485BPOS 1 c46840be485bpos.txt 485BPOS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ____ Post-Effective Amendment No. 58 (File No. 33-25824) [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY (ACT OF 1940) Amendment No. 60 (File No. 811-5696) [X] RIVERSOURCE GLOBAL SERIES, INC. 50606 Ameriprise Financial Center Minneapolis, MN 55474 Scott R. Plummer 5228 Ameriprise Financial Center Minneapolis, MN 55474 (612) 671-1947 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on Dec. 30, 2008 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND PROSPECTUS DEC. 30, 2008 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND SEEKS TO PROVIDE SHAREHOLDERS WITH POSITIVE ABSOLUTE RETURN. Classes A, B, C, I, R4, R5 and W As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial institution if you have other accounts holding shares of RiverSource funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3P Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 4p Past Performance.................................. 8p Fees and Expenses................................. 11p Other Investment Strategies and Risks............. 13p Fund Management and Compensation.................. 14p FINANCIAL HIGHLIGHTS.............................. 16P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.6 Opening an Account.............................. S.13 Exchanging or Selling Shares...................... S.16 Exchanges....................................... S.19 Selling Shares.................................. S.21 VALUING FUND SHARES............................... S.22 DISTRIBUTIONS AND TAXES........................... S.23 GENERAL INFORMATION............................... S.25
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. -------------------------------------------------------------------------------- 2P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 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, there is no assurance this objective can be achieved. 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-duration debt obligations (or securities that invest in such debt obligations, including an affiliated money market fund) 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-duration debt obligations will consist primarily of (i) 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, and (ii) shares of an affiliated money market fund. 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. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 3P 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. 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. 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. INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. -------------------------------------------------------------------------------- 4P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 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 are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including leverage risk, hedging risk, correlation risk, and liquidity risk. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. QUANTITATIVE MODEL 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. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 5P ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. 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 than 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. -------------------------------------------------------------------------------- 6P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 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. RISKS OF INVESTING IN AFFILIATED MONEY MARKET FUND. In addition to the fees and expenses that the Fund directly bears, the Fund indirectly bears the fees and expenses of the affiliated money market fund in which it invests. To the extent these fees and expenses are expected to exceed 0.01% of the Fund's average daily net assets, they will be reflected in the Fund's Annual Operating Expenses set forth in the table under "Fees and Expenses." Additionally, by investing in an affiliated money market fund, the Fund will be exposed to the investment risks of the affiliated money market fund. To the extent the Fund invests a significant portion of its assets in the affiliated money market fund, the Fund will bear increased indirect expenses and be more susceptible to the investment risks of the affiliated money market fund, which include: ACTIVE MANAGEMENT RISK. The affiliated money market fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, the affiliated money market fund could underperform other mutual funds with similar investment objectives. CONCENTRATION 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. For example, if the affiliated money market fund concentrates its investments in banks, the value of these investments may be adversely affected by economic or regulatory developments in the banking industry. 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 affiliated money market fund purchases unrated securities, -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 7P or if the rating of a security is reduced after purchase, the affiliated money market fund will depend on the investment manager's analysis of credit risk more heavily than usual. REINVESTMENT RISK. Reinvestment risk is the risk that the affiliated money market fund will not be able to reinvest income or principal at the same rate it currently is earning. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - how the Fund's performance has varied for the full calendar year shown on the bar chart; and - how the Fund's average annual total returns compare to recognized indexes shown on the table. Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I, Class R4 and Class W shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - the maximum sales charge for Class A shares; - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - no sales charge for Class I, Class R4 and Class W shares; and - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. -------------------------------------------------------------------------------- 8P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +6.02% 2007
During the period shown in the bar chart, the highest return for a calendar quarter was +3.71% (quarter ended June 30, 2007) and the lowest return for a calendar quarter was -0.87% (quarter ended Dec. 31, 2007). The 3.00% sales charge applicable to Class A shares of the Fund, which changed from 4.75% effective Oct. 18, 2007, is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at Sept. 30, 2008 was -0.98%. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 9P AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
SINCE INCEPTION SINCE (CLASSES A, B, C, INCEPTION 1 YEAR I & R4) (CLASS W) RiverSource Absolute Return Currency and Income Fund: Class A* Return before taxes +1.02% +3.39%(a) N/A Return after taxes on distributions -1.05% +1.41%(a) N/A Return after taxes on distributions and sale of fund shares +1.06% +1.90%(a) N/A Class B Return before taxes +0.61% +3.61%(a) N/A Class C Return before taxes +4.50% +6.09%(a) N/A Class I Return before taxes +6.53% +7.20%(a) N/A Class R4 Return before taxes +6.33% +6.97% N/A Class W Return before taxes +6.04% N/A +6.67%(b) Citigroup 3-month U.S. Treasury Bill Index (reflects no deduction for fees, expenses or taxes) +4.74% +4.85%(c) +4.77%(d)
* On Oct. 18, 2007, the maximum sales charge for Class A shares changed from 4.75% to 3.00%. Class A shares total returns reflect the maximum sales charge of 4.75%, which was in effect at the beginning of all periods. (a) Inception date is June 15, 2006. (b) Inception date is Dec. 1, 2006. (c) Measurement period started July 1, 2006. (d) Measurement period started Dec. 1, 2006. The Citigroup 3-month U.S. Treasury Bill Index, an unmanaged index, represents the performance of three-month Treasury bills. The index reflects reinvestment of all distributions and changes in market prices. Inception date for Class R5 is Oct. 18, 2007 and therefore performance information for this class is not shown. -------------------------------------------------------------------------------- 10P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal year, adjusted to reflect current fees. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R4 CLASS R5 CLASS A CLASS B CLASS C CLASS W Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 3.00%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS W Management fees 0.89% 0.89% 0.89% 0.89% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.25% Other expenses(c) 0.25% 0.27% 0.26% 0.36% Total annual fund operating expenses(d) 1.39% 2.16% 2.15% 1.50%
CLASS I CLASS R4 CLASS R5 Management fees 0.89% 0.89% 0.89% Distribution and/or service (12b-1) fees 0.00% 0.00% 0.00% Other expenses(c) 0.14% 0.45% 0.18% Total annual fund operating expenses(d) 1.03% 1.34% 1.07%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), will not exceed 1.35% for Class R4. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 11P EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $437 $ 727 $1,039 $1,923 Class B $719(b) $1,076(b) $1,360(b) $2,301(c) Class C $318(b) $ 673 $1,155 $2,487 Class I $105 $ 328 $ 570 $1,264 Class R4 $136 $ 425 $ 735 $1,618 Class R5 $109 $ 341 $ 591 $1,310 Class W $153 $ 474 $ 819 $1,796
(a) Includes a 3.00% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $437 $727 $1,039 $1,923 Class B $219 $676 $1,160 $2,301(b) Class C $218 $673 $1,155 $2,487 Class I $105 $328 $ 570 $1,264 Class R4 $136 $425 $ 735 $1,618 Class R5 $109 $341 $ 591 $1,310 Class W $153 $474 $ 819 $1,796
(a) Includes a 3.00% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. -------------------------------------------------------------------------------- 12P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily 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 attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. Funds that invest primarily in fixed income securities do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 13P Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource funds (including the RiverSource Partners funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for all of the RiverSource funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.89% of the Fund's average daily net assets. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. -------------------------------------------------------------------------------- 14P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS Portfolio Manager(s). The portfolio manager responsible for the day-to-day management of the Fund is: Nicholas Pifer, CFA, Portfolio Manager - Managed the Fund since 2006. - Leader of the global sector team. - Joined RiverSource Investments in 2000. - Fixed Income Portfolio Manager, Investment Advisers, Inc., 1997 to 2000. - Began investment career in 1990. - 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. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 15P FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER OCT. 31, 2007 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIOD ENDED ON OCT. 31, 2006 HAS BEEN AUDITED BY OTHER AUDITORS. -------------------------------------------------------------------------------- 16P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.58 $10.09 $9.98 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .41(c) .12 Net gains (losses) (both realized and unrealized) (.22) .57 .11 ------------------------------------------------------------------------------------ Total from investment operations (.07) .98 .23 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.39) (.12) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.54) (.49) (.12) ------------------------------------------------------------------------------------ Net asset value, end of period $9.97 $10.58 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $176 $9 $10 ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.39% 1.36% 1.59%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.39% 1.36% 1.37%(f) ------------------------------------------------------------------------------------ Net investment income (loss) 1.50% 3.98% 3.89%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return(i) (.57%) 9.96%(j) 2.37%(k) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (k) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 17P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.58 $10.09 $9.97 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04(c) .34(c) .09 Net gains (losses) (both realized and unrealized) (.18) .59 .12 ------------------------------------------------------------------------------------ Total from investment operations (.14) .93 .21 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.34) (.09) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.48) (.44) (.09) ------------------------------------------------------------------------------------ Net asset value, end of period $9.96 $10.58 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $-- $-- ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 2.16% 2.10% 2.38%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 2.16% 2.10% 2.16%(f) ------------------------------------------------------------------------------------ Net investment income (loss) .38% 3.26% 3.11%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return(i) (1.35%) 9.38%(j) 2.16%(k) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (k) Not annualized. -------------------------------------------------------------------------------- 18P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.57 $10.09 $9.97 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(c) .34(c) .09 Net gains (losses) (both realized and unrealized) (.20) .58 .12 ------------------------------------------------------------------------------------ Total from investment operations (.14) .92 .21 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.34) (.09) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.48) (.44) (.09) ------------------------------------------------------------------------------------ Net asset value, end of period $9.95 $10.57 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $9 $-- $-- ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 2.15% 2.12% 2.38%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 2.15% 2.12% 2.16%(f) ------------------------------------------------------------------------------------ Net investment income (loss) .66% 3.42% 3.11%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return(i) (1.31%) 9.37%(j) 2.16%(k) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (k) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 19P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.59 $10.10 $9.98 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(c) .44(c) .13 Net gains (losses) (both realized and unrealized) (.24) .59 .12 ------------------------------------------------------------------------------------ Total from investment operations (.03) 1.03 .25 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.44) (.13) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.58) (.54) (.13) ------------------------------------------------------------------------------------ Net asset value, end of period $9.98 $10.59 $10.10 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $202 $122 $68 ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.03% 1.07% 1.34%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.03% 1.07% 1.12%(f) ------------------------------------------------------------------------------------ Net investment income (loss) 2.10% 4.30% 4.37%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return (.25%) 10.49%(i) 2.56%(j) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. -------------------------------------------------------------------------------- 20P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.58 $10.09 $9.98 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(c) .42(c) .13 Net gains (losses) (both realized and unrealized) (.26) .59 .11 ------------------------------------------------------------------------------------ Total from investment operations (.04) 1.01 .24 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.42) (.13) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.57) (.52) (.13) ------------------------------------------------------------------------------------ Net asset value, end of period $9.97 $10.58 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.34% 1.36% 1.45%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.09% 1.31% 1.23%(f) ------------------------------------------------------------------------------------ Net investment income (loss) 2.27% 4.13% 4.04%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return (.26%) 10.27%(i) 2.42%(j) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 21P CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct 31, 2008 2007(b) Net asset value, beginning of period $10.59 $10.58 ----------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .22 .02 Net gains (losses) (both realized and unrealized) (.26) .03 ----------------------------------------------------------------------- Total from investment operations (.04) .05 ----------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.04) Distributions from realized gains (.36) -- ----------------------------------------------------------------------- Total distributions (.57) (.04) ----------------------------------------------------------------------- Net asset value, end of period $9.98 $10.59 ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- ----------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.07% 1.06%(f) ----------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.07% 1.06%(f) ----------------------------------------------------------------------- Net investment income (loss) 2.23% 4.43%(f) ----------------------------------------------------------------------- Portfolio turnover rate 39% 36% ----------------------------------------------------------------------- Total return (.30%) .44%(i),(j) -----------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Oct. 18, 2007 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. -------------------------------------------------------------------------------- 22P RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct 31, 2008 2007(b) Net asset value, beginning of period $10.58 $10.13 ----------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .11 .36 Net gains (losses) (both realized and unrealized) (.19) .55 ----------------------------------------------------------------------- Total from investment operations (.08) .91 ----------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.36) Distributions from realized gains (.36) (.10) ----------------------------------------------------------------------- Total distributions (.53) (.46) ----------------------------------------------------------------------- Net asset value, end of period $9.97 $10.58 ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $304 $-- ----------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.50% 1.54%(f) ----------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.50% 1.54%(f) ----------------------------------------------------------------------- Net investment income (loss) 1.09% 3.88%(f) ----------------------------------------------------------------------- Portfolio turnover rate 39% 36% ----------------------------------------------------------------------- Total return (.66%) 9.21%(i),(j) -----------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 PROSPECTUS 23P RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker- dealers, banks and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial institutions to carry out its obligations to its customers. -------------------------------------------------------------------------------- S.1 S-6400-6 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. -------------------------------------------------------------------------------------------------------------------------------- Class B(d)(e) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00% invested in shares year decreasing to of the fund. 0% after six years. -------------------------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00% invested in shares within one year of the fund. after purchase. -------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. --------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. (e) Class B shares of RiverSource Absolute Return Currency and Income Fund are only available for exchanges from Class B shares of another RiverSource fund. Class B shares of each of RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund are closed to new investors and new purchases. (Existing shareholders in these funds may continue to own Class B shares and make exchanges into and out of existing accounts where Class B shares of these funds are maintained.) DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial institutions also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor -------------------------------------------------------------------------------- S.3 retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES. Class B shares of RiverSource Absolute Return Currency and Income Fund are not currently available for new purchases. However, if you own class B shares of another RiverSource fund, you may exchange into Class B shares of RiverSource Absolute Return Currency and Income Fund, if you meet the minimum investment and account balance requirements set forth in "Opening an Account," subject to the limitations set forth in this section. New purchases of Class B shares will not be permitted if your Rights of Accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your Rights of Accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation (ROA)" for information on Rights of Accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial institution. -------------------------------------------------------------------------------- S.4 CLASS I SHARES. The following eligible investors may purchase Class I shares: - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans. - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds). - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS W SHARES. The following eligible investors may purchase Class W shares: - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. -------------------------------------------------------------------------------- S.5 Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE: Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial institution through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES FOR FIXED INCOME FUNDS EXCEPT THOSE LISTED BELOW
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% 4.00% $50,000 -- $99,999 4.25 4.44 3.50 $100,000 -- $249,999 3.50 3.63 3.00 $250,000 -- $499,999 2.50 2.56 2.15 $500,000 -- $999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00***
-------------------------------------------------------------------------------- S.6 FOR RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND, RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% 2.50% $50,000 -- $99,999 3.00 3.09 2.50 $100,000 -- $249,999 2.50 2.56 2.15 $250,000 -- $499,999 2.00 2.04 1.75 $500,000 -- $999,999 1.50 1.52 1.25 $1,000,000 or more 0.00 0.00 0.00***
*Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. **Purchase price includes the sales charge. ***Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - Your current investment in a fund; and - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21 sharing a mailing address. The following accounts are eligible to be included in determining the sales charge on your purchase: - Individual or joint accounts; - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; -------------------------------------------------------------------------------- S.7 - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in determining the sales charge on your purchase: - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - Investments in Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - Charitable and irrevocable trust accounts. 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. -------------------------------------------------------------------------------- S.8 INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial institution. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. -------------------------------------------------------------------------------- S.9 - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. -------------------------------------------------------------------------------- S.10 - In an account that has been closed because it falls below the minimum account balance. - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. -------------------------------------------------------------------------------- S.11 Class B shares purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 will convert to Class A shares one month after the completion of the eighth year of ownership. FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial institutions that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - in the event of the shareholder's death; - held in trust for an employee benefit plan; or - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59 1/2 years old AND - taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR -------------------------------------------------------------------------------- S.12 - selling under an approved substantially equal periodic payment arrangement. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares in the event of the shareholder's death. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W there is no initial sales charge or CDSC. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial institution. You may establish and maintain your account with an authorized financial institution or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts maintained by the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. CLASS B SHARES OF RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND IS CURRENTLY CLOSED TO INVESTORS FOR NEW PURCHASES. CLASS B SHARES FOR RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ARE CLOSED TO NEW INVESTORS AND NEW PURCHASES. EXISTING SHAREHOLDERS IN THESE FUNDS MAY CONTINUE TO OWN CLASS B SHARES AND MAKE EXCHANGES INTO AND OUT OF EXISTING ACCOUNTS WHERE CLASS B SHARES OF THESE FUNDS ARE MAINTAINED. -------------------------------------------------------------------------------- S.13 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS The financial institution through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or may be requested by calling (888) 791- 3380. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (888) 791-3380 to notify the fund's transfer agent of the wire and to receive further instructions. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.14 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH (CONT.) If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. -------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE
RIVERSOURCE FOR ALL FUNDS, FLOATING RATE CLASSES AND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO INFLATION ABSOLUTE RETURN THE RIGHT TAX QUALIFIED PROTECTED CURRENCY AND (NONQUALIFIED) ACCOUNTS SECURITIES FUND INCOME FUND CLASS W --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $10,000 $500 --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $2,500 $5,000 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
