-SIZED COMPANY RISK. Investments in mid-sized companies often involve greater risks than investments in larger, more established companies because mid-sized companies may lack the management experience, financial resources, product diversification, and competitive strengths of larger companies. In addition, in many instances the securities of mid-sized companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less than is typical of larger companies. PREPAYMENT AND EXTENSION RISK. 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 may not be able to reinvest 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. 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. Page 10 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. SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience, and competitive strengths of larger companies. Additionally, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies. TAX RISK. As a regulated investment company, a fund must derive at least 90% of its gross income for each taxable year from sources treated as "qualifying income" under the Internal Revenue Code of 1986, as amended. The Fund currently intends to take positions in forward currency contracts with notional value up to the Fund's total net assets. Although foreign currency gains currently constitute "qualifying income" the Treasury Department has the authority to issue regulations excluding from the definition of "qualifying incomes" a fund's foreign currency gains not "directly related" to its "principal business" of investing in stocks or securities (or options and futures with respect thereto). Such regulations might treat gains from some of the Fund's foreign currency-denominated positions as not "qualifying income" and there is a remote possibility that such regulations might be applied retroactively, in which case, the Fund might not qualify as a regulated investment company for one or more years. In the event the Treasury Department issues such regulations, the Fund's Board of Directors may authorize a significant change in investment strategy or Fund liquidation. TRACKING ERROR RISK. For funds that are managed to an index, the fund may not track the index perfectly because differences between the index and the fund's portfolio can cause differences in performance. The investment manager purchases securities and other instruments in an attempt to replicate the performance of the index. However, the tools that the investment manager uses to replicate the index are not perfect and the fund's performance is affected by factors such as the size of the fund's portfolio, transaction costs, management fees and expenses, brokerage commissions and fees, the extent and timing of cash flows in and out of the fund and changes in the index. In addition, the returns from a specific type of security (for example, mid-cap stocks) may trail returns from other asset classes or the overall market. Each type of security will go through cycles of doing better or worse than stocks or bonds in general. These periods may last for several years. UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category. INVESTMENT STRATEGIES The following information supplements the discussion of each fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes strategies that many mutual funds use and types of securities that they purchase. Please refer to the table titled Investment Strategies and Types of Investments to see which are applicable to various categories of funds. AGENCY AND GOVERNMENT SECURITIES The U.S. government and its agencies issue many different types of securities. U.S. Treasury bonds, notes, and bills and securities, including mortgage pass through certificates of the Government National Mortgage Association (GNMA), are guaranteed by the U.S. government. Page 11 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 A fund may borrow money for temporary purposes or to engage in transactions permissible under the 1940 Act that may be considered a borrowing (such as derivative instruments). Borrowings are subject to costs (in addition to any interest that may be paid) and typically reduce a fund's total return. Except as noted in the nonfundamental polices, however, a fund may not buy securities on margin. Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Inflation Risk. CASH/MONEY MARKET INSTRUMENTS Cash-equivalent investments include short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances, and letters of credit of banks or savings and loan associations having capital, surplus, and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. A fund also may purchase short-term notes and obligations of U.S. and foreign banks and corporations and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types of instruments generally offer low rates of return and subject a fund to certain costs and expenses. See Appendix A for a discussion of securities ratings. 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 Page 12 CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield Debt Securities (Junk Bonds).) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and Prepayment and Extension Risk. COMMERCIAL PAPER Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk and Liquidity Risk. COMMON STOCK Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Market Risk, and Small and Mid-Sized Company Risk. CONVERTIBLE SECURITIES Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common, preferred or other securities of the same or a different issuer within a particular period of time at a specified price. Some 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 Page 13 at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment Risk. CORPORATE BONDS Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEBT OBLIGATIONS Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a fixed, variable or floating rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High-Yield Debt Securities (Junk Bonds).) Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings. Page 14 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 Page 15 writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option during the length of the contract, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash or securities of equivalent value (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition to the premium, the buyer generally pays a broker a commission. The writer receives a premium, less another commission, at the time the option is written. The premium received by the writer is retained whether or not the option is exercised. A writer of a call option may have to sell the security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions. 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. Page 16 A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC. Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. Options on Stock Indexes. Options on stock indexes are securities traded on national securities exchanges. An option on a stock 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. 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 mixed straddles 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. Federal income tax treatment of gains or losses from transactions in 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 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. Page 17 Other Risks of Derivatives. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Derivatives Risk and Liquidity Risk. 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 closely track the performance and dividend yield of specific domestic or foreign market indexes. Although one or more of the other risks described in this SAI may apply, the largest risks associated with ETFs include: Market Risk. 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 Page 18 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. A fund's ability to receive payments of principal and interest and other amounts in connection with loans held by it will depend primarily on the financial condition of the borrower. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund's net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or purchasing an assignment in a loan. In selecting the loans in which the fund will invest, however, the investment manager will not rely on that credit analysis of the agent bank, but will perform its own investment analysis of the borrowers. The investment manager's analysis may include consideration of the borrower's financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. The majority of loans the fund will invest in will be rated by one or more of the nationally recognized rating agencies. Investments in loans may be of any quality, including "distressed" loans, and will be subject to the fund's credit quality policy. Loans may be structured in different forms, including assignments and participations. In an assignment, a fund purchases an assignment of a portion of a lender's interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank's rights in the loan. The borrower of a loan may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that a fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan. Corporate loans in which a fund may purchase a loan assignment are made generally to finance internal growth, mergers, acquisitions, recapitalizations, stock repurchases, leveraged buy-outs, dividend payments to sponsors and other corporate activities. Under current market conditions, most of the corporate loans purchased by the fund will represent loans made to highly leveraged corporate borrowers. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that the investment manager believes are attractive arise. Certain of the loans acquired by a fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan assignment. To the extent that the fund is committed to make additional loans under such an assignment, it will at all times designate cash or securities in an amount sufficient to meet such commitments. 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 Page 19 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. For hedging 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 in dollars. 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. Page 20 A fund may also enter into forward contracts when management of the fund believes the currency of a particular foreign country may decline in value relative to another currency. When selling currencies forward in this fashion, a fund may seek to hedge the value of foreign securities it holds against an adverse move in exchange rates. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. 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. For investment purposes, a fund may 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. 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 immediately 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. 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. Page 21 Options on Foreign Currencies. A fund may buy put and call options and write covered call and cash-secured put options on foreign currencies for hedging purposes and to gain exposure to foreign currencies. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against the diminutions in the value of securities, a fund may buy put options on the foreign currency. If the value of the currency does decline, a fund would have the right to sell the currency for a fixed amount in dollars and would offset, in whole or in part, the adverse effect on its portfolio that otherwise would have resulted. Conversely, where a change in the dollar value of a currency would increase the cost of securities a fund plans to buy, or where a fund would benefit from increased exposure to the currency, a fund may buy call options on the foreign currency. The purchase of the options could offset, at least partially, the changes in exchange rates. As in the case of other types of options, however, the benefit to a fund derived from purchases of foreign currency options would be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in rates. 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. Page 22 Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. A fund may use currency futures for the same purposes as currency forward contracts, subject to CFTC limitations. Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the fund's investments. A currency hedge, for example, should protect a Yen-denominated bond against a decline in the Yen, but will not protect a fund against price decline if the issuer's creditworthiness deteriorates. Because the value of a fund's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of a fund's investments denominated in that currency over time. A fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The fund would not enter into an option or futures position that exposes the fund to an obligation to another party unless it owns either (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 Page 23 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 conversion of the currencies of other EU countries such as the United Kingdom and Denmark into the euro and the admission of other non-EU countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk and Issuer Risk. FUNDING AGREEMENTS A fund may invest in funding agreements issued by domestic insurance companies. Funding agreements are short-term, privately placed, debt obligations of insurance companies that offer a fixed- or floating-rate of interest. These investments are not readily marketable and therefore are considered to be illiquid securities. (See also Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with funding agreements include: Credit Risk and Liquidity Risk. HIGH-YIELD DEBT SECURITIES (JUNK BONDS) High yield (high-risk) debt securities are sometimes referred to as junk bonds. They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater Page 24 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. Page 25 In determining the liquidity of all securities and derivatives, such as Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities the investment manager, under guidelines established by the Board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with illiquid and restricted securities include: Liquidity Risk. INDEXED SECURITIES The value of indexed securities is linked to currencies, interest rates, commodities, indexes, or other financial indicators. Most indexed securities are short- to intermediate-term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) 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. Page 26 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. INVERSE FLOATERS Inverse floaters are created by underwriters using the interest payment on securities. A portion of the interest received is paid to holders of instruments based on current interest rates for short-term securities. The remainder, minus a servicing fee, is paid to holders of inverse floaters. As interest rates go down, the holders of the inverse floaters receive more income and an increase in the price for the inverse floaters. As interest rates go up, the holders of the inverse floaters receive less income and a decrease in the price for the inverse floaters. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with inverse floaters include: Interest Rate 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. 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. Page 27 Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk. MORTGAGE- AND ASSET-BACKED SECURITIES Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations (CMOs). These securities may be issued or guaranteed by U.S. government agencies or instrumentalities (see also Agency and Government Securities), or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Commercial mortgage-backed securities (CMBS) are a specific type of mortgage-backed security collateralized by a pool of mortgages on commercial real estate. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage-backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset-backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. Page 28 The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage and asset-backed securities include: Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension Risk. MORTGAGE DOLLAR ROLLS Mortgage dollar rolls are investments in which an investor sells mortgage-backed securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date. While an investor foregoes principal and interest paid on the mortgage-backed securities during the roll period, the investor is compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The investor also could be compensated through the receipt of fee income equivalent to a lower forward price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk and Interest Rate Risk. MUNICIPAL OBLIGATIONS Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States (including the District of Columbia and Puerto Rico). The interest on these obligations is generally exempt from federal income tax. Municipal obligations are generally classified as either "general obligations" or "revenue obligations." General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes, and similar instruments. Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to 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.) Page 29 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. Although one or more of the other risks described in this SAI may apply, the largest risks associated with REITs include: Interest Rate Risk, Issuer Risk and Market Risk. REPURCHASE AGREEMENTS Repurchase agreements may be entered into with certain banks or non-bank dealers. In a repurchase agreement, the purchaser buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the purchaser's ability to dispose of the underlying securities. Page 30 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 With short sales, an investor sells a security that it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the investor must borrow the security to make delivery to the buyer. The investor is obligated to replace the security that was 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 investor sold the security. A fund that is allowed to engage in short sales will designate cash or liquid securities to cover its open short positions. Those funds also may engage in "short sales against the box," a form of short-selling that involves selling a security that an investor owns (or has an unconditioned right to purchase) for delivery at a specified date in the future. This technique allows an investor to hedge protectively against anticipated declines in the market of its securities. If the value of the securities sold short increased between the date of the short sale and the date on which the borrowed security is replaced, the investor loses the opportunity to participate in the gain. A "short sale against the box" will result in a constructive sale of appreciated securities thereby generating capital gains to a fund. Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Market Risk. SOVEREIGN DEBT A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by a variety of factors, including its cash flow situation, the extent of its reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward international lenders, and the political constraints to which a sovereign debtor may be subject. (See also Foreign Securities.) With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis that led to defaults and the restructuring of certain indebtedness. Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk and Foreign/Emerging Markets Risk. STRUCTURED INVESTMENTS A structured investment is a security whose return is tied to an underlying index or to some other security or pool of assets. Structured investments generally are individually negotiated agreements and may be traded Page 31 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. Page 32 Cross Currency Swaps. Cross currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and termination of the agreements, both sides will also have to pay in full periodically based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps. Total Return Swaps. Total return swaps are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. For example, CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of collateralized 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. 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 Page 33 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. 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. See also, Floating Rate Loans. 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. Page 34 WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS When-issued securities and forward commitments involve a commitment to purchase or sell specific securities at a predetermined price or yield in which payment and delivery take place after the customary settlement period for that type of security. Normally, the settlement date occurs within 45 days of the purchase although in some cases settlement may take longer. The investor does not pay for the securities or receive dividends or interest on them until the contractual settlement date. Such instruments involve the risk of loss if the value of the security to be purchased declines prior to the settlement date and the risk that the security will not be issued as anticipated. If the security is not issued as anticipated, a fund may lose the opportunity to obtain a price and yield considered to be advantageous. Although one or more of the other risks described in this SAI may apply, the largest risks associated with when-issued securities and forward commitments include: Credit Risk. ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES These securities are debt obligations that do not make regular cash interest payments (see also Debt Obligations). Zero-coupon and step-coupon securities are sold at a deep discount to their face value because they do not pay interest until maturity. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, the price of these securities can be extremely volatile when interest rates fluctuate. See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with zero-coupon, step-coupon, and pay-in-kind securities include: Credit Risk and Interest Rate Risk. A fund cannot issue senior securities but this does not prohibit certain investment activities for which assets of the fund are set aside, or margin, collateral or escrow arrangements are established, to cover the related obligations. Examples of those activities include borrowing money, delayed-delivery and when-issued securities transactions, and contracts to buy or sell options, derivatives, and hedging instruments. SECURITIES TRANSACTIONS Except as otherwise noted, the description of policies and procedures in this section also applies to any fund subadviser. Subject to policies set by the Board, as well as the terms of the investment management agreements, the investment manager is authorized to determine, consistent with a fund's investment goal 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. In selecting broker-dealers to execute transactions, the investment manager may consider the price of the security, including commission or mark-up, the size and difficulty of the order, the reliability, integrity, financial soundness, and general operation and execution capabilities of the broker, the broker's expertise in particular markets, and research services provided by the broker. The fund, the investment manager, any subadviser and Ameriprise Financial Services, Inc. ("the distributor" or "Ameriprise Financial Services") have 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 a principal rather than an agency basis. In certain circumstances, 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 does not pay the dealer commissions. Instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. Page 35 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 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 overall responsibilities with respect to a fund and the other RiverSource funds for which it acts as investment manager. Research provided by brokers supplements the investment manager's own research activities. Such services include economic data on, and analysis of, U.S. and foreign economies; information on specific industries; information about specific companies, including earnings estimates; purchase recommendations; portfolio strategy services; political, economic, business, and industry trend assessments; historical statistical information; market data services providing information on specific issues and prices; and technical analysis of various aspects of the securities markets, including technical charts. Research services may take the form of written reports, computer software, or personal contact by telephone or at seminars or other meetings. The investment manager has obtained, and in the future may obtain, computer hardware from brokers, including but not limited to personal computers that will be used exclusively for investment decision-making purposes, which include the research, portfolio management, and trading functions and other services to the extent permitted under an interpretation by the SEC. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, the investment manager must follow procedures authorized by the Board. To date, three procedures have been authorized. One procedure permits the investment manager to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits the investment manager, in order to obtain research, to direct an order on an agency basis to buy or sell a security traded in the over-the-counter market to a firm that does not make a market in that security. The commission paid generally includes compensation for research services. The third procedure permits the investment manager, in order to obtain research and brokerage services, to cause a fund to pay a commission in excess of the amount another broker might have charged. The investment manager has advised the funds that it is necessary to do business with a number of brokerage firms on a continuing basis to obtain such services as the handling of large orders, the willingness of a broker to risk its own money by taking a position in a security, and the specialized handling of a particular group of securities that only certain brokers may be able to offer. As a result of this arrangement, some portfolio transactions may not be effected at the lowest commission, but the investment manager believes it may obtain better overall execution. The investment manager has represented that under all three procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services performed or research provided. All other transactions will be placed on the basis of obtaining the best available price and the most favorable execution. In so doing, if in the professional opinion of the person responsible for selecting the broker or dealer, several firms can execute the transaction on the same basis, consideration will be given by such person to those firms offering research services. Such services may be used by the investment manager in providing advice to all RiverSource funds even though it is not possible to relate the benefits to any particular fund. Each investment decision made for a fund is made independently from any decision made for another portfolio, fund, or other account advised by the investment manager. When a fund buys or sells the same security as another portfolio, fund, or account, the investment manager carries out the purchase or sale in a way believed to be fair to the fund. Although sharing in large transactions may adversely affect the price or volume purchased or sold by the fund, the fund hopes to gain an overall advantage in execution. On Page 36 occasion, a fund may purchase and sell a security simultaneously in order to profit from short-term price disparities. On a periodic basis, the investment manager makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions. The review evaluates execution, operational efficiency, and research services. The Board has adopted a policy prohibiting the investment manager from considering sales of shares of the funds as a factor in the selection of broker-dealers through which to execute securities transactions. BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER Affiliates of RiverSource Investments 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. VALUING FUND SHARES In determining net assets before shareholder transactions, a fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): o 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. o 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. o Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. o 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. o Futures and options traded on major exchanges are valued at the last-quoted sales price on their primary exchange. o Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars utilizing spot exchange rates at the close of regular trading on the NYSE. o 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. o 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 Page 37 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. o 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. o When possible, bonds and floating rate loans 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. PORTFOLIO HOLDINGS DISCLOSURE The 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, the 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. The 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 the fund's portfolio holdings will be 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. Once holdings information is filed with the SEC, it will also be posted on the funds' website (www.riversource.com/funds), and it may be mailed, e-mailed or otherwise transmitted to any person. In addition, the investment manager makes publicly available, on a monthly basis, 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 not released until it is at least 30 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 Page 38 (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), pricing services (including Reuters Pricing Service, FT Interactive Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting services (Investor Responsibility Research Center, Inc.), and companies that deliver or support systems that provide analytical or statistical information (including Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or rating of the fund by ratings and rankings agencies (including,Morningstar, Inc., Thomson Financial and Lipper Inc.), and (3) other entities that provide trading, research or other investment related services (including Citigroup, Lehman Brothers Holdings, Merrill Lynch & Co., and Morgan Stanley). 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 or state securities laws, and may disclose holdings information in response to requests by governmental authorities. The 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 The funds uphold a long tradition of sound and principled corporate governance. For approximately 30 years, the Board, which consists of a majority of independent directors, has voted proxies. The funds' administrator, Ameriprise Financial, provides support to the Board in connection with the proxy voting process. General guidelines are: Page 39 o CORPORATE GOVERNANCE MATTERS -- The Board supports proxy proposals that require changes or encourage decisions that have been shown to add shareholder value over time and votes against proxy proposals that entrench management. o CHANGES IN CAPITAL STRUCTURE -- The Board votes for amendments to corporate documents that strengthen the financial condition of a business. o STOCK OPTION PLANS AND OTHER MANAGEMENT COMPENSATION ISSUES -- The Board expects thoughtful consideration to be given by a company's management to developing a balanced compensation structure providing competitive current income with long-term employee incentives directly tied to the interest of shareholders and votes against proxy proposals that dilute shareholder value excessively. o SOCIAL AND CORPORATE POLICY ISSUES -- The Board believes that proxy proposals should address the business interests of the corporation. Such proposals typically request that the company disclose or amend certain business practices but lack a compelling economic impact on shareholder value. In general, these matters are primarily the responsibility of management and should be reviewed by the corporation's board of directors, unless they have a substantial impact on the value of a fund's investment. Each proposal is viewed in light of the circumstances of the company submitting the proposal. POLICY AND PROCEDURES The policy of the Board is to vote all proxies of the companies in which a fund holds investments. The Board has implemented policies and procedures reasonably designed to ensure that there are no conflicts between interests of a fund's shareholders and those of the funds' investment manager, RiverSource Investments, or other affiliated entities. The recommendation of the management of a company as set out in the company's proxy statement is considered. In each instance in which a fund votes against the recommendation, the Board sends a letter to senior management of the company explaining the basis for its vote. This has permitted both the company's management and the fund's Board to gain better insight into issues presented by proxy proposals. In the case of foreign corporations, proxies of companies located in some countries may not be voted due to requirements of locking up the voting shares and when time constraints prohibit the processing of proxies. From time to time a proxy proposal is presented that has not been previously considered by the Board or that the investment manager recommends be voted different from the votes cast for similar proposals. 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 outside resources, including Glass Lewis & Co. The investment manager makes the recommendation in writing. The process established by the Board to vote proxies requires that either Board members or officers who are independent from the investment manager consider the recommendation and decide how to vote the proxy proposal. PROXY VOTING RECORD Information regarding how a fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available through www.riversource.com/funds, or searching the website of the SEC at www.sec.gov. INVESTING IN A FUND Absolute Return Currency and Income Fund is currently only available to certain limited institutional investors through the sale of Class I shares. Classes A, B, C and Y are currently not offered. Page 40 SALES CHARGE 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 I 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 table. TABLE 2. CLASS A SALES CHARGE -------------------------------------------------------------------------- SALES CHARGE* AS A PERCENTAGE OF: -------------------------------------------------------------------------- TOTAL MARKET VALUE PUBLIC OFFERING NET AMOUNT INVESTED PRICE** -------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% -------------------------------------------------------------------------- $50,000-$99,999 4.25% 4.44% -------------------------------------------------------------------------- $100,000-$249,999 3.50% 3.63% -------------------------------------------------------------------------- $250,000-$499,999 2.50% 2.56% -------------------------------------------------------------------------- $500,000-$999,999 2.00% 2.04% -------------------------------------------------------------------------- $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 intermediary making such a sale. The initial sales charge is waived for certain qualified plans. Participants in these qualified plans may be subject to a deferred sales charge on certain redemptions. The deferred sales charge varies depending on the number of participants in the qualified plan and total plan assets as follows: DEFERRED SALES CHARGE ------------------------------------------------------------ NUMBER OF PARTICIPANTS ------------------------------------------------------------ TOTAL PLAN ASSETS 1-99 100 OR MORE ------------------------------------------------------------ Less than $1 million 4% 0% ------------------------------------------------------------ $1 million or more 0% 0% ------------------------------------------------------------ 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. The LOI start date can be backdated by up to 90 days, but backdating the LOI will shorten the going forward window by the length of the backdating. Your holdings in RiverSource funds acquired more than 90 days before your financial institution receives your signed LOI will not be counted towards the LOI commitment amount and cannot be used as the starting point for the LOI. While these purchases cannot be included within an LOI, you may still be able to take advantage of a reduced sales charge on future purchases because the historic purchases may count toward the combined market value for Rights of Accumulation. For example, if you made an investment more than 90 days ago, and that investment's current market value is $75,000, the sales charge you would pay on additional investment is 4.5% until the market value of your accounts is $100,000, at which point your sales charge will be reduced to 3.5%. If you plan to invest another $50,000 over the next 13 month period, you may not rely on a letter of intent to Page 41 take immediate advantage of the lower 3.5% sales charge, but instead would naturally realize the lower sales charge of 3.5% (under Rights of Accumulation) after you invested $25,000. To take immediate advantage of the 3.5% sales charge level, you would need to sign a $100,000 LOI and then invest another $100,000. 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 Rights of Accumulation or the total value of the new investment combined with the market value of the existing RiverSource fund investments as described in the prospectus. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. The commitment amount does not include purchases in any class of RiverSource funds other than Class A; does not include reinvested dividends and directed dividends earned in any RiverSource funds; purchases in RiverSource funds held within a wrap product; and purchases of RiverSource Cash Management Fund and RiverSource Tax-Exempt Money Market Fund unless they are subsequently exchanged to Class A shares of an 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 adviser in writing about the LOI when placing any purchase orders during the period of the LOI. If you do not complete and file the LOI form, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. CLASS B SHARES Class B shares have a CDSC for six years. For Class B shares purchased prior to May 21, 2005, those shares will convert to Class A shares in the ninth calendar year of ownership. For Class B shares purchased beginning May 21, 2005, those shares will convert to Class A shares one month after the eighth year of ownership. CLASS 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 and are not subject to a distribution fee, but have a separate shareholder service fee. The following investors are eligible to purchase Class Y shares: o Qualified employee benefit plans* if the plan: o uses a daily transfer recordkeeping service offering participants daily access to RiverSource funds and has o at least $10 million in plan assets or o 500 or more participants; or o does not use daily transfer recordkeeping and has o at least $3 million invested in RiverSource funds or o 500 or more participants. A plan that qualifies for investment in Class Y may continue to invest in Class Y even if it subsequently falls below the required level of assets or participants. o Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code.* These institutions must have at least $10 million in RiverSource funds. o Nonqualified deferred compensation plans* whose participants are included in a qualified employee benefit plan described above. o State sponsored college savings plans established under Section 529 of the Internal Revenue Code. * Eligibility must be determined in advance. To do so, contact your financial advisor. SYSTEMATIC INVESTMENT PROGRAMS You decide how often to make payments -- monthly, quarterly, or semiannually. Provided your account meets the minimum balance requirement, you are not obligated to make any payments. You can omit Page 42 payments or discontinue the investment program altogether. A fund also can change the program or end it at any time. REJECTION OF BUSINESS Each fund and RiverSource Service Corporation reserves 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: o The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or o 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 o The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should a fund stop selling shares, the Board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute these costs fairly among all shareholders. Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the fund as determined by the Board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should a fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. PAY-OUT PLANS You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem shares, you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties, and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of a fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. 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. The following pay-out plans are designed to take care of the needs of most shareholders in a way that can be handled efficiently and at a reasonable cost. If you need a more irregular schedule of payments, it may Page 43 be necessary for you to make a series of individual redemptions, in which case you will have to send in a separate redemption request for each pay-out. Each fund reserves the right to change or stop any pay-out plan and to stop making such plans available. PLAN #1: PAY-OUT FOR A FIXED PERIOD OF TIME If you choose this plan, a varying number of shares will be redeemed at regular intervals during the time period you choose. This plan is designed to end in complete redemption of all shares in your account by the end of the fixed period. PLAN #2: REDEMPTION OF A FIXED NUMBER OF SHARES If you choose this plan, a fixed number of shares will be redeemed for each payment and that amount will be sent to you. The length of time these payments continue is based on the number of shares in your account. PLAN #3: REDEMPTION OF A FIXED DOLLAR AMOUNT If you decide on a fixed dollar amount, whatever number of shares is necessary to make the payment will be redeemed in regular installments until the account is closed. PLAN #4: REDEMPTION OF A PERCENTAGE OF NET ASSET VALUE Payments are made based on a fixed percentage of the net asset value of the shares in the account computed on the day of each payment. Percentages range from 0.25% to 0.75%. For example, if you are on this plan and arrange to take 0.5% each month, you will get $100 if the value of your account is $20,000 on the payment date. TAXES 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). 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 a 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. 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 redemption of shares and may result in a gain or loss for tax purposes. 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. Page 44 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. For the most recent fiscal period, net investment income dividends qualified for the corporate deduction as shown in the following table. Under current tax law, the maximum tax paid on dividends by individuals is 15% (5% for taxpayers in the 10% and 15% brackets) for tax years through 2010. The maximum capital gain rate for securities sold on or after May 6, 2003 through 2010 is 15% (5% for taxpayers in the 10% and 15% brackets). Only certain qualified dividend income (QDI) will be subject to the 15% and 5% tax rates. 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 (except Barbados). Excluded are passive foreign investment companies (PFICs), foreign investment companies and foreign personal holding companies. Holding periods for shares must also be met to be eligible for QDI treatment (60 days for common stock and 90 days for preferreds). A fund may be subject to U.S. taxes resulting from holdings in a PFIC. To avoid taxation, a fund may make an election to mark to market. 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 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. 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. 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 also are treated as ordinary 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. 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) Page 45 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 Code imposes two asset diversification rules that apply to each fund as of the close of each quarter. First, as to 50% of its holdings, the fund may hold no more than 5% of its assets in securities of one issuer and no more than 10% of any one issuer's outstanding voting securities. Second, a fund cannot have more than 25% of its assets in any one issuer. 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. Distributions, if any, that are in excess of a fund's current or accumulated earnings and profits will first reduce a shareholder's tax basis in the fund and, after the basis is reduced to zero, will generally result in capital gains to a shareholder. 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. AGREEMENTS INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreement, the investment manager, subject to the policies set by the Board, provides investment management services. For its services, the investment manager is paid a 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 3. INVESTMENT MANAGEMENT SERVICES AGREEMENT FEE SCHEDULE ----------------------------------------------------------------------------------------------- FUND ASSETS (BILLIONS) ANNUAL RATE AT EACH ASSET LEVEL ----------------------------------------------------------------------------------------------- Absolute Return Currency and First $1.0 0.890% Income 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 -----------------------------------------------------------------------------------------------
The management fee is paid monthly. 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 Page 46 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; and expenses properly payable by a fund, approved by the Board. BASIS FOR BOARD APPROVAL OF THE INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC (RiverSource Investments), 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), the investment manager provides investment advice and other services to the fund. The fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. The independent Board members determined to approve the IMS Agreement based on the following factors: In addition to portfolio management and investment research, RiverSource Investments and its affiliates provide portfolio trading, daily net asset value calculation, management of cash flows, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. The Board also noted RiverSource Investments commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. The Board concluded that the services to be provided are consistent with services provided by investment managers to comparable mutual funds (as compiled by Lipper Analytical Services). The Board also evaluated the price for the services to be provided by RiverSource Investments, noting the existence of a pricing philosophy, established by the Board and RiverSource Investments, that seeks to maintain total fund expenses within a range of the median expenses charged to comparable funds sold through financial advisers. It also noted that RiverSource Investments has agreed to voluntarily impose expense caps, if necessary, to achieve this pricing objective. The Board 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 also might 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. The Board took into account the Contracts Committee's discussion comparing the fees RiverSource Investments will charge to the fund with those it charges to institutional clients, noting that the relatively higher fees to be paid by the fund are principally attributable to the additional services required to manage a regulated mutual fund such as the fund, and the operation of a large mutual fund family. The Board also considered the profitability of RiverSource Investments and its affiliates. The Board concluded that RiverSource Investments' overall costs and profitability were appropriate. The Board considered that the fees paid by the fund should help permit RiverSource Investments to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. Based on the foregoing, the Board concluded that the fees paid to RiverSource Investments under the IMS Agreement were fair and reasonable and determined to approve the IMS Agreement. Page 47 PORTFOLIO MANAGERS. The following table provides information about the funds' portfolio managers as of March 31, 2006.