RIVERSOURCE FOR ALL FUNDS, FLOATING RATE CLASSES AND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO INFLATION ABSOLUTE RETURN THE RIGHT TAX QUALIFIED PROTECTED CURRENCY AND (NONQUALIFIED) ACCOUNTS SECURITIES FUND INCOME FUND CLASS W --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $10,000 $500 --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $5,000 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.15 These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial institution for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than yourself. - Your address has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial institution providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.17 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. -------------------------------------------------------------------------------- BY TELEPHONE Call (888) 791-3380. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $100,000 per day. -------------------------------------------------------------------------------- BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (888) 791-3380 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: $100 Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.18 EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. FUNDS THAT INVEST IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS CALCULATED. TO THE EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF HIGH YIELD BONDS, TAX-EXEMPT SECURITIES OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: -------------------------------------------------------------------------------- S.19 - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial institution for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial institutions in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - The fund may rely on the monitoring policy of a financial institution, for example, a retirement plan administrator or similar financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - If an investor's trading activity is determined to be market timing or otherwise harmful to existing shareholders, the fund reserves the right to modify or discontinue the investor's exchange privilege or reject the investor's purchases or exchanges, including purchases or exchanges accepted by a financial institution. The fund may treat accounts it believes to be under common control as a single account for these purposes, although it may not be able to identify all such accounts. - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial institutions where market timing activity may not always be successfully detected. Other exchange policies: - Exchanges must be made into the same class of shares of the new fund. - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - Once the fund receives your exchange request, you cannot cancel it. -------------------------------------------------------------------------------- S.20 - Shares of the new fund may not be used on the same day for another exchange or sale. - Shares of the Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. -------------------------------------------------------------------------------- S.21 VALUING FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. For more information, contact your financial institution. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both market quotations and indicative bids are obtained from outside pricing services approved and monitored under procedures adopted by the Board. Certain short-term securities with maturities of 60 days or less are valued at amortized cost. 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. RiverSource funds use an unaffiliated service provider to assist in determining fair values for foreign securities. Foreign investments are valued in U.S. dollars. Some of a fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's shares may change on days when shareholders will not be able to purchase or sell the fund's shares. -------------------------------------------------------------------------------- S.22 DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Because of the types of income earned by fixed income funds, it is unlikely the funds will distribute qualified dividend income. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund unless you request distributions in cash. The financial institution through which you purchased shares may have different policies. Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. -------------------------------------------------------------------------------- S.23 TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. FOR TAXABLE FUNDS. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. FOR RIVERSOURCE INFLATION PROTECTED SECURITIES FUND. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by Internal Revenue Service regulations to be taxable income in the year it occurs. The fund will distribute both interest income and the income attributable to principal adjustments, both of which are taxable to shareholders. -------------------------------------------------------------------------------- S.24 FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt securities (exempt-interest dividends) are exempt from federal income taxes but may be subject to state and local taxes and potentially the alternative minimum tax. Dividends distributed from net capital gains, if any, and other income earned are not exempt from federal income taxes. Any taxable distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum tax. To the extent the fund earns such income, it will flow through to its shareholders and may affect those shareholders who are subject to the alternative minimum tax. See the SAI for more information. Because interest on municipal bonds and notes is tax-exempt for federal income tax purposes, any interest on money you borrow that is used directly or indirectly to purchase fund shares is not deductible on your federal income tax return. You should consult a tax advisor regarding its deductibility for state and local income tax purposes. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. -------------------------------------------------------------------------------- S.25 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. JPMorgan Chase Bank, N.A., 1 Chase Manhattan Plaza, 19(th) Floor, New York, NY 10005, provides custody services to the RiverSource funds. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide underwriting and distribution services to the RiverSource funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the RiverSource funds. The RiverSource funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial institutions that provide sub-recordkeeping and other services to fund -------------------------------------------------------------------------------- S.26 shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial institution may elevate the prominence or profile of the fund within the financial institution's organization, and may provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including -------------------------------------------------------------------------------- S.27 RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial institution, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial institutions and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of RiverSource fund assets (in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker-dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. -------------------------------------------------------------------------------- S.28 From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." ADDITIONAL MANAGEMENT INFORMATION MANAGER OF MANAGERS EXEMPTION. The RiverSource funds have received an order from the Securities and Exchange Commission that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. -------------------------------------------------------------------------------- S.29 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. AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. -------------------------------------------------------------------------------- S.30 CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. RiverSource Absolute Return Currency and Income Fund may, in addition to investing its daily cash balance, invest a higher percentage of its assets in Short Term Cash Fund, as an alternative to investing directly in short-duration debt obligations, as part of its principal investment strategy. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required 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.31 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-0102. Investment Company Act File #811-5696 TICKER SYMBOL Class A: RARAX Class B: -- Class C: RARCX Class I: RVAIX Class R4: -- Class R5: RARRX Class W: RACWX
(RIVERSOURCE INVESTMENTS LOGO) S-6502-99 G (12/08) Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE EMERGING MARKETS BOND FUND PROSPECTUS DEC. 30, 2008 RIVERSOURCE EMERGING MARKETS BOND FUND SEEKS TO PROVIDE SHAREHOLDERS WITH HIGH TOTAL RETURN THROUGH CURRENT INCOME AND, SECONDARILY, THROUGH CAPITAL APPRECIATION. Classes A, B, C, I, R4 and W As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial institution if you have other accounts holding shares of RiverSource funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3P Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 4p Past Performance.................................. 7p Fees and Expenses................................. 11p Other Investment Strategies and Risks............. 13p Fund Management and Compensation.................. 14p FINANCIAL HIGHLIGHTS.............................. 16P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.6 Opening an Account.............................. S.13 Exchanging or Selling Shares...................... S.16 Exchanges....................................... S.19 Selling Shares.................................. S.21 VALUING FUND SHARES............................... S.22 DISTRIBUTIONS AND TAXES........................... S.23 GENERAL INFORMATION............................... S.25
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. -------------------------------------------------------------------------------- 2P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS THE FUND OBJECTIVE RiverSource Emerging Markets Bond Fund (the Fund) seeks to provide shareholders with high total return through current income and, secondarily, through capital appreciation. Because any investment involves risk, there is no assurance this objective can be achieved. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES The Fund is a non-diversified fund that invests primarily in fixed income securities of emerging markets issuers. Emerging markets include any country determined to have an emerging market economy. Emerging markets include any country that is not defined by the World Bank as a High Income OECD country. The OECD (Organization for Economic Co-operation and Development) is a group of 30 member countries sharing a commitment to democratic government and the market economy. Under normal market conditions, at least 80% of the Fund's net assets will be invested in fixed income securities of issuers that are located in emerging markets countries, or that earn 50% or more of their total revenues from goods or services produced in emerging markets countries or from sales made in emerging markets countries. Such securities may be denominated in either non- U.S. currencies or the U.S. dollar. While the Fund may invest 25% or more of its total assets in the securities of foreign governmental and corporate entities located in the same country, it will not invest 25% or more of its total assets in any single foreign government issuer. Emerging market fixed income securities are generally rated in the lower rating categories of recognized rating agencies or considered by the investment manager to be of comparable quality. These lower quality fixed income securities are often called "junk bonds." The Fund may invest up to 100% of its assets in these lower rated securities. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. In pursuit of the Fund's objective, the investment manager (RiverSource Investments, LLC) chooses investments by: - Analyzing the creditworthiness of emerging market countries. - Seeking to evaluate the best relative value opportunities among emerging market countries, by comparing sovereign debt spreads to fundamental creditworthiness and comparing the recent sovereign debt spread relationships among countries to historic relationships. - Seeking to identify emerging markets bonds that can take advantage of attractive local interest rates and provide exposure to undervalued currencies. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 3P In evaluating whether to sell a security, the investment manager considers, among other factors, whether in its view: - The security is overvalued. - The security has new credit risks. - The security continues to meet the standards described above. The investment manager monitors the Fund's exposure to interest rate and foreign currency fluctuations. The investment manager may use derivatives such as futures, options, forward contracts and swaps, including credit default swaps, in an effort to produce incremental earnings, to hedge existing positions, to increase market exposure and investment flexibility, or to obtain or reduce credit exposure. The Fund may count the value of derivative securities with emerging markets exposure towards its 80% policy. PRINCIPAL RISKS This Fund is designed for long-term investors with above-average risk tolerance. The Fund has a higher potential for volatility and loss of principal. 