TABLE 4. PORTFOLIO MANAGERS --------------------------------------------------------------------------------------------------------------------------------- OTHER ACCOUNTS MANAGED (excluding the fund) ------------------------------------------------- PORTFOLIO NUMBER AND TYPE APPROXIMATE PERFORMANCE OWNERSHIP POTENTIAL STRUCTURE OF FUND MANAGER OF ACCOUNT* TOTAL NET BASED OF FUND CONFLICTS COMPENSATION ASSETS ACCOUNTS(a) SHARES(b) OF INTEREST --------------------------------------------------------------------------------------------------------------------------------- Absolute Return Nicholas Pifer 6 RICs $6.29 billion 1 other None (1) (2) Currency and Income 8 PIVs $0.669 billion account 16 other $4.166 billion ($0.14 accounts(c) 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 on performance. (b) The fund is new and shares were not yet being offered as of March 31, 2006. (c) Includes wrap accounts that are managed as one model. POTENTIAL CONFLICTS OF INTEREST (1) 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 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, 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 timely manner. 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. STRUCTURE OF COMPENSATION (2) 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, institutional portfolios and hedge funds. Funding for the bonus pool for equity portfolio managers is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, and by the short term (typically one-year) and long-term (typically three year) pre-tax performance of those accounts in relation to the relevant peer group universe. 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) pre-tax performance of those accounts in relation to applicable benchmarks or the relevant peer group universe. With respect to hedge funds, funding Page 48 for the bonus pool is a percentage of performance fees earned on the hedge funds 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 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 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. ADMINISTRATIVE SERVICES AGREEMENT The fund 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 5. ADMINISTRATIVE SERVICES AGREEMENT FEE SCHEDULE ---------------------------------------------------------------------------------------------------------------------- FUND ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ---------------------------------------------------------------------------------------------------------------------- $0 - $500,000,001 - $1,000,000,001 $3,000,000,001 - $12,000,000,001 500,000,000 1,000,000,000 - 3,000,000,000 12,000,000,000 + ---------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and 0.080% 0.075% 0.070% 0.060% 0.050% Income ----------------------------------------------------------------------------------------------------------------------
The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding business day. 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 AGREEMENT The fund has a Transfer Agency Agreement with RiverSource Service Corporation located at 70100 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. Under the agreement, 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 annual per account fee accrued daily and payable monthly, for the applicable classes is as follows: Class A Class B Class C Class I Class Y ------- ------- ------- ------- ------- $20.50 $21.50 $21.00 $1.00 $18.50 In addition, an annual closed-account fee of $5.00 per inactive account may be charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent Page 49 system, generally within one year. The fees paid to RiverSource Service Corporation may be changed by the Board without shareholder approval. DISTRIBUTION AGREEMENT RiverSource Distributors, Inc. and Ameriprise Financial Services, Inc. (collectively, the distributor), located at 70100 Ameriprise Financial Center, Minneapolis, MN 55474, serve as the fund's principal underwriter. 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. 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. SHAREHOLDER SERVICE AGREEMENT For funds with Class Y shares, the fund pays the distributor a fee for service provided to shareholders by financial advisors and other servicing agents with respect to those shares. The fee is calculated at a rate of 0.10% of average daily net assets for Class Y. 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, the fund approved a Plan of Distribution (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 a fee up to actual expenses incurred at an annual rate as follows: The fee is based on the average daily net assets of the fund attributable to the applicable class: Class A Class B Class C 0.25% 1.00% 1.00% For Class B and Class C shares, up to 0.75% is reimbursed for distribution expenses. Up to an additional 0.25% is paid to the distributor to compensate the distributor, financial advisors and servicing agents for personal service to shareholders and maintenance of shareholder accounts. 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. Expenses covered under this Plan include sales commissions; business, employee and financial advisor expenses charged to distribution of shares; and overhead appropriately allocated to the sale of Class A, Class B, and Class C shares, as applicable. These expenses also include costs of providing personal service to shareholders. A substantial portion of the costs are not specifically identified to any one of the RiverSource funds. The fee is not allocated to any one service (such as advertising, payments to underwriters, or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. The Plan must be approved annually by the Board, including a majority of the disinterested Board members, if it is to continue for more than a year. At least quarterly, the Board reviews written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of Board members who are not interested persons of the fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the relevant class of shares or by the distributor. Any agreement related to the Plan will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan Page 50 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. CUSTODIAN AGREEMENT The fund's securities and cash are held by Ameriprise Trust Company, 200 Ameriprise Financial Center, Minneapolis, MN 55474, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the fund pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. The custodian may enter into a sub-custodian agreement with the Bank of New York, 90 Washington Street, New York, NY 10286. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of Bank of New York or in other financial institutions as permitted by law and by the fund's sub-custodian agreement. For Floating Rate Fund, Bank of New York serves as sub-custodian for the Fund's investments in floating rate loans. ORGANIZATIONAL INFORMATION The 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.
TABLE 6. FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED RIVERSOURCE FUNDS ----------------------------------------------------------------------------------------------------------------------------------- DATE FIRST DATE OF OFFERED TO FORM OF STATE OF FISCAL FUND ORGANIZATION PUBLIC ORGANIZATION ORGANIZATION YEAR END DIVERSIFIED ----------------------------------------------------------------------------------------------------------------------------------- BOND SERIES, INC.(3) 4/29/81, Corporation NV/MN 7/31 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Core Bond Fund 6/19/03 Yes ----------------------------------------------------------------------------------------------------------------------------------- Floating Rate Fund 2/16/06 Yes ----------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Fund 6/19/03 Yes ----------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Fund 3/4/04 No ----------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Fund 6/19/03 Yes -----------------------------------------------------------------------------------------------------------------------------------
Page 51
----------------------------------------------------------------------------------------------------------------------------------- DATE FIRST DATE OF OFFERED TO FORM OF STATE OF FISCAL FUND ORGANIZATION PUBLIC ORGANIZATION ORGANIZATION YEAR END DIVERSIFIED ----------------------------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business MA 6/30 Trust(2) ----------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Fund 8/18/86 No ----------------------------------------------------------------------------------------------------------------------------------- DIMENSIONS SERIES, INC. 2/20/68, Corporation NV/MN 7/31 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity ---- Yes Fund ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Fund 2/16/06 Yes ----------------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED INCOME SERIES, INC.(3) 6/27/74, Corporation NV/MN 8/31 6/31/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Fund(4) 10/3/74 Yes ----------------------------------------------------------------------------------------------------------------------------------- EQUITY SERIES, INC. 3/18/57, Corporation NV/MN 11/30 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Fund(5) 6/4/57 Yes ----------------------------------------------------------------------------------------------------------------------------------- GLOBAL SERIES, INC. 10/28/88 Corporation MN 10/31 ----------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income ---- No ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Fund 2/16/06 No ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Fund(6) 11/13/96 Yes ----------------------------------------------------------------------------------------------------------------------------------- Global Bond Fund 3/20/89 No ----------------------------------------------------------------------------------------------------------------------------------- Global Equity Fund(6),(7) 5/29/90 Yes ----------------------------------------------------------------------------------------------------------------------------------- Global Technology Fund 11/13/96 No ----------------------------------------------------------------------------------------------------------------------------------- GOVERNMENT INCOME SERIES, INC. 3/12/85 Corporation MN 5/31 ----------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Fund(4) 8/19/85 Yes ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Fund 2/14/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD INCOME SERIES, INC. 8/17/83 Corporation MN 5/31 ----------------------------------------------------------------------------------------------------------------------------------- High Yield Bond Fund(4) 12/8/83 Yes ----------------------------------------------------------------------------------------------------------------------------------- INCOME SERIES, INC. 2/10/45, Corporation NV/MN 5/31 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Fund 2/16/06 No ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Fund 2/16/06 No ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Fund 2/16/06 No ----------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL MANAGERS SERIES, INC.(3) 5/9/01 Corporation MN 10/31 ----------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth Fund 9/28/01 Yes ----------------------------------------------------------------------------------------------------------------------------------- International Equity Fund(5) 10/3/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- International Select Value Fund 9/28/01 Yes ----------------------------------------------------------------------------------------------------------------------------------- International Small Cap Fund 10/3/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL SERIES, INC. 7/18/84 Corporation MN 10/31 ----------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity Fund ---- Yes ----------------------------------------------------------------------------------------------------------------------------------- European Equity Fund(6) 6/26/00 Yes ----------------------------------------------------------------------------------------------------------------------------------- International Opportunity Fund(5), (6) 11/15/84 Yes ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT SERIES, INC. 1/18/40, Corporation NV/MN 9/30 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Balanced Fund(5) 4/16/40 Yes ----------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Fund 10/15/90 Yes ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Fund 2/14/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- LARGE CAP SERIES, INC.(3) 5/21/70, Corporation NV/MN 7/31 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Fund(5) 4/24/03 Yes ----------------------------------------------------------------------------------------------------------------------------------- Growth Fund 3/1/72 Yes ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Fund 3/28/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Fund 6/27/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- MANAGERS SERIES, INC.(3) 3/20/01 Corporation MN 5/31 ----------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Fund 4/24/03 Yes ----------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth Fund(5) 4/24/03 Yes ----------------------------------------------------------------------------------------------------------------------------------- Fundamental Value Fund 6/18/01 Yes ----------------------------------------------------------------------------------------------------------------------------------- Select Value Fund 3/8/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity Fund(5) 3/8/02 Yes ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Value Fund 6/18/01 Yes ----------------------------------------------------------------------------------------------------------------------------------- Value Fund 6/18/01 Yes ----------------------------------------------------------------------------------------------------------------------------------- MARKET ADVANTAGE SERIES, INC. 8/25/89 Corporation MN 1/31 ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Fund 3/4/04 No ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 3/4/04 No Conservative Fund ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 3/4/04 No ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 3/4/04 No Fund ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 3/4/04 No -----------------------------------------------------------------------------------------------------------------------------------
Page 52