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 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. RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. -------------------------------------------------------------------------------- 4P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the Fund purchases unrated securities, or if the rating of a security is reduced after purchase, the Fund will depend on the investment manager's analysis of credit risk more heavily than usual. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, may react more to perceived changes in the ability of the issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade securities have greater price fluctuations and are more likely to experience a default than investment grade bonds. In addition, investments in emerging markets debt obligations also are subject to increased credit risk because of the difficulties of requiring foreign entities, including issuers of sovereign debt obligations, to honor their contractual commitments, and because a number of emerging markets governments and other issuers are already in default. ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 5P DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including correlation risk, counterparty credit risk, hedging risk and leverage risk. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. DIVERSIFICATION RISK. The Fund is non-diversified. 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 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. INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. -------------------------------------------------------------------------------- 6P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 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. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region or sector will be more susceptible to changes in price. The more a fund diversifies across sectors, the more it spreads risk and potentially reduces the risks of loss and volatility. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - how the Fund's average annual total returns compare to recognized indexes shown on the table. Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I, Class R4 and Class W shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - the maximum sales charge for Class A shares; - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - no sales charge for Class I, Class R4 and Class W shares; and - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 7P AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +5.76% 2007
During the period shown in the bar chart, the highest return for a calendar quarter was +2.64% (quarter ended March 31, 2007) and the lowest return for a calendar quarter was +0.60% (quarter ended Sept. 30, 2007). The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at Sept. 30, 2008 was -8.20%. -------------------------------------------------------------------------------- 8P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
SINCE INCEPTION SINCE (CLASS A, B, C INCEPTION 1 YEAR I & R4) (CLASS W) RiverSource Emerging Markets Bond Fund: Class A Return before taxes +0.78% +4.68%(a) N/A Return after taxes on distributions -1.41% +2.60%(a) N/A Return after taxes on distributions and sale of fund shares +0.55% +2.79%(a) N/A Class B Return before taxes -0.05% +4.58%(a) N/A Class C Return before taxes +3.89% +6.60%(a) N/A Class I Return before taxes +6.21% +7.82%(a) N/A Class R4 Return before taxes +5.96% +7.63%(a) N/A Class W Return before taxes +5.75% N/A +6.78%(b) J.P. Morgan Emerging Markets Bond Index-Global (J.P. Morgan EMBI- Global) (reflects no deduction for fees, expenses or taxes) +6.28% +8.10%(c) +6.42%(d) Lipper Emerging Markets Debt Funds Index +5.88% +7.25%(c) +6.79%(d)
(a) Inception date is Feb. 16, 2006. (b) Inception date is Dec. 1, 2006. (c) Measurement period started March 1, 2006. (d) Measurement period started Dec. 1, 2006. The J.P. Morgan Emerging Markets Bond Index-Global (J.P. Morgan EMBI-Global), an unmanaged index, is based on U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities, such as Brady bonds, Eurobonds and loans. The index reflects reinvestment of all distributions and changes in market prices. The Lipper Emerging Markets Debt Funds Index, published by Lipper Inc., includes the 10 largest funds that have similar investment objectives to the Fund, although some funds in the index may have somewhat different investment policies or objectives. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 9P Past performance for Class W for the period prior to the beginning of operations for that class may be calculated based on the performance of Class A. The blended class performance will be adjusted to reflect differences in sales charges, but not differences in annual Fund operating expenses (for example, 12b-1 fees). The use of blended performance generally results in a presentation of higher performance for classes with higher operating expenses than those of the class with which they are blended, and a presentation of lower performance for classes with lower operating expenses than those of the class with which they are blended. -------------------------------------------------------------------------------- 10P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal year, adjusted to reflect current fees. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R4 CLASS A CLASS B CLASS C CLASS W Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS W Management fees 0.72% 0.72% 0.72% 0.72% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.25% Other expenses(c) 0.44% 0.47% 0.46% 0.38% Total annual fund operating expenses 1.41% 2.19% 2.18% 1.35% Fee waiver/expense reimbursement 0.14% 0.15% 0.15% 0.05% Total annual (net) fund operating expenses(d) 1.27% 2.04% 2.03% 1.30%
CLASS I CLASS R4 Management fees 0.72% 0.72% Distribution and/or service (12b-1) fees 0.00% 0.00% Other expenses(c) 0.19% 0.50% Total annual fund operating expenses 0.91% 1.22% Fee waiver/expense reimbursement 0.06% 0.07% Total annual (net) fund operating expenses(d) 0.85% 1.15%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds) will not exceed 1.27% for Class A, 2.04% for Class B, 2.03% for Class C, 0.85% for Class I, 1.15% for Class R4 and 1.30% % for Class W. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 11P EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $598 $ 887 $1,198 $2,079 Class B $707(b) $1,071(b) $1,362(b) $2,318(c) Class C $306(b) $ 668 $1,157 $2,506 Class I $ 87 $ 284 $ 499 $1,118 Class R4 $117 $ 381 $ 665 $1,476 Class W $132 $ 423 $ 736 $1,625
(a) Includes a 4.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $598 $887 $1,198 $2,079 Class B $207 $671 $1,162 $2,318(b) Class C $206 $668 $1,157 $2,506 Class I $ 87 $284 $ 499 $1,118 Class R4 $117 $381 $ 665 $1,476 Class W $132 $423 $ 736 $1,625
(a) Includes a 4.75% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. -------------------------------------------------------------------------------- 12P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. Funds that invest primarily in fixed income securities do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 13P Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource funds (including the RiverSource Partners funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for all of the RiverSource funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.72% of the Fund's average daily net assets. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. -------------------------------------------------------------------------------- 14P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS Portfolio Manager(s). The portfolio manager responsible for the day-to-day management of the Portfolio is: Nicholas Pifer, CFA, Portfolio Manager - Managed the Fund since 2006. - Leader of the global sector team. - Joined RiverSource Investments in 2000. - Fixed Income Portfolio Manager, Investment Advisers, Inc., 1997 to 2000. - Began investment career in 1990. - MA, Johns Hopkins University School of Advanced International Studies. Jim Carlen, CFA, Portfolio Manager - Managed the Fund since 2008. - Member of the global sector team. - Joined RiverSource Investments in 1996 as an international economist. - Began investment career in 1996. - MS, Georgetown University. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 15P FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER OCT. 31, 2007 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIOD ENDED OCT. 31, 2006 HAS BEEN AUDITED BY OTHER AUDITORS. -------------------------------------------------------------------------------- 16P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.57 $10.16 $9.98 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .61(c) .59(c) .33 Net gains (losses) (both realized and unrealized) (3.43) .39 .18 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.82) .98 .51 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.61) (.55) (.33) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.70) (.57) (.33) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.57 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $10 $5 $12 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.41% 1.33% 1.81%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.40% 1.33% 1.39%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.31% 5.61% 5.20%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return(i) (28.44%) 9.94% 5.25%(j) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 17P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.55 $10.16 $9.97 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .55(c) .52(c) .28 Net gains (losses) (both realized and unrealized) (3.42) .37 .19 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.87) .89 .47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.54) (.48) (.28) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.63) (.50) (.28) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.55 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.19% 2.13% 2.62%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 2.17% 2.13% 2.20%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 5.61% 4.90% 4.51%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return(i) (28.85%) 8.94% 4.80%(j) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- 18P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.54 $10.15 $9.97 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .55(c) .53(c) .28 Net gains (losses) (both realized and unrealized) (3.42) .36 .18 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.87) .89 .46 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.54) (.48) (.28) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.63) (.50) (.28) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.04 $10.54 $10.15 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.18% 2.13% 2.61%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 2.16% 2.13% 2.19%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 5.64% 5.00% 4.46%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return(i) (28.88%) 8.94% 4.75%(j) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 19P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.57 $10.16 $9.98 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .69(c) .65(c) .35 Net gains (losses) (both realized and unrealized) (3.46) .38 .17 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.77) 1.03 .52 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.66) (.60) (.34) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.75) (.62) (.34) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.57 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $65 $147 $47 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .91% .93% 1.52%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .91% .93% 1.10%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.89% 6.14% 5.70%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return (28.08%) 10.38% 5.44%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- 20P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.56 $10.16 $9.98 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .67(c) .60(c) .34 Net gains (losses) (both realized and unrealized) (3.43) .39 .18 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.76) .99 .52 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.66) (.57) (.34) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.75) (.59) (.34) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.56 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.22% 1.24% 1.67%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .97% 1.24% 1.25%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.82% 5.75% 5.37%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return (27.98%) 9.97% 5.36%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS 21P CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $10.55 $10.24 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .56 .57 Net gains (losses) (both realized and unrealized) (3.36) .28 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.80) .85 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.61) (.52) Distributions from realized gains (.09) (.02) -------------------------------------------------------------------------------------------------------------- Total distributions (.70) (.54) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.55 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $104 $38 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.35% 1.33%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.35% 