----------------------------------------------------------------------------------------------------------------------------------- DATE FIRST DATE OF OFFERED TO FORM OF STATE OF FISCAL FUND ORGANIZATION PUBLIC ORGANIZATION ORGANIZATION YEAR END DIVERSIFIED ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Fund 3/4/04 No ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Fund 10/25/99 Yes ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index Fund 8/19/96 Yes ----------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET SERIES, INC. 8/22/75, Corporation NV/MN 7/31 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Cash Management Fund 10/6/75 Yes ----------------------------------------------------------------------------------------------------------------------------------- RETIREMENT SERIES TRUST 1/27/06 Business MA 4/30 Trust(2) ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Fund ---- No ----------------------------------------------------------------------------------------------------------------------------------- SECTOR SERIES, INC. 3/25/88 Corporation MN 6/30 ----------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Fund(8) 8/1/88 Yes ----------------------------------------------------------------------------------------------------------------------------------- Real Estate Fund 3/4/04 No ----------------------------------------------------------------------------------------------------------------------------------- SELECTED SERIES, INC. 10/5/84 Corporation MN 3/31 ----------------------------------------------------------------------------------------------------------------------------------- Precious Metals Fund 4/22/86 No ----------------------------------------------------------------------------------------------------------------------------------- SPECIAL TAX-EXEMPT SERIES TRUST 4/7/86 Business MA 6/30 Trust(2) ----------------------------------------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund 7/2/87 No ----------------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt Fund 7/2/87 No ----------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Fund 8/18/86 No ----------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Fund 8/18/86 No ----------------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt Fund 7/2/87 No ----------------------------------------------------------------------------------------------------------------------------------- STRATEGIC ALLOCATION SERIES, INC.(3) 10/9/84 Corporation MN 9/30 ----------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Fund(5) 1/23/85 Yes ----------------------------------------------------------------------------------------------------------------------------------- STRATEGY SERIES, INC. 1/24/84 Corporation MN 3/31 ----------------------------------------------------------------------------------------------------------------------------------- Equity Value Fund 5/14/84 Yes ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Fund 1/24/01 Yes ----------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Fund 5/4/99 Yes ----------------------------------------------------------------------------------------------------------------------------------- TAX-EXEMPT INCOME SERIES, INC.(3) 12/21/78, Corporation NV/MN 11/30 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Fund(5) 5/7/79 Yes ----------------------------------------------------------------------------------------------------------------------------------- TAX-EXEMPT MONEY MARKET SERIES, INC. 2/29/80, Corporation NV/MN 12/31 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund(5) 8/5/80 Yes ----------------------------------------------------------------------------------------------------------------------------------- TAX-EXEMPT SERIES, INC. 9/30/76, Corporation NV/MN 11/30 6/13/86(1) ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Fund 11/13/96 Yes ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Fund 11/24/76 Yes -----------------------------------------------------------------------------------------------------------------------------------
(1) Date merged into a Minnesota corporation incorporated on April 7, 1986. (2) Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the trust itself is unable to meet its obligations. (3) 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. (4) 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. (5) 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- Page 53 Free Money Fund changed its name to Tax-Exempt Money Market Fund, and Threadneedle International Fund changed its name to International Opportunity Fund. (6) 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. (7) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global Equity Fund. (8) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend Opportunity Fund. BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees a fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of each fund's Board members. Each member oversees 99 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. TABLE 7. BOARD MEMBERS
INDEPENDENT BOARD MEMBERS ------------------------------------------------------------------------------------------------------------------------------ POSITION HELD WITH FUNDS AND LENGTH PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS ------------------------------------------------------------------------------------------------------------------------------ Kathleen Blatz Board member Chief Justice, Minnesota Investment Review, 901 S. Marquette Ave. since 2006 Supreme Court, 1998-2005 Joint Audit Minneapolis, MN 55402 Age 51 ------------------------------------------------------------------------------------------------------------------------------ Arne H. Carlson Board member Chair, Board Services Contracts, 901 S. Marquette Ave. since 1999 Corporation (provides Executive, Minneapolis, MN 55402 administrative services to Investment Review, Age 71 boards); former Governor Board Effectiveness of Minnesota ------------------------------------------------------------------------------------------------------------------------------ Patricia M. Flynn Board member Trustee Professor of Contracts, 901 S. Marquette Ave. since 2004 Economics and Management, Investment Review Minneapolis, MN 55402 Bentley College; former Age 55 Dean, McCallum Graduate School of Business, Bentley College ------------------------------------------------------------------------------------------------------------------------------ Anne P. Jones Board member Attorney and Consultant Joint Audit, 901 S. Marquette Ave. since 1985 Board Effectiveness, Minneapolis, MN 55402 Executive, Age 70 Investment Review ------------------------------------------------------------------------------------------------------------------------------ Jeffrey Laikind Board member Former Managing Director, American Joint Audit, Board 901 S. Marquette Ave. since 2005 Shikiar Asset Management Progressive Effectiveness, Minneapolis, MN 55402 Insurance Investment Review Age 70 ------------------------------------------------------------------------------------------------------------------------------ Stephen R. Lewis, Jr. Board member President Emeritus and Valmont Industries, Contracts, 901 S. Marquette Ave. since 2002 Professor of Economics, Inc. (manufactures Investment Review, Minneapolis, MN 55402 Carleton College irrigation systems) Executive, Age 67 Board Effectiveness ------------------------------------------------------------------------------------------------------------------------------ Catherine James Paglia Board member Director, Enterprise Asset Strategic Contracts, 901 S. Marquette Ave. since 2004 Management, Inc. Distribution, Inc. Executive, Minneapolis, MN 55402 (private real estate and (transportation, Investment Review Age 53 asset management company) distribution and logistics consultants) ------------------------------------------------------------------------------------------------------------------------------ Vikki L. Pryor Board member President and Chief Joint Audit, 901 S. Marquette Ave. since 2006 Executive Officer, SBLI USA Investment Review Minneapolis, MN 55402 Mutual Life Insurance Age 52 Company, Inc. since 1999 ------------------------------------------------------------------------------------------------------------------------------
Page 54
------------------------------------------------------------------------------------------------------------------------------ POSITION HELD WITH FUNDS AND LENGTH PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS ------------------------------------------------------------------------------------------------------------------------------ Alan K. Simpson Board member Former three-term Joint Audit, 1201 Sunshine Ave. since 1997 United States Senator for Executive, Cody, WY 82414 Wyoming Investment Review, Age 74 Board Effectiveness ------------------------------------------------------------------------------------------------------------------------------ Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. Investment Review, 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2003 (biotechnology); Contracts Minneapolis, MN 55402 (biotechnology); former American Age 62 President, Forester Biotech Healthways, Inc. (health management programs) ------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS AFFILIATED WITH RIVERSOURCE INVESTMENTS*
-------------------------------------------------------------------------------------------------------------------------------- POSITION HELD WITH FUNDS AND PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS -------------------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member President - U.S. Asset Management Investment 53600 Ameriprise Financial Center since 2001, and Chief Investment Officer, Review Minneapolis, MN 55474 Vice President Ameriprise Financial, Inc. and Age 45 since 2002 President, Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC since 2005; Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 --------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the fund's other officers are:
TABLE 8. FUND OFFICERS --------------------------------------------------------------------------------------------------------------------- POSITION HELD WITH FUNDS AND PRINCIPAL OCCUPATION NAME, ADDRESS, AGE LENGTH OF SERVICE DURING PAST FIVE YEARS --------------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer Vice President - Investment Accounting, Ameriprise 105 Ameriprise Financial Center since 2002 Financial, Inc., since 2002; Vice President - Finance, Minneapolis, MN 55474 American Express Company, 2000-2002 Age 50 --------------------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Senior Vice President - Fixed Income, Ameriprise Financial, 172 Ameriprise Financial Center since 2004 Inc. since 2002 and Senior Vice President - Fixed Income, Minneapolis, MN 55474 RiverSource Investments, LLC since 2004; Managing Director, Age 42 Zurich Global Assets, 2001-2002 --------------------------------------------------------------------------------------------------------------------- Paula R. Meyer President Senior Vice President - Mutual Funds, Ameriprise Financial, 596 Ameriprise Financial Center since 2002 Inc. since 2002 and Senior Vice President, RiverSource Minneapolis, MN 55474 Investments, LLC since 2004; Vice President and Managing Age 52 Director - American Express Funds, Ameriprise Financial, Inc. 2000-2002 --------------------------------------------------------------------------------------------------------------------- Leslie L. Ogg Vice President, President of Board Services Corporation 901 S. Marquette Ave. General Counsel, Minneapolis, MN 55402 and Secretary Age 67 since 1978 --------------------------------------------------------------------------------------------------------------------- Beth E. Weimer Chief Compliance Vice President and Chief Compliance Officer, Ameriprise 172 Ameriprise Financial Center Officer since Financial, Inc. since 2001 and Chief Compliance Officer, Minneapolis, MN 55474 2004 RiverSource Investments, LLC since 2005; Vice President and Age 53 Chief Compliance Officer - Asset Management and Insurance, Ameriprise Financial Services, Inc. since 2001 ---------------------------------------------------------------------------------------------------------------------
Page 55 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 Executive Committee -- Acts for the Board between meetings of the Board. Joint Audit Committee -- Meets with the independent registered public accountant, internal auditors and corporate officers to review financial statements, reports, and compliance matters. Reports significant issues to the Board and makes recommendations to the independent directors regarding the selection of the independent registered public accountant. Investment Review Committee -- Considers investment management policies and strategies; investment performance; risk management techniques; and securities trading practices and reports areas of concern to the Board. Board Effectiveness Committee -- Recommends to the Board the size, structure and composition for the Board; the compensation to be paid to members of the Board; and a process for evaluating the Board's performance. The committee also reviews candidates for Board membership including candidates recommended by shareholders. To be considered, recommendations must include a curriculum vitae and be mailed to the Chairman of the Board, RiverSource Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. Contracts Committee -- 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. BOARD MEMBER HOLDINGS This table shows the dollar range of equity securities beneficially owned on Dec. 31, 2005 of all funds overseen by the Board member. TABLE 9. BOARD MEMBER HOLDINGS - ALL FUNDS
Based on net asset values as of Dec. 31, 2005 ------------------------------------------------------------------------------------------ AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL BOARD MEMBER* FUNDS OVERSEEN BY BOARD MEMBER ------------------------------------------------------------------------------------------ Arne H. Carlson Over $100,000 ------------------------------------------------------------------------------------------ Patricia M. Flynn $50,001-$100,000** ------------------------------------------------------------------------------------------ Anne P. Jones Over $100,000 ------------------------------------------------------------------------------------------ Jeffrey Laikind None ------------------------------------------------------------------------------------------ Stephen R. Lewis, Jr. Over $100,000** ------------------------------------------------------------------------------------------ Catherine James Paglia $50,001-$100,000 ------------------------------------------------------------------------------------------ Alan K. Simpson $50,001-$100,000 ------------------------------------------------------------------------------------------ Alison Taunton-Rigby Over $100,000 ------------------------------------------------------------------------------------------ William F. Truscott Over $100,000 ------------------------------------------------------------------------------------------