1.33%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.08% 5.86%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% -------------------------------------------------------------------------------------------------------------- Total return (28.29%) 8.49%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- 22P RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 PROSPECTUS RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker- dealers, banks and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial institutions to carry out its obligations to its customers. -------------------------------------------------------------------------------- S.1 S-6400-6 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. -------------------------------------------------------------------------------------------------------------------------------- Class B(d)(e) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00% invested in shares year decreasing to of the fund. 0% after six years. -------------------------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00% invested in shares within one year of the fund. after purchase. -------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. --------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. (e) Class B shares of RiverSource Absolute Return Currency and Income Fund are only available for exchanges from Class B shares of another RiverSource fund. Class B shares of each of RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund are closed to new investors and new purchases. (Existing shareholders in these funds may continue to own Class B shares and make exchanges into and out of existing accounts where Class B shares of these funds are maintained.) DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial institutions also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for -------------------------------------------------------------------------------- S.3 the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES. Class B shares of RiverSource Absolute Return Currency and Income Fund are not currently available for new purchases. However, if you own class B shares of another RiverSource fund, you may exchange into Class B shares of RiverSource Absolute Return Currency and Income Fund, if you meet the minimum investment and account balance requirements set forth in "Opening an Account," subject to the limitations set forth in this section. New purchases of Class B shares will not be permitted if your Rights of Accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your Rights of Accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation (ROA)" for information on Rights of Accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial institution. -------------------------------------------------------------------------------- S.4 CLASS I SHARES. The following eligible investors may purchase Class I shares: - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans. - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds). - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS W SHARES. The following eligible investors may purchase Class W shares: - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. -------------------------------------------------------------------------------- S.5 Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE: Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial institution through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES FOR FIXED INCOME FUNDS EXCEPT THOSE LISTED BELOW
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% 4.00% $50,000 -- $99,999 4.25 4.44 3.50 $100,000 -- $249,999 3.50 3.63 3.00 $250,000 -- $499,999 2.50 2.56 2.15 $500,000 -- $999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00***
-------------------------------------------------------------------------------- S.6 FOR RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND, RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% 2.50% $50,000 -- $99,999 3.00 3.09 2.50 $100,000 -- $249,999 2.50 2.56 2.15 $250,000 -- $499,999 2.00 2.04 1.75 $500,000 -- $999,999 1.50 1.52 1.25 $1,000,000 or more 0.00 0.00 0.00***
*Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. **Purchase price includes the sales charge. ***Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - Your current investment in a fund; and - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21 sharing a mailing address. The following accounts are eligible to be included in determining the sales charge on your purchase: - Individual or joint accounts; - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; -------------------------------------------------------------------------------- S.7 - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in determining the sales charge on your purchase: - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - Investments in Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - Charitable and irrevocable trust accounts. 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. -------------------------------------------------------------------------------- S.8 INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial institution. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. -------------------------------------------------------------------------------- S.9 - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. -------------------------------------------------------------------------------- S.10 - In an account that has been closed because it falls below the minimum account balance. - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. -------------------------------------------------------------------------------- S.11 Class B shares purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 will convert to Class A shares one month after the completion of the eighth year of ownership. FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial institutions that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - in the event of the shareholder's death; - held in trust for an employee benefit plan; or - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59 1/2 years old AND - taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR -------------------------------------------------------------------------------- S.12 - selling under an approved substantially equal periodic payment arrangement. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares in the event of the shareholder's death. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W there is no initial sales charge or CDSC. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial institution. You may establish and maintain your account with an authorized financial institution or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts maintained by the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. CLASS B SHARES OF RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND IS CURRENTLY CLOSED TO INVESTORS FOR NEW PURCHASES. CLASS B SHARES FOR RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ARE CLOSED TO NEW INVESTORS AND NEW PURCHASES. EXISTING SHAREHOLDERS IN THESE FUNDS MAY CONTINUE TO OWN CLASS B SHARES AND MAKE EXCHANGES INTO AND OUT OF EXISTING ACCOUNTS WHERE CLASS B SHARES OF THESE FUNDS ARE MAINTAINED. -------------------------------------------------------------------------------- S.13 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS The financial institution through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or may be requested by calling (888) 791- 3380. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (888) 791-3380 to notify the fund's transfer agent of the wire and to receive further instructions. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.14 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH (CONT.) If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. -------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE
RIVERSOURCE FOR ALL FUNDS, FLOATING RATE CLASSES AND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO INFLATION ABSOLUTE RETURN THE RIGHT TAX QUALIFIED PROTECTED CURRENCY AND (NONQUALIFIED) ACCOUNTS SECURITIES FUND INCOME FUND CLASS W --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $10,000 $500 --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $2,500 $5,000 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
RIVERSOURCE FOR ALL FUNDS, FLOATING RATE CLASSES AND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO INFLATION ABSOLUTE RETURN THE RIGHT TAX QUALIFIED PROTECTED CURRENCY AND (NONQUALIFIED) ACCOUNTS SECURITIES FUND INCOME FUND CLASS W --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $10,000 $500 --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $5,000 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.15 These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial institution for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than yourself. - Your address has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial institution providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.17 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. -------------------------------------------------------------------------------- BY TELEPHONE Call (888) 791-3380. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $100,000 per day. -------------------------------------------------------------------------------- BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (888) 791-3380 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: $100 Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.18 EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. FUNDS THAT INVEST IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS CALCULATED. TO THE EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF HIGH YIELD BONDS, TAX-EXEMPT SECURITIES OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: -------------------------------------------------------------------------------- S.19 - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial institution for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial institutions in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - The fund may rely on the monitoring policy of a financial institution, for example, a retirement plan administrator or similar financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - If an investor's trading activity is determined to be market timing or otherwise harmful to existing shareholders, the fund reserves the right to modify or discontinue the investor's exchange privilege or reject the investor's purchases or exchanges, including purchases or exchanges accepted by a financial institution. The fund may treat accounts it believes to be under common control as a single account for these purposes, although it may not be able to identify all such accounts. - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial institutions where market timing activity may not always be successfully detected. Other exchange policies: - Exchanges must be made into the same class of shares of the new fund. - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - Once the fund receives your exchange request, you cannot cancel it. -------------------------------------------------------------------------------- S.20 - Shares of the new fund may not be used on the same day for another exchange or sale. - Shares of the Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. -------------------------------------------------------------------------------- S.21 VALUING FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. For more information, contact your financial institution. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both market quotations and indicative bids are obtained from outside pricing services approved and monitored under procedures adopted by the Board. Certain short-term securities with maturities of 60 days or less are valued at amortized cost. 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. RiverSource funds use an unaffiliated service provider to assist in determining fair values for foreign securities. Foreign investments are valued in U.S. dollars. Some of a fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's shares may change on days when shareholders will not be able to purchase or sell the fund's shares. -------------------------------------------------------------------------------- S.22 DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Because of the types of income earned by fixed income funds, it is unlikely the funds will distribute qualified dividend income. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund unless you request distributions in cash. The financial institution through which you purchased shares may have different policies. Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. -------------------------------------------------------------------------------- S.23 TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. FOR TAXABLE FUNDS. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. FOR RIVERSOURCE INFLATION PROTECTED SECURITIES FUND. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by Internal Revenue Service regulations to be taxable income in the year it occurs. The fund will distribute both interest income and the income attributable to principal adjustments, both of which are taxable to shareholders. -------------------------------------------------------------------------------- S.24 FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt securities (exempt-interest dividends) are exempt from federal income taxes but may be subject to state and local taxes and potentially the alternative minimum tax. Dividends distributed from net capital gains, if any, and other income earned are not exempt from federal income taxes. Any taxable distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum tax. To the extent the fund earns such income, it will flow through to its shareholders and may affect those shareholders who are subject to the alternative minimum tax. See the SAI for more information. Because interest on municipal bonds and notes is tax-exempt for federal income tax purposes, any interest on money you borrow that is used directly or indirectly to purchase fund shares is not deductible on your federal income tax return. You should consult a tax advisor regarding its deductibility for state and local income tax purposes. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. -------------------------------------------------------------------------------- S.25 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. JPMorgan Chase Bank, N.A., 1 Chase Manhattan Plaza, 19(th) Floor, New York, NY 10005, provides custody services to the RiverSource funds. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide underwriting and distribution services to the RiverSource funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the RiverSource funds. The RiverSource funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to -------------------------------------------------------------------------------- S.26 financial institutions that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial institution may elevate the prominence or profile of the fund within the financial institution's organization, and may provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources -------------------------------------------------------------------------------- S.27 promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial institution, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial institutions and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of RiverSource fund assets (in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker-dealers seek to mitigate by disclosure and -------------------------------------------------------------------------------- S.28 implementation of internal controls, as well as the rules and regulations of applicable regulators. From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." -------------------------------------------------------------------------------- S.29 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. AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. -------------------------------------------------------------------------------- S.30 CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. RiverSource Absolute Return Currency and Income Fund may, in addition to investing its daily cash balance, invest a higher percentage of its assets in Short Term Cash Fund, as an alternative to investing directly in short-duration debt obligations, as part of its principal investment strategy. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required 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.31 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-0102. Investment Company Act File #811-5696 TICKER SYMBOL Class A: REBAX Class B: -- Class C: REBCX Class I: RSMIX Class R4: -- Class W: REMWX
(RIVERSOURCE INVESTMENTS LOGO) S-6398-99 E (12/08) Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE GLOBAL BOND FUND PROSPECTUS DEC. 30, 2008 RIVERSOURCE GLOBAL BOND FUND SEEKS TO PROVIDE SHAREHOLDERS WITH HIGH TOTAL RETURN THROUGH INCOME AND GROWTH OF CAPITAL. Classes A, B, C, I, R4 and W As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial institution if you have other accounts holding shares of RiverSource funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3P Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 3p Past Performance.................................. 6p Fees and Expenses................................. 11p Other Investment Strategies and Risks............. 13p Fund Management and Compensation.................. 14p FINANCIAL HIGHLIGHTS.............................. 16P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.6 Opening an Account.............................. S.13 Exchanging or Selling Shares...................... S.16 Exchanges....................................... S.19 Selling Shares.................................. S.21 VALUING FUND SHARES............................... S.22 DISTRIBUTIONS AND TAXES........................... S.23 GENERAL INFORMATION............................... S.25
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. -------------------------------------------------------------------------------- 2P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS THE FUND OBJECTIVE RiverSource Global Bond Fund (the Fund) seeks to provide shareholders with high total return through income and growth of capital. Because any investment involves risk, there is no assurance this objective can be achieved. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES The Fund is a non-diversified mutual fund that invests primarily in debt obligations of U.S. and foreign issuers. Under normal market conditions, at least 80% of the Fund's net assets will be invested in investment-grade corporate or government debt obligations, including money market instruments, of issuers located in at least three different countries. Although the Fund emphasizes high and medium-quality debt securities, it may assume some credit risk in seeking to achieve higher dividends and /or capital appreciation by buying below investment-grade bonds (junk bonds). The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. In pursuit of the Fund's objective, the investment manager (RiverSource Investments, LLC) chooses investments by: - Considering opportunities and risks by credit rating and currency. - Identifying investment-grade U.S. and foreign bonds. - Identifying below investment-grade U.S. and foreign bonds. - Identifying bonds that can take advantage of currency movements and interest rate differences among nations. In evaluating whether to sell a security, the investment manager considers, among other factors, whether: - The security is overvalued. - The security continues to meet the standards described above. The investment manager monitors the Fund's exposure to interest rate and foreign currency fluctuations. The investment manager may use derivatives such as futures, options, forward contracts and swaps, including credit default swaps, in an effort to produce incremental earnings, to hedge existing positions, interest rate fluctuations or currency fluctuations, to increase market exposure and investment flexibility, or to obtain or reduce credit exposure. PRINCIPAL RISKS Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 3P ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the Fund purchases unrated securities, or if the rating of a security is reduced after purchase, the Fund will depend on the investment manager's analysis of credit risk more heavily than usual. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, may react more to perceived changes in the ability of the issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade securities have greater price fluctuations and are more likely to experience a default than investment grade bonds. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including counterparty credit risk, leverage risk, hedging risk and correlation risk. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. -------------------------------------------------------------------------------- 4P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS DIVERSIFICATION RISK. The Fund is non-diversified. 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 then a fund that invests more broadly. RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. 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. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 5P INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. LIQUIDITY RISK. Liquidity risk is the risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. PREPAYMENT AND EXTENSION RISK. Prepayment and extension risk is the risk that a bond or other security might be called or otherwise converted, prepaid, or redeemed before maturity. This risk is primarily associated with asset-backed securities, including mortgage-backed securities. If a security is converted, prepaid, or redeemed before maturity, particularly during a time of declining interest rates, the investment manager may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the Fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The investment manager may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region or sector will be more susceptible to changes in price. The more a fund diversifies across sectors, the more it spreads risk and potentially reduces the risks of loss and volatility. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - how the Fund's average annual total returns compare to recognized indexes shown on the table. -------------------------------------------------------------------------------- 6P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I, Class R4 and Class W shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - the maximum sales charge for Class A shares; - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - no sales charge for Class I, Class R4 and Class W shares; and - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 7P AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +7.49% -4.11% +2.40% +1.51% +14.02% +13.27% +9.98% -5.32% +6.87% +7.48% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
During the periods shown in the bar chart, the highest return for a calendar quarter was +7.23% (quarter ended Dec. 31, 2004) and the lowest return for a calendar quarter was -2.78% (quarter ended June 30, 2004). The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at Sept. 30, 2008 was -2.46%. The Fund formerly was a "feeder" fund in a master/feeder arrangement where the Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Nov. 8, 2005, the Fund became a stand-alone fund that invests directly in a portfolio of securities. The information shown in the table and in the financial highlights for the Fund includes the activity of the Fund when it was a feeder in a master/feeder arrangement. -------------------------------------------------------------------------------- 8P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
SINCE SINCE SINCE INCEPTION INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS I) (CLASS W) RiverSource Global Bond Fund: Class A Return before taxes +2.33% +5.23% +4.67% N/A N/A N/A Return after taxes on distributions +1.10% +3.67% +3.15% N/A N/A N/A Return after taxes on distributions and sale of fund shares +1.49% +3.55% +3.06% N/A N/A N/A Class B Return before taxes +1.56% +5.14% +4.41% N/A N/A N/A Class C Return before taxes +5.63% +5.47% N/A +5.95%(a) N/A N/A Class I Return before taxes +7.76% N/A N/A N/A +5.32%(b) N/A Class R4 Return before taxes +7.85% +6.50% +5.41% N/A N/A N/A Class W Return before taxes +7.37% N/A N/A N/A N/A +5.77%(c) Barclays Capital Aggregate Index (reflects no deduction for fees, expenses or taxes) +9.48% +6.51% +6.08% +7.03%(d) +5.05%(e) +7.39%(f) Lipper Global Income Funds Index +7.16% +6.72% +5.49% +6.83%(d) +5.12%(e) +6.03%(f)
(a) Inception date is June 26, 2000. (b) Inception date is March 4, 2004. (c) Inception date is Dec. 1, 2006. (d) Measurement period started July 1, 2000. (e) Measurement period started March 1, 2004. (f) Measurement period started Dec. 1, 2006. The Barclays Capital Global Aggregate Index (formerly known as the Lehman Brothers Global Aggregate Index), an unmanaged market capitalization weighted benchmark, tracks the performance of investment grade fixed income securities denominated in 13 currencies. The index reflects reinvestment of all distributions and changes in market prices. The Lipper Global Income Funds Index includes the 30 largest global income funds tracked by Lipper Inc. The index's returns include net reinvested dividends. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 9P Past performance for Class W for the period prior to the beginning of operations may be calculated based on the performance of Class A. The blended class performance will be adjusted to reflect differences in sales charges, but not differences in annual Fund operating expenses (for example, 12b-1 fees). The use of blended performance generally results in a presentation of higher performance for classes with higher operating expenses than those of the class with which they are blended, and a presentation of lower performance for classes with lower operating expenses than those of the class with which they are blended. -------------------------------------------------------------------------------- 10P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R4 CLASS A CLASS B CLASS C CLASS W Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 4.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS W Management fees 0.70% 0.70% 0.70% 0.70% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.25% Other expenses(c) 0.37% 0.39% 0.38% 0.35% Total annual fund operating expenses 1.32% 2.09% 2.08% 1.30% Fee waiver/expense reimbursement 0.07% 0.08% 0.07% 0.03% Total annual (net) fund operating expenses(d) 1.25% 2.01% 2.01% 1.27%