Page 56 * Ms. Blatz and Ms. Pryor were not Board members as of Dec. 31, 2005, and therefore are not included in the table. ** Includes deferred compensation invested in share equivalents. COMPENSATION OF BOARD MEMBERS The fund pays no fees or expenses to Board members until the assets of the fund reach $20 million. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements contained in a fund's Annual Report will be audited by the independent registered public accounting firm, KPMG LLP, 4200 Wells Fargo Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The independent registered public accounting firm also provides other accounting and tax-related services as requested by the fund. Page 57 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: o 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. o Nature of and provisions of the obligation. o 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 Page 58 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. 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. Page 59 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. 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 Page 60 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. 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. Page 61 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-l (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-l 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 Page 62 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 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. S-6500-5 A (6/06) PART C. OTHER INFORMATION Item 23. Exhibits (a)(1) Articles of Incorporation, dated October 28, 1988, filed as Exhibit 1 to Registration Statement No. 33-25824, are incorporated by reference. (a)(2) Articles of Amendment, dated October 10, 1990, filed as Exhibit 1 to Registrant's Post Effective Amendment No. 9 to Registration Statement No. 33-25824, are incorporated by reference. (a)(3) Articles of Amendment, dated June 16, 1999, filed electronically as Exhibit (a)(3) to Registrant's Post-Effective Amendment No. 35 to Registration Statement No. 33-25824 filed on or about Dec. 21, 2000, are incorporated by reference. (a)(4) Articles of Amendment of AXP Global Series, Inc., dated November 14, 2002, filed electronically as Exhibit (a)(4) to Registration Statement No. 33-25824 on or about Dec. 20, 2002, are incorporated by reference. (a)(5) Articles of Amendment to the Articles of Incorporation, dated April 21, 2006, is filed electronically herewith as Exhibit (a)(5) to Registrant's Post-Effective Amendment No. 49 to Registration Statement No. 33-25824. (b) By-laws, as amended January 11, 2001, filed electronically as Exhibit (b) to Registrant's Post-Effective Amendment No. 36 to Registration Statement No. 33-25824 filed on or about Dec. 20, 2001, are incorporated by reference. (c) Instruments Defining Rights of Security Holders: Not Applicable. (d)(1) Investment Management Services Agreement, amended and restated, dated May 1, 2006, between Registrant and RiverSource Investments, LLC is filed electronically herewith as Exhibit (d)(1) to Registrant Post-Effective Amendment No. 49 to Registration Statement No. 33-25824. (d)(2) Subadvisory Agreement, dated July 10, 2004, between Ameriprise Financial Corporation and Threadneedle International Limited, filed electronically on or about Dec. 2, 2004 as Exhibit (d)(2) to AXP International Series, Inc. Post-Effective Amendment No. 40 to Registration Statement No. 92709 is incorporated by reference. (d)(3) The Consent Agreement, dated March 1, 2006, between RiverSource Investments, LLC and Threadneedle International Limited filed electronically on or about April 3, 2006 as Exhibit (d)(3) to Registrant Post-Effective Amendment No. 48 to Registration Statement No. 33-25824 is incorporated by reference. (e) Distribution Agreement, amended and restated, dated May 1, 2006, between Registrant and Ameriprise Financial Services, Inc. filed electronically on or about May 24, 2006 as Exhibit (e) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93745 is incorporated by reference. (f) All employees are eligible to participate in a profit sharing plan. Entry into the plan is Jan. 1 or July 1. The Registrant contributes each year an amount up to 15 percent of their annual salaries, the maximum deductible amount permitted under Section 404(a) of the Internal Revenue Code. (g)(1) Custodian Agreement, amended and restated, dated May 1, 2006, between Registrant and Ameriprise Trust Company filed electronically on or about May 24, 2006 as Exhibit (g)(1) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93745 is incorporated by reference. (g)(2) Custodian Agreement between American Express Trust Company and The Bank of New York dated May 13, 1999, filed electronically as Exhibit (g)(3) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 33 to Registration Statement No. 2-93745, filed on or about May 28, 1999 is incorporated by reference. (g)(3) Custodian Agreement First Amendment between American Express Trust Company and The Bank of New York, dated December 1, 2000, filed electronically as Exhibit (g)(4) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002, is incorporated by reference. (g)(4) Custodian Agreement Second Amendment between American Express Trust Company and The Bank of New York, dated June 7, 2001, filed electronically as Exhibit (g)(5) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002, is incorporated by reference. (g)(5) Custodian Agreement Amendment between American Express Trust Company and The Bank of New York, dated January 31, 2002, filed electronically as Exhibit (g)(6) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002, is incorporated by reference. (g)(6) Custodian Agreement Amendment between American Express Trust Company and The Bank of New York, dated April 29, 2003, filed electronically as Exhibit (g)(8) to AXP Partners Series, Inc. Post-Effective Amendment No. 7 to Registration Statement No. 333-57852, filed on or about May 22, 2003, is incorporated by reference. (h)(1) Board Services Agreement, dated Jan. 11, 2006, between RiverSource Funds and Board Services Corporation filed electronically on or about March 29, 2006 as Exhibit (h)(1) to AXP Market Advantage Series, Inc. Post-Effective Amendment No. 35 to Registration Statement No. 33-30770 is incorporated by reference. (h)(2) Administrative Services Agreement, amended and restated, dated May 1, 2006, between Registrant and Ameriprise Financial, Inc. filed electronically on or about May 24, 2006 as Exhibit (h)(2) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93754 is incorporated by reference. (h)(3) Transfer Agency Agreement, amended and restated, dated May 1, 2006, between Registrant and RiverSource Service Corporation filed electronically on or about May 24, 2006 as Exhibit (h)(3) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93754 is incorporated by reference. (h)(4) Class Y Shareholder Service Agreement, amended and restated, dated May 1, 2006 between Registrant and Ameriprise Financial Services, Inc. filed electronically on or about May 24, 2006 as Exhibit (h)(4) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93754 is incorporated by reference. (h)(5) Master Fee Cap/Fee Waiver Agreement dated, Oct. 1, 2005, as amended April 17, 2006 between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, Ameriprise Financial Services, Inc. and the RiverSource Funds filed electronically on or about April 21, 2006, as Exhibit(h)(7) to RiverSource Retirement Series Trust Pre-Effective Amendment No. 1 to Registration Statement No. 333-131683 is incorporated by reference. (h)(6) Agreement and Plan of Reorganization between AXP Global Series, Inc., on behalf of AXP Emerging Markets Fund, and Strategist World Fund, Inc., on behalf of Strategist Emerging Markets Fund, dated March 10, 2000, filed electronically as Exhibit (h)(7) to Registrant's Post-Effective Amendment No. 35 to Registration Statement No. 33-25824 filed on or about Dec. 21, 2000, is incorporated by reference. (h)(7) Agreement and Plan of Reorganization between AXP Global Series, Inc., on behalf of AXP Global Bond Fund, and Strategist World Fund, Inc., on behalf of Strategist World Income Fund, dated March 10, 2000, filed electronically as Exhibit (h)(8) to Registrant's Post-Effective Amendment No. 35 to Registration Statement No. 33-25824 filed on or about Dec. 21, 2000, is incorporated by reference. (h)(8) Agreement and Plan of Reorganization between AXP Global Series, Inc., on behalf of AXP Global Growth Fund, and Strategist World Fund, Inc., on behalf of Strategist World Growth Fund, dated March 10, 2000, filed electronically as Exhibit (h)(9) to Registrant's Post-Effective Amendment No. 35 to Registration Statement No. 33-25824 filed on or about Dec. 21, 2000, is incorporated by reference. (h)(9) Agreement and Plan of Reorganization between AXP Global Series, Inc., on behalf of AXP Innovations Fund, and Strategist World Fund, Inc., on behalf of Strategist World Technologies Fund, dated March 10, 2000, filed electronically as Exhibit (h)(10) to Registrant's Post-Effective Amendment No. 35 to Registration Statement No. 33-25824 filed on or about Dec. 21, 2000, is incorporated by reference. (h)(10) License Agreement, amended and restated, dated May 1, 2006, between Ameriprise Financial, Inc. and RiverSource Funds filed electronically on or about May 24, 2006 as Exhibit (h)(5) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93745 is incorporated by reference. (i) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith. (j) Consent of Independent Registered Public Accounting Firm: Not Applicable. (k) Omitted Financial Statements: Not Applicable (l) Initial Capital Agreement: Not Applicable. (m) Plan and Agreement of Distribution, amended and restated, dated May 1, 2006, between Registrant and Ameriprise Financial Services, Inc. filed electronically on or about May 24, 2006 as Exhibit (m) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93745 is incorporated by reference. (n) Rule 18f - 3 Plan, amended and restated, dated May 1, 2006, filed electronically on or about May 24, 2006 as Exhibit (n) to RiverSource Selected Series, Inc. Post-Effective Amendment No. 44 to Registration Statement No. 2-93745 is incorporated by reference. (o) Reserved. (p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about March 28, 2005 as Exhibit (p)(1) to AXP Selected Series, Inc. Post-Effective Amendment No. 42 to Registration Statement No. 2-93745, is incorporated by reference. (p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment adviser and principal underwriter, dated Oct. 26, 2005, filed electronically on or about Nov. 22, 2005 as Exhibit (p)(2) to AXP Equity Series, Inc. Post-Effective Amendment No. 100 to Registration Statement No. 2-13188 is incorporated by reference. (p)(3) Code of Ethics, dated May 2005, adopted under Rule 17j-1, for RiverSource Emerging Markets Fund's and RiverSource Global Equity Fund's Subadviser, Threadneedle International Ltd., filed electronically on or about Dec. 20, 2005, as Exhibit (p)(3) to AXP International Series, Inc. Post-Effective Amendment No. 42 to Registration Statement No. 2-92309 is incorporated by reference. (q)(1) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated April 12, 2006, is filed electronically herewith as Exhibit (q)(1) to Registrant's Post-Effective Amendment No. 49 to Registration Statement No. 33-25824. (q)(2) Officers Power of Attorney to sign Amendments to this Registration Statement, dated Jan. 9, 2002, filed electronically as Exhibit (q)(2) to Registrant's Post-Effective Amendment No. 37 to Registration Statement No. 33-25824 on or about October 23, 2002 is incorporated by reference. (q)(3) Officers Power of Attorney to sign Amendments to this Registration Statement, dated September 17, 2002, filed electronically as Exhibit (q)(3) to Registrant's Post-Effective Amendment No. 37 to Registration Statement No. 33-25824 on or about October 23, 2002 is incorporated by reference. Item 24. Persons Controlled by or Under Common Control with Registrant: None. Item 25. Indemnification The Articles of Incorporation of the registrant provide that the Fund shall indemnify any person who was or is a party or is threatened to be made a party, by reason of the fact that she or he is or was a director, officer, employee or agent of the Fund, or is or was serving at the request of the Fund as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, to any threatened, pending or completed action, suit or proceeding, wherever brought, and the Fund may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the State of Minnesota, as now existing or hereafter amended. The By-laws of the registrant provide that present or former directors or officers of the Fund made or threatened to be made a party to or involved (including as a witness) in an actual or threatened action, suit or proceeding shall be indemnified by the Fund to the full extent authorized by the Minnesota Business Corporation Act, all as more fully set forth in the By-laws filed as an exhibit to this registration statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser (Ameriprise Financial, Inc.) Directors and officers of Ameriprise Financial Inc. who are directors and/or officers of one or more other companies: Name and Title Other company(s) Address* Title within other company(s) ------------------------- ----------------------- ------------------------- ----------------------- Gumer C. Alvero American Centurion Life 20 Madison Ave. Extension Director and Vice President - Vice President - General Assurance Company P.O. Box 5555 Annuities Manager Annuities Albany, NY 12205-0555 American Enterprise Life President and Director Insurance Company American Enterprise President REO 1, LLC Ameriprise Financial Vice President - General Manager Services, Inc. Annuities American Express Insurance Director and Vice President Agency of Alabama Inc. American Express Insurance Director and Vice President Agency of Arizona Inc. American Express Insurance Director and Vice President Agency of Idaho Inc. American Express Insurance Director and Vice President Agency of Maryland Inc. American Express Insurance Director and Vice President Agency of Massachusetts Inc. American Express Insurance Director and Vice President Agency of Nevada Inc. American Express Insurance Director and Vice President Agency of New Mexico Inc. American Express Insurance Director and Vice President Agency of Oklahoma Inc. American Express Insurance Director and Vice President Agency of Wyoming Inc. American Partners Life 1751 Ameriprise Director and President Insurance Company Financial Center Minneapolis MN 55474 IDS Life Insurance Company Director and Executive Vice President - Annuities IDS Life Insurance Company P.O. Box 5144 Director and Vice President - of New York Albany, NY 12205 Annuities Neysa M. Alecu Advisory Capital Partners LLC Anti-Money Laundering Anti-Money Laundering Officer Officer Advisory Capital Strategies Anti-Money Laundering Group Inc. Officer Advisory Convertible Arbitrage Anti-Money Laundering LLC Officer Advisory Select LLC Anti-Money Laundering Officer American Enterprise Life Insurance Anti-Money Laundering Company Officer American Enterprise Anti-Money Laundering Investment Services, Inc. Officer American Enterprise REO 1 LLC Anti-Money Laundering Officer RiverSource Investments, LLC Anti-Money Laundering Officer American Express Asset Management Anti-Money Laundering International, Inc. Officer Ameriprise Certificate Company Anti-Money Laundering Officer RiverSource Service Corporation Anti-Money Laundering Officer Ameriprise Financial Services, Anti-Money Laundering Inc. Officer American Express Insurance Anti-Money Laundering Agency of Alabama Inc. Officer American Express Insurance Anti-Money Laundering Agency of Arizona Inc. Officer American Express Insurance Anti-Money Laundering Agency of Idaho Inc. Officer American Express Insurance Anti-Money Laundering Agency of Maryland Inc. Officer American Express Insurance Anti-Money Laundering Agency of Massachusetts Inc. Officer American Express Insurance Anti-Money Laundering Agency of Nevada Inc. Officer American Express Insurance Anti-Money Laundering Agency of New Mexico Inc. Officer American Express Insurance Anti-Money Laundering Agency of Oklahoma Inc. Officer American Express Insurance Anti-Money Laundering Agency of Texas Inc. Officer American Express Insurance Anti-Money Laundering Agency of Wyoming Inc. Officer American Partners Life Anti-Money Laundering Insurance Company Officer Ameriprise Auto & Home Insurance Anti-Money Laundering Agency Inc. Officer Boston Equity General Anti-Money Laundering Partner LLC Officer IDS Capital Holdings Inc. Anti-Money Laundering Officer IDS Life Insurance Company Anti-Money Laundering Officer IDS Management Corporation Anti-Money Laundering Officer Abu M. Arif Vice President - Marketing Strategy and Retail Retirement Ward D. Armstrong Ameriprise Financial Senior Vice President - Senior Vice President - Services Inc. Retirement Services and Retirement Services Asset Management Group and Asset Management Group RiverSource Director and Senior Vice President Investments, LLC Ameriprise Trust Director and Chairman of Company the Board Kenwood Capital Management LLC Manager American Express Asset Director Management International Inc. John M. Baker Ameriprise Financial Vice President - Chief Client Vice President - Plan Sponsor Services Inc. Service Officer Services RiverSource Vice President Investments, LLC Ameriprise Trust Director and Senior Vice President Company Timothy V. Bechtold American Centurion Life 20 Madison Ave. Extension Director, President and Chief Vice President - Assurance Company P.O. Box 5555 Executive Officer Insurance Products Albany, NY 12205-0555 American Enterprise Life Director Insurance Company Ameriprise Financial Vice President - Insurance Services Inc. Products American Express Insurance Director, President and Chief Agency of Alabama Inc. Executive Officer American Express Insurance Director, President and Chief Agency of Arizona Inc. Executive Officer American Express Insurance Director, President and Chief Agency of Idaho Inc. Executive Officer American Express Insurance Director, President and Chief Agency of Maryland Inc. Executive Officer American Express Insurance Director, President and Chief Agency of Massachusetts Inc. Executive Officer American Express Insurance Director, President and Chief Agency of Nevada Inc. Executive Officer American Express Insurance Director, President and Chief Agency of New Mexico Inc. Executive Officer American Express Insurance Director and President and Chief Agency of Oklahoma Inc. Executive Officer American Express Insurance Director, President and Chief Agency of Wyoming Inc. Executive Officer American Partners Life Director and Vice President - Insurance Company Insurance Products IDS Life Insurance Company Director and President IDS Life Insurance Company P.O. Box 5144 Director, President and Chief of New York Albany, NY 12205 Executive Officer IDS REO 1, LLC President IDS REO 2, LLC President Kent M. Bergene Vice President - Pricing and Product Development Arthur H. Berman American Enterprise Life Director Senior Vice President and Insurance Company Treasurer Ameriprise Financial Senior Vice President Services Inc. and Treasurer American Partners Life Director Insurance Company IDS Life Insurance Director Company Walter S. Berman Advisory Capital Partners LLC Treasurer Executive Vice President and Chief Financial Advisory Capital Strategies Treasurer Officer Group Inc. Advisory Convertible Arbitrage Treasurer LLC Advisory Select LLC Treasurer American Centurion Life Vice President and Treasurer Assurance Company American Enterprise Life Vice President and Treasurer Insurance Company American Enterprise REO 1, LLC Treasurer RiverSource Investments, LLC Treasurer American Express Asset Management Treasurer International, Inc. Ameriprise Certificate Company Treasurer RiverSource Service Corporation Treasurer RiverSource Tax Advantaged Treasurer Investments, Inc. Ameriprise Financial Director Services Inc. American Express Vice President and Treasurer Financial Advisors Services Japan Inc. American Express Insurance Treasurer Agency of Alabama Inc. American Express Insurance Treasurer Agency of Arizona Inc. American Express Insurance Treasurer Agency of Idaho Inc. American Express Insurance Treasurer Agency of Maryland Inc. American Express Insurance Treasurer Agency of Massachusetts Inc. American Express Insurance Treasurer Agency of Nevada Inc. American Express Insurance Treasurer Agency of New Mexico Inc. American Express Insurance Treasurer Agency of Oklahoma Inc. American Express Insurance Treasurer Agency of Wyoming Inc. American Partners Life Vice President and Treasurer Insurance Company AMEX Assurance Company Treasurer Boston Equity General Treasurer Partner LLC IDS Cable Corporation Treasurer IDS Cable II Corporation Treasurer IDS Capital Holdings Inc. Treasurer IDS Life Insurance Company Vice President and Treasurer IDS Life Insurance Company Vice President and Treasurer of New York IDS Management Corporation Treasurer IDS Partnership Services Treasurer Corporation IDS Property Casualty Treasurer Insurance Company IDS Realty Corporation Treasurer IDS REO 1, LLC Treasurer IDS REO 2, LLC Treasurer Investors Syndicate Vice President and Treasurer Development Corp. Kenwood Capital Treasurer Management LLC Robert C. Bloomer Ameriprise Financial Vice President - Technologies III Vice President - Services Inc. Technologies III Leslie H. Bodell Ameriprise Financial Vice President - Technologies I Vice President - Services Inc. Technologies I Randy L. Boser Ameriprise Financial Vice President - Mutual Fund Vice President - Services Inc. Business Development Business Development IDS Life Insurance Company Assistant Vice President Uzma S. Burki Ameriprise Financial Vice President - Organizational Vice President - Services Inc. Talent Development Organizational & Talent Development Michael G. Burton Vice President and Chief Counsel - Regulatory Affairs Richard N. Bush Advisory Capital Partners LLC Senior Vice President - Corporate Tax Senior Vice President - Corporate Tax Advisory Capital Strategies Senior Vice President - Corporate Tax Group Inc. Advisory Convertible Arbitrage Senior Vice President - Corporate Tax LLC American Centurion Life Senior Vice President - Corporate Tax Assurance Company American Enterprise Investment Senior Vice President - Corporate Tax Services Inc American Enterprise Life Senior Vice President - Corporate Tax Insurance Company American Enterprise REO 1 LLC Senior Vice President - Corporate Tax American Express Asset Senior Vice President - Corporate Tax Management International Inc American Express Financial Senior Vice President - Corporate Tax Advisors Japan Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Alabama Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Arizona Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Idaho Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Maryland Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Massachusetts Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Nevada Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of New Mexico Inc American Express Insurance Senior Vice President - Corporate Tax Agency of Oklahoma Inc. American Express Insurance Senior Vice President - Corporate Tax Agency of Wyoming Inc. American Express Property Senior Vice President - Corporate Tax Casualty Insurance Agency of Kentucky Inc. American Express Property Senior Vice President - Corporate Tax Casualty Insurance Agency of Maryland Inc. American Express Property Senior Vice President - Corporate Tax Casualty Insurance Agency of Pennsylvania Inc. American Partners Life Senior Vice President - Corporate Tax Insurance Company Ameriprise Financial Services Senior Vice President - Corporate Tax Inc. AMEX Assurance Company Senior Vice President - Corporate Tax Boston Equity General Partner LLC Senior Vice President - Corporate Tax IDS Cable Corporation Senior Vice President - Corporate Tax IDS Cable II Corporation Senior Vice President - Corporate Tax IDS Capital Holdings Inc. Senior Vice President - Corporate Tax IDS Futures Corporation Senior Vice President - Corporate Tax IDS Life Insurance Company Senior Vice President - Corporate Tax IDS Life Insurance Company of Senior Vice President - Corporate Tax New York IDS Management Corporation Senior Vice President - Corporate Tax IDS Property Casualty Insurance Senior Vice President - Corporate Tax Company IDS Realty Corporation Senior Vice President - Corporate Tax IDS REO 1 LLC Senior Vice President - Corporate Tax IDS REO 2 LLC Senior Vice President - Corporate Tax RiverSource Investments LLC Senior Vice President - Corporate Tax RiverSource Service Corporation Senior Vice President - Corporate Tax Riversource Tax Advantaged Senior Vice President - Corporate Tax Investments Inc. Kenneth J. Ciak AMEX Assurance Company Director, President and Chief Vice President and General Executive Officer Manager - IDS Property Casualty Ameriprise Financial Vice President and General Services Inc. Manager - IDS Property Casualty Ameriprise Insurance Company Director Ameriprise Auto & Home Director, President and Chief Insurance Executive Officer of Kentucky Inc. Ameriprise Auto & Home Director, President and Chief Insurance Executive Officer of Maryland Inc. Ameriprise Auto & Home Director, President and Chief Insurance Executive Officer of Pennsylvania Inc. IDS Property Casualty 1 WEG Blvd. Director, President and Chief Insurance Company DePere, WI 54115 Executive Officer Paul A. Connolly Ameriprise Financial Vice President - RL HR/US Retail Vice President - Retail Services Inc. Distribution Services James M. Cracchiolo Ameriprise Financial Director, Chairman of the Board, Director, Chairman of Services Inc. and Chief Executive Officer the Board, Chief Executive Officer, and President Threadneedle Asset Director and Chairman of the Board Management Holdings LTD Colleen Curran Ameriprise Financial Vice President and Vice President and Assistant Services Inc. Assistant General Counsel General Counsel Luz Maria Davis Ameriprise Financial Vice President - Employee Vice President - Services Inc. Communications Communications Paul James Dolan Ameriprise Financial Vice President - CAO Product Sales Vice President - Services Inc. CAO Product Sales RiverSource Distributors Inc. Chief Administrative Officer William V. Elliott Ameriprise Financial Vice President - Financial Vice President - Financial Services Inc. Planning and Advice Planning and Advice William J. Emptage Ameriprise Financial Vice President - Strategic Vice President - Strategic Services Inc. Planning Planning Benjamin R. Field Ameriprise Financial Vice President - Finance Education & Vice President - Finance Services Inc. Planning Services Education & Planning Services Gordon M. Fines RiverSource Investments, LLC Vice President - Senior Portfolio Vice President - Financial Manager Education & Planning Services Ameriprise Financial Vice President - Senior Services Inc. Portfolio Manager I Giunero Floro Ameriprise Financial Services Vice President - Creative Services Vice President - Creative Inc. Services Terrence J. Flynn Ameriprise Financial Services Inc. Vice President - Brokerage & Vice President - Brokerage & Clearing Operations Clearing Operations American Enterprise President and Chief Executive Officer Investment Services Inc. RiverSource Director and Senior Vice President - Service Corporation Clearing Operations Jeffrey P. Fox Ameriprise Financial Vice President - Investment Vice President - Services Inc. Accounting Investment Accounting RiverSource Distributors Inc. Chief Financial Officer Laura C. Gagnon Ameriprise Financial Services Inc. Vice President - Investor Relations Vice President - Investor Relations Peter A. Gallus Advisory Capital Strategies Director, President, Chief Operating Vice President - Investment Group Inc. Officer and Chief Compliance Officer Administration Advisory Capital Partners LLC President, Chief Operating Officer and Chief Compliance Officer Advisory Convertible Arbitrage LLC President, Chief Operating Officer and Chief Compliance Officer Advisory Select LLC Vice President and Chief Compliance Officer Ameriprise Financial Vice President - CAO Services Inc. Investment Management RiverSource Investments, LLC Senior Vice President, Chief Operating Officer and Assistant Treasurer American Express Asset Assistant Treasurer Management International, Inc. Boston Equity General President, Chief Operating Officer Partner LLC and Chief Compliance Officer Kenwood Capital Management LLC Manager IDS Capital Holdings Inc. Vice President and Controller Michael R. Greene Vice President - Compliance/Legal/Regulatory Project Management Office Steven Guida RiverSource Director Vice President - New Service Corporation Business and Service Ameriprise Financial Vice President - New Services Inc. Business and Service American Express Insurance Vice President Agency of Massachusetts Inc. Ira D. Hall Director Teresa A. Hanratty Ameriprise Financial Senior Vice Senior Vice President - Services Inc. President - Field Field Management Management Janis K. Heaney Ameriprise Financial Vice President - Incentive Vice President - Incentive Services Inc. Management Management Brian M. Heath Ameriprise Financial Director and President - President - U.S. Services Inc. U.S. Advisor Group Advisor Group Nancy R. Hughes American Centurion Life Assistant Vice President Assistant Vice President Assurance Company American Enterprise Life Assistant Vice President Insurance Company American Enterprise REO 1 LLC Assistant Vice President Ameriprise Certificate Assistant Vice President Company American Partners Life Assistant Vice President Insurance Company IDS Life Insurance Company Assistant Vice President IDS Life Insurance Company Assistant Vice President of New York IDS REO 1 LLC Assistant Vice President IDS REO 2 LLC Assistant Vice President Kelli A. Hunter Ameriprise Financial Executive Vice President - Executive Vice President - Services Inc. Human Resources Human Resources Debra A. Hutchinson Ameriprise Financial Vice President - Technologies I Vice President - Services Inc. Technologies I James M. Jensen Ameriprise Financial Vice President - Compensation Vice President - Advice and Services Inc. and Licensing Services Retail Distribution Group, Product, Compensation and American Express Insurance Director, Vice President Field Administration Agency of Alabama Inc. American Express Insurance Director, Vice President Agency of Arizona Inc. American Express Insurance Director, Vice President Agency of Idaho Inc. American Express Insurance Director, Vice President Agency of Maryland Inc. American Express Insurance Director Agency of Massachusetts Inc. American Express Insurance Director, Vice President Agency of Nevada Inc. American Express Insurance Director, Vice President Agency of New Mexico Inc. American Express Insurance Director, Vice President Agency of Oklahoma Inc. American Express Insurance Director, Vice President Agency of Wyoming Inc. Amy K. Johnson Vice President - Operations and Compliance Paul R. Johnston Ameriprise Financial Secretary Assistant Secretary Services Inc. American Express Property Casualty Insurance Secretary Agency of Maryland Inc. Ameriprise Auto & Home Secretary Insurance Agency Inc. Ameriprise Insurance Company Vice President, General Counsel, Secretary, Director American Partners Life Assistant General Counsel Insurance Company and Secretary AMEX Assurance Company Director, General Counsel and Secretary American Express Property Secretary Casualty Insurance Agency of Kentucky American Express Property Secretary Casualty Insurance Agency of Pennsylvania IDS Cable Corporation Vice President IDS Cable II Corporation Vice President IDS Partnership Services Vice President and Secretary Corporation IDS Property Casualty Director, Vice President, Insurance Company General Counsel and Secretary IDS Realty Corporation Vice President Nancy E. Jones Ameriprise Financial Vice President - Advisor Vice President - Advisor Services Inc. Marketing Marketing William A. Jones Ameriprise Financial Vice President - Technologies III Vice President - Services Inc. Technologies III John C. Junek Ameriprise Financial Senior Vice President and Executive Vice President and Services Inc. General Counsel General Counsel Ora J. Kaine Ameriprise Financial Vice President - Retail Vice President - Retail Services Inc. Distribution Services Distribution Services Michelle M. Keeley AMEX Assurance Company Vice President-Investments Senior Vice President - Fixed Income American Centurion Life Vice President-Investments Assurance Company American Enterprise Life Vice President-Investments Insurance Company RiverSource Director and Senior Vice Investments, LLC President - Fixed Income American Express Director Asset Management International Inc. Ameriprise Vice President-Investments Certificate Company Ameriprise Insurance Company Vice President-Investments IDS Property Casualty Insurance Company Vice President-Investments Ameriprise Financial Senior Vice President-Fixed Income Services Inc. American Partners Life Vice President-Investments Insurance Company IDS Life Insurance Company Vice President-Investments IDS Life Insurance Company Vice President-Investments of New York Kenwood Capital Management LLC Manager Claire Kolmodin Ameriprise Financial Vice President - Strategic Vice President - Strategic Services Inc. Initiatives Initiatives Lori J. Larson Ameriprise Financial Vice President - Advisor Vice President - Advisor Services Inc. Field Force Growth & Field Force Growth & Retention Retention Daniel E. Laufenberg Ameriprise Financial Vice President - Chief U.S. Vice President - Services Inc. Economist Chief U.S. Economist Jane W. Lee Ameriprise Financial Vice President - General Vice President - General Services Inc. Manager Platinum Active Manager Platinum Active Financial Services Financial Services W. Walker Lewis Director Catherine M. Libbe Ameriprise Financial Vice President - Marketing & Vice President - Services Inc. Product Retirement Services Marketing & Product Retirement Services Diane D. Lyngstad Ameriprise Financial Chief Financial Officer and Vice Vice President - Comp & Services Inc. President - Comp & Licensing Licensing Services Services RiverSource Director, Vice President and Service Corporation Chief Financial Officer Andrew J. MacMillan Ameriprise Financial Senior Vice President - Senior Vice President - Services Inc. Corporate Communications Corporate Communications & Government Affairs & Government Affairs Siri S. Marshall Director Timothy J. Masek Ameriprise Financial Vice President - Fixed Income Vice President - Fixed Services Inc. Research Income Research Brian J. McGrane Ameriprise Financial Vice President and Lead Financial Senior Vice President and Services Inc. Officer Finance Lead Financial Officer Advisory Capital Partners LLC Vice President and Chief Financial Officer Advisory Capital Vice President and Chief Financial Strategies Group Inc. Officer Advisory Convertible Vice President and Chief Financial Arbitrage LLC Officer Advisory Select LLC Vice President and Chief Financial Officer American Enterprise Life Director, Executive Vice President Life Insurance Company and Chief Financial Officer RiverSource Vice President and Chief Financial Investments, LLC Officer American Express Asset Vice President and Chief Financial Management International Inc. Officer Ameriprise Vice President and Chief Financial Certificate Company Officer Ameriprise Trust Company Director Boston Equity General Vice President and Chief Financial Partner LLC Officer IDS Life Insurance Company Director, Executive Vice President and Chief Financial Officer Sarah M. McKenzie Ameriprise Financial Vice President - Vice President - Services Inc. Managed and Brokerage Products Managed and Brokerage Products Ameriprise Enterprise Investment Director Services Inc. Penny J. Meier Ameriprise Financial Vice President - Business Vice President - Business Services Inc. Transformation/Six Sigma Transformation/Six Sigma Paula R. Meyer Ameriprise Financial Senior Vice President and General Senior Vice President Services Inc. Manager - Mutual Funds - Mutual Funds Ameriprise Certificate Director, President and Company Chief Executive Officer American Express Director and President International Deposit Company Ameriprise Trust Company Director Investors Syndicate Director, President and Chief Development Corp. Executive Officer RiverSource Distributors, Inc. Director and Chief Operating Officer RiverSource Investments LLC Senior Vice President Rebecca A. Nash Ameriprise Financial Vice President - Vice President - Services Inc. Service Operations Service Operations Ameriprise Insurance Company Senior Vice President - Insurance AMEX Assurance Company Vice President - Insurance IDS Property Casualty Senior Vice President - Insurance Company Insurance Jeffrey Noddle Director Francois B. Odouard Ameriprise Financial Vice President - Brokerage Vice President - Services Inc. Brokerage Michael J. O'Keefe Ameriprise Financial Vice President - Advisory Vice President - Advisory Services Inc. Business Systems Business Systems Benji Orr Advisory Capital Partners LLC Deputy Anti-Money Laundering Deputy Anti-Money Officer Laundering Officer Advisory Capital Strategies Group Deputy Anti-Money Laundering Inc. Officer Advisory Convertible Arbitrage Deputy Anti-Money Laundering LLC Officer Advisory Select LLC Deputy Anti-Money Laundering Officer American Enterprise Life Deputy Anti-Money Laundering Insurance Company Officer American Enterprise Investment Deputy Anti-Money Laundering Services Inc Officer American Enterprise REO 1 LLC Deputy Anti-Money Laundering Officer American Express Asset Management Deputy Anti-Money Laundering International Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Arizona Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Alabama Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Idaho Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Maryland Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Massachusetts Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Nevada Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of New Mexico Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Oklahoma Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Texas Inc. Officer American Express Insurance Agency Deputy Anti-Money Laundering of Wyoming Inc. Officer Ameriprise Auto & Home Insurance Deputy Anti-Money Laundering Agency Inc. Officer Ameriprise Certificate Company Deputy Anti-Money Laundering Officer American Partners Life Insurance Company Deputy Anti-Money Laundering Officer Ameriprise Financial Services, Deputy Anti-Money Laundering Inc. Officer Boston Equity General Partner LLC Deputy Anti-Money Laundering Officer IDS Capital Holdings Inc. Deputy Anti-Money Laundering Officer IDS Life Insurance Company Deputy Anti-Money Laundering Officer IDS Management Corporation Deputy Anti-Money Laundering Officer RiverSource Investments, LLC Deputy Anti-Money Laundering Officer RiverSource Distributors LLC Deputy Anti-Money Laundering Officer RiverSource Service Corporation Deputy Anti-Money Laundering Officer Douglas J. Parish Ameriprise Financial General Auditor General Auditor Services, Inc. Richard F. Powers III Director Glen Salow Executive Vice President - Technology and Active Operations H. Jay Sarles Director Robert F. Sharpe, Jr. Director Paul Pearson Vice President - SPS and External Products Active Scott R. Plummer American Enterprise Life 38a-1 Chief Compliance Officer Vice President - Insurance Company Asset Management Compliance Ameriprise Certificate Vice President, Secretary, General Company Counsel American Partners 38a-1 Chief Compliance Officer Life Insurance Company IDS Life Insurance Company 38a-1 Chief Compliance Officer RiverSource Distributors, Inc. Chief Counsel Mark A. Riordan Ameriprise Financial Vice President - Finance Vice President - Finance Services Inc. Emerging Technologies Emerging Technologies IDS Cable Corporation Director IDS Cable Corporation II Director Andrew C. Schell Ameriprise Financial Vice President - Strategy Vice President - Strategy Services Inc. and Planning and Planning Mark E. Schwarzmann American Enterprise Life Director, Chairman of the Board and President - Insurance & Insurance Company Chief Executive Officer Annuities and Product Distribution American Partners Life Director, Chairman of the Board and Insurance Company Chief Executive Officer IDS Life Insurance Company Director, Chairman of the Board and Chief Executive Officer RiverSource Distributors Inc. Director, President and Chief Executive Officer Gary A. Scott Ameriprise Financial Vice President - Client Acquisition Vice President - Services Inc. Marketing and Services Client Acquisition Marketing and Services Kim M. Sharan Executive Vice President and Chief Marketing Officer Jacqueline M. Sinjem Ameriprise Financial Vice President - Plan Sponsor Vice President - Plan Services Inc. Services Sponsor Services Ameriprise Trust Vice President Company Bridget M. Sperl RiverSource Director, Chairman of the Board; Senior Vice President - Service Corporation President and Chief Executive Client Service Organization Ameriprise Financial Senior Vice President - Services Inc. Client Service Organization Ameriprise Insurance Company Director IDS Life Insurance Company Executive Vice President - Client Service IDS Property Casualty Director Insurance Company Lisa A. Steffes Ameriprise Financial Vice President - Marketing Vice President - Marketing Services Inc. Officer Development Officer Development Ameriprise Insurance Company Director IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 David K. Stewart American Centurion Life Vice President and Controller Senior Vice President and Assurance Company Controller American Enterprise Treasurer Investment Services Inc. American Enterprise Life Vice President and Controller Insurance Company Ameriprise Vice President, Controller and Certificate Company Chief Accounting Officer Ameriprise Financial Vice President and Controller Services Inc. American Partners Life Vice President and Controller Insurance Company IDS Life Insurance Vice President and Controller Company IDS Life Insurance Vice President and Controller Company of New York Jeffrey J. Stremcha Ameriprise Financial Vice President - Technologies I Vice President - Services Inc. Technologies I John T. Sweeney American Enterprise Investment Chief Financial Officer Vice President - Lead Services, Inc. Financial Officer - Products Group Ameriprise Financial Vice President, Lead Financial Services Inc. Officer - Banking, Brokerage and Managed Products Ameriprise Insurance Company Director AMEX Assurance Company Director IDS Partnership Director Services Corporation IDS Property Casualty Director Insurance Company IDS Realty Corporation Director Joseph E. Sweeney Ameriprise Financial Services Inc. Senior Vice President, General President - Financial Manager - U.S. Brokerage and Planning, Products and Services Membership Banking American Enterprise Investment Director Services Inc. William F. "Ted" Truscott Advisory Capital Strategies Director President - U.S. Asset Group Inc. Management and Chief Investment Officer RiverSource Director, President and Chairman of Investments, LLC the Board and Chief Investment Officer American Express Asset Director Management International, Inc. Ameriprise Financial Senior Vice President and Services Inc. Chief Investment Officer IDS Capital Holdings Inc. Director and President Kenwood Capital Management LLC Manager Threadneedle Asset Management Director Holdings LTD George F. Tsafaridis Ameriprise Financial Vice President - Quality & Service Vice President - Services Inc. Support Quality & Service Support William H. Turner Director Ramanathan Venkataramana Ameriprise Financial Vice President - Technologies III Vice President - Services Inc. Technologies III Peter S. Velardi Ameriprise Financial Senior Vice President - Senior Vice President - Services Inc. Field Management Field Management Andrew O. Washburn Ameriprise Financial Vice President - Mutual Fund Vice President - Services Inc. Marketing Marketing Beth E. Weimer Ameriprise Financial Vice President and Chief Vice President and Services Inc. Compliance Officer - Chief Compliance Officer Asset Management and Insurance American Centurion Life Assurance Company Chief Compliance Officer - Insurance Separate Accounts IDS Life Insurance Company of New York Chief Compliance Officer - Insurance Separate Accounts American Express Asset Chief Compliance Officer Management International Kenwood Capital Chief Compliance Officer Management LLC RiverSource Investments LLC Chief Compliance Officer RiverSource Chief Compliance Officer Service Corporation Jeffery A. Williams Ameriprise Financial Senior Vice President - Senior Vice President - Services Inc. Cross-Sell/Strategic Cross-Sell/Strategic Management Management American Enterprise Investment Series, Inc. Director William J. Williams Ameriprise Financial Senior Vice President - Field Senior Vice President - Services Inc. Management Field Management Dianne L. Wilson Ameriprise Financial Vice President - Insurance Vice President - Services Inc. Operations Insurance Operations Amex Assurance Company Director and Senior Vice President American Express Property Casualty Vice President Insurance Agency of Kentucky Inc. American Express Property Casualty Vice President Insurance Agency of Maryland Inc. American Express Property Casualty Vice President Insurance Agency of Pennsylvania Inc. Ameriprise Insurance Company Director and Senior Vice President - Investments IDS Property Casualty Company Director and Senior Vice President - Insurance Michael R. Woodward Ameriprise Financial Senior Vice President - Senior Vice President - Services Inc. Field Management Field Management American Centurion Life 20 Madison Ave. Extension Director Assurance Company Albany, NY 12205-0555 IDS Life Insurance Company P.O. Box 5144 Director of New York Albany, NY 12205 John R. Woener Ameriprise Financial Senior Vice President - Senior Vice President - Services Inc. Strategic Planning and Strategic Planning and Business Development Business Development * Unless otherwise noted, address is 70100 Ameriprise Financial Center, Minneapolis, MN 55474.
Item 27. Principal Underwriters. (a) Ameriprise Financial Services, Inc. acts as principal underwriter for the following investment companies: AXP California Tax-Exempt Trust; AXP Dimensions Series, Inc.; AXP Discovery Series, Inc.; AXP Equity Series, Inc.; AXP Fixed Income Series, Inc.; AXP Global Series, Inc.; AXP Government Income Series, Inc.; AXP Growth Series, Inc.; AXP High Yield Income Series, Inc.; AXP High Yield Tax-Exempt Series, Inc.; AXP Income Series, Inc.; AXP International Series, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP Partners Series, Inc.; AXP Partners International Series, Inc.; AXP Progressive Series, Inc.; AXP Sector Series, Inc.; AXP Selected Series, Inc.; AXP Special Tax-Exempt Series Trust; AXP Stock Series, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt Series, Inc.; AXP Tax-Free Money Series, Inc.; Growth Trust; Growth and Income Trust; Income Trust; Tax-Free Income Trust; World Trust; Ameriprise Certificate Company; Advisory Hedged Opportunity Fund. (b) As to each director, officer or partner of the principal underwriter: Name and Principal Position and Offices with Offices with Registrant Business Address* Underwriter Gumer C. Alvero Vice President - General None Manager Annuities Ward D. Armstrong Senior Vice President - None Retirement Services and Asset Management Group John M. Baker Vice President - Chief None Client Service Officer Dudley Barksdale Vice President - Service None Development Timothy V. Bechtold Vice President - None Insurance Products Arthur H. Berman Senior Vice President and Treasurer None Walter S. Berman Director None Robert C. Bloomer Vice President - Technologies III None Leslie H. Bodell Vice President - Technologies I None Rob Bohli Group Vice President - None 10375 Richmond Avenue #600 South Texas Houston, TX 77042 Walter K. Booker Group Vice President - None 61 South Paramus Road New Jersey Mack-Cali Office Center IV, 3rd Floor Paramus, NJ 07652 Bruce J. Bordelon Group Vice President - None 1333 N. California Blvd., Northern California Suite 200 Walnut Creek, CA 94596 Randy L. Boser Vice President - Mutual Fund None Business Development Richard N. Bush Senior Vice President - Corporate Tax Uzma S. Burki Vice President - Organizational None & Talent Development Kenneth J. Ciak Vice President and None IDS Property Casualty General Manager - IDS 1400 Lombardi Avenue Property Casualty Green Bay, WI 54304 Paul A. Connolly Vice President - RL HR/US Retail None James M. Cracchiolo Director, President, Chairman of None the Board and Chief Executive Officer Colleen Curran Vice President and None Assistant General Counsel Luz Maria Davis Vice President - Employee None Communications Scott M. DiGiammarino Group Vice President - None Suite 500, 8045 Leesburg Washington D.C./Baltimore Pike Vienna, VA 22182 Paul James Dolan Vice President - CAO Product Sales Kenneth Dykman Group Vice President - None 625 Kenmor Ave South East Greater Michigan Suite 301 Grand Rapids, MI 49546 William V. Elliot Vice President - Financial None Planning and Advice William J. Emptage Vice President - Strategic Planning None Benjamin R. Field Vice President - Finanace None Education and Planning Services Gordon M. Fines Vice President - Senior None Portfolio Manager I Giunero Floro Vice President - Creative None Services Terrence J. Flynn Vice President - Brokerage & None Clearing Operations Jeffrey P. Fox Vice President - Investment Treasurer Accounting Peter A. Gallus Vice President - CAO - Investment Management Laura C. Gagnon Vice President - Investor Relations None Gary W. Gassmann Group Vice President - None 2677 Central Park Boulevard Detroit Metro Suite 350 Southfield, MN 48076 John C. Greiber Group Vice President - None Minnesota/Iowa Martin T. Griffin Vice President and National Sales None Manager External Channel Steven Guida Vice President - None New Business and Service Teresa A. Hanratty Senior Vice President - None Suites 6&7 Field Management 169 South River Road Bedford, NH 03110 Lorraine R. Hart Vice President - Fixed Income None Investments Administration Officer Janis K. Heaney Vice President - None Incentive Management Brian M. Heath Director, Senior Vice President - None Suite 150 Advisor Group 801 E. Campbell Road Richardson, TX 75081 Jon E. Hjelm Group Vice President - None 655 Metro Place South Ohio Valley Suite 570 Dublin, OH 43017 David X. Hockenberry Group Vice President - None 830 Crescent Centre Drive Mid South Suite 490 Franklin, TN 37067-7217 Kelli A. Hunter Executive Vice President - None Human Resources Debra A. Hutchinson Vice President - Technologies I None Theodore M. Jenkin Group Vice President - None 6000 Freedom Square Drive Steel Cities Suite 300 Cleveland, OH 44131 James M. Jensen Vice President - None Compensation and Licensing Services Gregory C. Johnson Group Vice President - None 4 Atrium Drive, #100 Upstate New York/Vermont Albany, NY 12205 Jody M. Johnson Group Vice President - None Twin Cities Metro Paul R. Johnston Secretary Nancy E. Jones Vice President - Advisor None Marketing William A. Jones Vice President - Technologies III None John C. Junek Senior Vice President and None General Counsel Ora J. Kaine Vice President - None Retail Distribution Services Michelle M. Keeley Senior Vice President - None Fixed Income Raymond G. Kelly Group Vice President - None Suite 250 Northern Texas 801 East Campbell Road Richardson, TX 75081 Claire Kolmodin Vice President - Strategic None Initiatives Neysa A. Alecu Anti-Money Laundering None Officer Benji Orr Deputy Anti-Money Laundering None Officer Lori J. Larson Vice President - Advisor None Field Force Growth and Retention Daniel E. Laufenberg Vice President - Chief None U.S. Economist Jane W. Lee Vice President - General None Manager Platinum Active Financial Services Catherine M. Libbe Vice President - Marketing None & Product Retirement Services Diane D. Lyngstad Chief Financial Officer and None Vice President - Comp and Licensing Services Kurt W. Lofgren Vice President and Chief Compliance Officer - U.S. Retail Distribution Andrew J. MacMillan Senior Vice President - Corporate None Communications & Government Affairs Timothy J. Masek Vice President - None Fixed Income Research Frank A. McCarthy Vice President - External None Products Group and Personal Trust Services Brian J. McGrane Vice President and Lead Financial None Officer - Finance Dean O. McGill Group Vice President - None 11835 W. Olympic Blvd Los Angeles Metro Suite 900 East Los Angeles, CA 90064 Jeffrey McGregor Vice President and National None Sales Manager for Distribution Sarah M. McKenzie Vice President - Managed and None Brokerage Products Penny J. Meier Vice President - Business None Transformation/Six Sigma Paula R. Meyer Senior Vice President and President General Manager - Mutual Funds Rebecca A. Nash Vice President - Service None Operations Thomas V. Nicolosi Group Vice President - None Suite 220 New York Metro Area 500 Mamaroneck Ave. Harrison, NY 10528 Patrick H. O'Connell Group Vice President - None Commerce Center One Southern New England 333 East River Hartford, CT 06108-4200 Francois B. Odouard Vice President - Brokerage None Michael J. O'Keefe Vice President - None Advisory Business Systems Geoffery Oprandy Group Vice President - Southwest None 11811 N. Tatum Blvd. Suite 1030 Phoenix, AZ 85028 Douglas J. Parish General Auditor None Kristi L. Petersen Vice President - One Account None and Cash John G. Poole Group Vice President - None 14755 North Outer Forty Road Gateway/Springfield Suite 500 Chesterfield, MO 63017 Larry M. Post Group Vice President - None 2 Constitution Plaza New England Charlestown, MA 02129 Michael J. Rearden Group Vice President - None 1800 S. Pine Island Road, Suite 510 Southern Florida Plantation, FL 33324 Ralph D. Richardson III Group Vice President - None Suite 100 Carolinas 5511 Capital Center Drive Raleigh, NC 27606 Mark A. Riordan Vice President - Finance None Emerging Technologies Maximillian G. Roth Group Vice President - None 1400 Lombardi Avenue Wisconsin/Upper Michigan Suite 202 Green Bay, WI 54304 Andrew C. Schell Vice President - Strategy None and Planning Mark E. Schwarzmann Senior Vice President - None Insurance and Annuities Gary A. Scott Vice President - Client None Acquisition Marketing and Services Jacqueline M. Sinjem Vice President - Plan None Sponsor Services Martin S. Solhaug Vice President - International None Comp and Benefits Albert L. Soule Group Vice President - None 6925 Union Park Center Western Frontier Suite 200 Midvale, UT 84047 Bridget M. Sperl Senior Vice President - None Client Service Organization Kathy Stalwick Vice President None Paul J. Stanislaw Group Vice President - None Suite 1100 Southern California/Hawaii Two Park Plaza Irvine, CA 92614 Lisa A. Steffes Vice President - None Marketing Officer Development David K. Stewart Vice President and Controller None Jeffrey J. Stremcha Vice President - Technologies I None John T. Sweeney Vice President, Lead Financial None Officer - Banking, Brokerage and Managed Products Joseph E. Sweeney Senior Vice President, None General Manager - U.S. Brokerage and Membership Banking Craig P. Taucher Group Vice President - None Suite 150 Georgia/North Florida 4190 Belfort Rd. Jackonville, FL 32216 Neil G. Taylor Group Vice President - None 601 108th Ave North East Pacific Northwest Suite 1800 Bellevue, WA 98004-5902 William F. "Ted" Truscott Senior Vice President and Board member and Chief Investment Officer Vice President George F. Tsafaridis Vice President - Quality & None Service Support Janet M. Vandenbark Group Vice President - None 3951 Westerre Parkway, Suite 250 Virginia Richmond, VA 23233 Ramanathan Venkataramanan Vice President - Technologies III None Peter S. Velardi Senior Vice President - None Field Management Andrew O. Washburn Vice President - None Mutual Fund Marketing Donald F. Weaver Group Vice President - None 3500 Market Street, Eastern Pennsylvania/ Suite 200 Delaware Camp Hill, PA 17011 Beth E. Weimer Vice President and None Chief Compliance Officer - Asset Management and Insurance Phil Wentzel Vice President - Finance None Robert K. Whalen Group Vice President - None 939 West North Ave Chicago Metro Chicago, IL 60606 Jeffrey A. Williams Senior Vice President - None Cross-Sell/Strategic Management William J. Williams Senior Vice President - None Field Management Dianne L. Wilson Vice President - Insurance None Operations Gayle W. Winfree Group Vice President - None 1 Galleria Blvd. Suite 1900 Delta States Metairie, LA 70001 Abraham L. Wons Vice President - Investments Risk None Management Michael R. Woodward Senior Vice President - None 32 Ellicott St Field Management Suite 100 Batavia, NY 14020 John R. Woerner Senior Vice President - Strategic None Planning and Business Development * Business address is: 70100 Ameriprise Financial Center, Minneapolis, MN 55474 unless otherwise noted.
Item 27 (c). Not Applicable. Item 28. Location of Accounts and Records Ameriprise Financial, Inc. 70100 Ameriprise Financial Center Minneapolis, MN 55474 Item 29. Management Services Not Applicable. Item 30. Undertakings Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant, RIVERSOURCE GLOBAL SERIES, INC., certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Minneapolis, and State of Minnesota on the 2nd day of June, 2006. RIVERSOURCE GLOBAL SERIES, INC. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer Pursuant to the requirements of the Securities Act, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on the 2nd day of June, 2006. Signature Capacity /s/ Arne H. Carlson* Chair of the Board ------------------------------- Arne H. Carlson /s/ Kathleen A. Blatz* Director ------------------------------- Kathleen A. Blatz /s/ Patricia M. Flynn* Director ------------------------------- Patricia M. Flynn /s/ Anne P. Jones* Director ------------------------------- Anne P. Jones /s/ Jeffrey Laikind* Director ------------------------------- Jeffrey Laikind /s/ Stephen R. Lewis, Jr.* Director ------------------------------- Stephen R. Lewis, Jr. /s/ Catherine James Paglia* Director ------------------------------- Catherine James Paglia /s/ Vikki L. Pryor* Director ------------------------------- Vikki L. Pryor /s/ Alan K. Simpson* Director ------------------------------- Alan K. Simpson /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 April 12, 2006, filed electronically herewith as Exhibit (q)(1) to Registrant's Post-Effective Amendment No. 49 to Registration Statement No. 33-25824, by: /s/ Leslie L. Ogg ------------------------------- Leslie L. Ogg CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 49 TO REGISTRATION STATEMENT NO. 33-25824 This Post-Effective Amendment contains the following papers and documents: The facing sheet. Part A. The prospectus for: RiverSource Absolute Return Currency and Income Fund. Class I prospectus supplement for RiverSource Absolute Return Currency and Income Fund. Part B. Statement of Additional Information Part C. Other information. The signatures.