CLASS I CLASS R4 Management fees 0.70% 0.70% Distribution and/or service (12b-1) fees 0.00% 0.00% Other expenses(c) 0.15% 0.44% Total annual fund operating expenses 0.85% 1.14% Fee waiver/expense reimbursement 0.03% 0.02% Total annual (net) fund operating expenses(d) 0.82% 1.12%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), will not exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C, 0.82% for Class I, 1.12% for Class R4 and 1.27% for Class W. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 11P EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $596 $ 867 $1,159 $1,989 Class B $704(b) $1,047(b) $1,317(b) $2,222(c) Class C $304(b) $ 645 $1,113 $2,410 Class I $ 84 $ 268 $ 469 $1,050 Class R4 $114 $ 361 $ 627 $1,389 Class W $129 $ 409 $ 711 $1,570
(a) Includes a 4.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $596 $867 $1,159 $1,989 Class B $204 $647 $1,117 $2,222(b) Class C $204 $645 $1,113 $2,410 Class I $ 84 $268 $ 469 $1,050 Class R4 $114 $361 $ 627 $1,389 Class W $129 $409 $ 711 $1,570
(a) Includes a 4.75% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. -------------------------------------------------------------------------------- 12P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. Funds that invest primarily in fixed income securities do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 13P Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource funds (including the RiverSource Partners funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for all of the RiverSource funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.70% of the Fund's average daily net assets. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. -------------------------------------------------------------------------------- 14P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS Portfolio Manager(s). The portfolio manager responsible for the day-to-day management of the Fund is: Nicholas Pifer, CFA, Portfolio Manager - Managed the Fund since 2000. - Leader of the global sector team. - Joined RiverSource Investments in 2000. - Fixed Income Portfolio Manager, Investment Advisers, Inc., 1997 to 2000. - Began investment career in 1990. - 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. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 15P FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER OCT. 31, 2007 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIODS ENDED ON OR BEFORE OCT. 31, 2006 HAS BEEN AUDITED BY OTHER AUDITORS. -------------------------------------------------------------------------------- 16P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.89 $6.60 $6.59 $7.02 $6.57 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(b) .20(b) .19 .16 .17 Net gains (losses) (both realized and unrealized) (.73) .35 .14 (.23) .52 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.51) .55 .33 (.07) .69 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.26) (.32) (.36) (.24) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.16 $6.89 $6.60 $6.59 $7.02 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $249 $259 $276 $353 $389 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.32% 1.37% 1.39% 1.37% 1.34% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.25% 1.25% 1.25% 1.35% 1.34% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.26% 3.08% 2.77% 2.42% 2.66% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return(g) (7.66%) 8.63% 5.17% (1.18%) 10.70% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 17P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.96 $6.67 $6.59 $7.02 $6.57 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(b) .15(b) .13 .10 .14 Net gains (losses) (both realized and unrealized) (.73) .35 .16 (.23) .50 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.56) .50 .29 (.13) .64 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.21) (.21) (.30) (.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.23 $6.96 $6.67 $6.59 $7.02 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $47 $63 $111 $142 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 2.09% 2.13% 2.16% 2.13% 2.10% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 2.01% 2.01% 2.02% 2.12% 2.10% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.49% 2.30% 1.98% 1.65% 1.90% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return(g) (8.28%) 7.68% 4.45% (1.98%) 9.83% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 18P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.91 $6.62 $6.57 $6.99 $6.55 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(b) .15(b) .14 .11 .14 Net gains (losses) (both realized and unrealized) (.73) .35 .13 (.22) .49 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.56) .50 .27 (.11) .63 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.21) (.22) (.31) (.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.18 $6.91 $6.62 $6.57 $6.99 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $3 $3 $4 $5 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 2.08% 2.13% 2.16% 2.14% 2.09% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 2.01% 2.01% 2.02% 2.12% 2.09% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.51% 2.32% 2.00% 1.65% 1.91% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return(g) (8.27%) 7.75% 4.25% (1.83%) 9.72% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 19P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b) Net asset value, beginning of period $6.87 $6.59 $6.61 $7.03 $6.77 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(c) .23(c) .21 .19 .16 Net gains (losses) (both realized and unrealized) (.73) .34 .14 (.22) .24 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.48) .57 .35 (.03) .40 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.25) (.29) (.37) (.39) (.14) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.14 $6.87 $6.59 $6.61 $7.03 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $206 $157 $145 $89 $24 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .85% .87% .88% .91% .89%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .82% .87% .88% .91% .89%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.68% 3.47% 3.18% 2.87% 3.07%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return (7.30%) 8.91% 5.52% (.56%) 6.06%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to Oct. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- 20P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.89 $6.60 $6.61 $7.04 $6.59 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(b) .22(b) .20 .16 .18 Net gains (losses) (both realized and unrealized) (.72) .35 .13 (.22) .52 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.47) .57 .33 (.06) .70 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.26) (.28) (.34) (.37) (.25) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.16 $6.89 $6.60 $6.61 $7.04 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.14% 1.17% 1.20% 1.20% 1.17% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .87% 1.08% 1.08% 1.18% 1.17% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.64% 3.27% 2.95% 2.60% 2.83% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return (7.19%) 8.84% 5.29% (1.00%) 10.86% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS 21P CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $6.88 $6.79 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .22 .20 Net gains (losses) (both realized and unrealized) (.73) .17 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.51) .37 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.28) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.15 $6.88 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $135 $54 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.30% 1.35%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.27% 1.26%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.27% 3.34%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% -------------------------------------------------------------------------------------------------------------- Total return (7.62%) 5.71%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- 22P RIVERSOURCE GLOBAL BOND FUND -- 2008 PROSPECTUS RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker- dealers, banks and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial institutions to carry out its obligations to its customers. -------------------------------------------------------------------------------- S.1 S-6400-6 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. -------------------------------------------------------------------------------------------------------------------------------- Class B(d)(e) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00% invested in shares year decreasing to of the fund. 0% after six years. -------------------------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00% invested in shares within one year of the fund. after purchase. -------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. --------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. (e) Class B shares of RiverSource Absolute Return Currency and Income Fund are only available for exchanges from Class B shares of another RiverSource fund. Class B shares of each of RiverSource Floating Rate Fund, RiverSource Inflation Protected Securities Fund, RiverSource Intermediate Tax-Exempt Fund, RiverSource Limited Duration Bond Fund and RiverSource Short Duration U.S. Government Fund are closed to new investors and new purchases. (Existing shareholders in these funds may continue to own Class B shares and make exchanges into and out of existing accounts where Class B shares of these funds are maintained.) DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial institutions also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for -------------------------------------------------------------------------------- S.3 the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES. Class B shares of RiverSource Absolute Return Currency and Income Fund are not currently available for new purchases. However, if you own class B shares of another RiverSource fund, you may exchange into Class B shares of RiverSource Absolute Return Currency and Income Fund, if you meet the minimum investment and account balance requirements set forth in "Opening an Account," subject to the limitations set forth in this section. New purchases of Class B shares will not be permitted if your Rights of Accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your Rights of Accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation (ROA)" for information on Rights of Accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial institution. -------------------------------------------------------------------------------- S.4 CLASS I SHARES. The following eligible investors may purchase Class I shares: - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans. - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds). - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS W SHARES. The following eligible investors may purchase Class W shares: - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. -------------------------------------------------------------------------------- S.5 Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE: Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial institution through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES FOR FIXED INCOME FUNDS EXCEPT THOSE LISTED BELOW
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 4.75% 4.99% 4.00% $50,000 -- $99,999 4.25 4.44 3.50 $100,000 -- $249,999 3.50 3.63 3.00 $250,000 -- $499,999 2.50 2.56 2.15 $500,000 -- $999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00***
-------------------------------------------------------------------------------- S.6 FOR RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND, RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
MAXIMUM REALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% 2.50% $50,000 -- $99,999 3.00 3.09 2.50 $100,000 -- $249,999 2.50 2.56 2.15 $250,000 -- $499,999 2.00 2.04 1.75 $500,000 -- $999,999 1.50 1.52 1.25 $1,000,000 or more 0.00 0.00 0.00***
*Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. **Purchase price includes the sales charge. ***Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - Your current investment in a fund; and - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21 sharing a mailing address. The following accounts are eligible to be included in determining the sales charge on your purchase: - Individual or joint accounts; - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; -------------------------------------------------------------------------------- S.7 - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in determining the sales charge on your purchase: - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - Investments in Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - Charitable and irrevocable trust accounts. 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. -------------------------------------------------------------------------------- S.8 INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial institution. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. -------------------------------------------------------------------------------- S.9 - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. -------------------------------------------------------------------------------- S.10 - In an account that has been closed because it falls below the minimum account balance. - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. -------------------------------------------------------------------------------- S.11 Class B shares purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 will convert to Class A shares one month after the completion of the eighth year of ownership. FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial institutions that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - in the event of the shareholder's death; - held in trust for an employee benefit plan; or - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59 1/2 years old AND - taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR -------------------------------------------------------------------------------- S.12 - selling under an approved substantially equal periodic payment arrangement. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares in the event of the shareholder's death. CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W there is no initial sales charge or CDSC. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial institution. You may establish and maintain your account with an authorized financial institution or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts maintained by the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. CLASS B SHARES OF RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND IS CURRENTLY CLOSED TO INVESTORS FOR NEW PURCHASES. CLASS B SHARES FOR RIVERSOURCE FLOATING RATE FUND, RIVERSOURCE INFLATION PROTECTED SECURITIES FUND, RIVERSOURCE INTERMEDIATE TAX-EXEMPT FUND, RIVERSOURCE LIMITED DURATION BOND FUND AND RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND ARE CLOSED TO NEW INVESTORS AND NEW PURCHASES. EXISTING SHAREHOLDERS IN THESE FUNDS MAY CONTINUE TO OWN CLASS B SHARES AND MAKE EXCHANGES INTO AND OUT OF EXISTING ACCOUNTS WHERE CLASS B SHARES OF THESE FUNDS ARE MAINTAINED. -------------------------------------------------------------------------------- S.13 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS The financial institution through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or may be requested by calling (888) 791- 3380. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (888) 791-3380 to notify the fund's transfer agent of the wire and to receive further instructions. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.14 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH (CONT.) If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. -------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE
RIVERSOURCE FOR ALL FUNDS, FLOATING RATE CLASSES AND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO INFLATION ABSOLUTE RETURN THE RIGHT TAX QUALIFIED PROTECTED CURRENCY AND (NONQUALIFIED) ACCOUNTS SECURITIES FUND INCOME FUND CLASS W --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $10,000 $500 --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $2,500 $5,000 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
RIVERSOURCE FOR ALL FUNDS, FLOATING RATE CLASSES AND FUND ACCOUNTS EXCEPT RIVERSOURCE RIVERSOURCE THOSE LISTED TO INFLATION ABSOLUTE RETURN THE RIGHT TAX QUALIFIED PROTECTED CURRENCY AND (NONQUALIFIED) ACCOUNTS SECURITIES FUND INCOME FUND CLASS W --------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $10,000 $500 --------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None --------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $5,000 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.15 These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial institution for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than yourself. - Your address has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial institution providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.17 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. -------------------------------------------------------------------------------- BY TELEPHONE Call (888) 791-3380. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $100,000 per day. -------------------------------------------------------------------------------- BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (888) 791-3380 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: $100 Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.18 EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. FUNDS THAT INVEST IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES MARKETS. FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS CALCULATED. TO THE EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF HIGH YIELD BONDS, TAX-EXEMPT SECURITIES OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: -------------------------------------------------------------------------------- S.19 - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial institution for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial institutions in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - The fund may rely on the monitoring policy of a financial institution, for example, a retirement plan administrator or similar financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - If an investor's trading activity is determined to be market timing or otherwise harmful to existing shareholders, the fund reserves the right to modify or discontinue the investor's exchange privilege or reject the investor's purchases or exchanges, including purchases or exchanges accepted by a financial institution. The fund may treat accounts it believes to be under common control as a single account for these purposes, although it may not be able to identify all such accounts. - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial institutions where market timing activity may not always be successfully detected. Other exchange policies: - Exchanges must be made into the same class of shares of the new fund. - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - Once the fund receives your exchange request, you cannot cancel it. -------------------------------------------------------------------------------- S.20 - Shares of the new fund may not be used on the same day for another exchange or sale. - Shares of the Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. -------------------------------------------------------------------------------- S.21 VALUING FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. For more information, contact your financial institution. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. Securities are valued primarily on the basis of market quotations and floating rate loans are valued primarily on the basis of indicative bids. Both market quotations and indicative bids are obtained from outside pricing services approved and monitored under procedures adopted by the Board. Certain short-term securities with maturities of 60 days or less are valued at amortized cost. 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. RiverSource funds use an unaffiliated service provider to assist in determining fair values for foreign securities. Foreign investments are valued in U.S. dollars. Some of a fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's shares may change on days when shareholders will not be able to purchase or sell the fund's shares. -------------------------------------------------------------------------------- S.22 DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Because of the types of income earned by fixed income funds, it is unlikely the funds will distribute qualified dividend income. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund unless you request distributions in cash. The financial institution through which you purchased shares may have different policies. Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. -------------------------------------------------------------------------------- S.23 TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. FOR TAXABLE FUNDS. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. FOR RIVERSOURCE INFLATION PROTECTED SECURITIES FUND. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by Internal Revenue Service regulations to be taxable income in the year it occurs. The fund will distribute both interest income and the income attributable to principal adjustments, both of which are taxable to shareholders. -------------------------------------------------------------------------------- S.24 FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt securities (exempt-interest dividends) are exempt from federal income taxes but may be subject to state and local taxes and potentially the alternative minimum tax. Dividends distributed from net capital gains, if any, and other income earned are not exempt from federal income taxes. Any taxable distributions are taxable in the year the fund declares them regardless of whether you take them in cash or reinvest them. Interest on certain private activity bonds is a preference item for purposes of the individual and corporate alternative minimum tax. To the extent the fund earns such income, it will flow through to its shareholders and may affect those shareholders who are subject to the alternative minimum tax. See the SAI for more information. Because interest on municipal bonds and notes is tax-exempt for federal income tax purposes, any interest on money you borrow that is used directly or indirectly to purchase fund shares is not deductible on your federal income tax return. You should consult a tax advisor regarding its deductibility for state and local income tax purposes. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. -------------------------------------------------------------------------------- S.25 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. JPMorgan Chase Bank, N.A., 1 Chase Manhattan Plaza, 19(th) Floor, New York, NY 10005, provides custody services to the RiverSource funds. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide underwriting and distribution services to the RiverSource funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the RiverSource funds. The RiverSource funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to -------------------------------------------------------------------------------- S.26 financial institutions that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial institution may elevate the prominence or profile of the fund within the financial institution's organization, and may provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources -------------------------------------------------------------------------------- S.27 promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial institution, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial institutions and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of RiverSource fund assets (in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker-dealers seek to mitigate by disclosure and -------------------------------------------------------------------------------- S.28 implementation of internal controls, as well as the rules and regulations of applicable regulators. From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." -------------------------------------------------------------------------------- S.29 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. AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. -------------------------------------------------------------------------------- S.30 CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. RiverSource Absolute Return Currency and Income Fund may, in addition to investing its daily cash balance, invest a higher percentage of its assets in Short Term Cash Fund, as an alternative to investing directly in short-duration debt obligations, as part of its principal investment strategy. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required 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.31 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-0102. Investment Company Act File #811-5696 TICKER SYMBOL Class A: IGBFX Class B: IGLOX Class C: AGBCX Class I: AGBIX Class R4: RGBRX Class W: RGBWX
(RIVERSOURCE INVESTMENTS LOGO) S-6309-99 AE (12/08) Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE GLOBAL TECHNOLOGY FUND PROSPECTUS DEC. 30, 2008 RIVERSOURCE GLOBAL TECHNOLOGY FUND SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. Classes A, B, C, I and R4 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial institution if you have other accounts holding shares of RiverSource funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3p Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 4p Past Performance.................................. 6p Fees and Expenses................................. 11p Other Investment Strategies and Risks............. 13p Fund Management and Compensation.................. 14p FINANCIAL HIGHLIGHTS.............................. 17P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.5 Opening an Account.............................. S.12 Exchanging or Selling Shares...................... S.15 Exchanges....................................... S.17 Selling Shares.................................. S.19 VALUING FUND SHARES............................... S.20 DISTRIBUTIONS AND TAXES........................... S.21 GENERAL INFORMATION............................... S.23
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. -------------------------------------------------------------------------------- 2P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS THE FUND OBJECTIVE RiverSource Global Technology Fund (the Fund) seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance this objective can be achieved. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES The Fund focuses on equity securities of companies in the information technology industry throughout the world. Technology related companies are those companies that use technology extensively to improve their business processes and applications. Although the Fund may invest in securities of issuers located in any country, at any given time the portfolio may hold primarily securities of issuers located in the U.S. Because of the multinational character of the technology industry, the headquarters, principal operations and primary sources of revenues of the companies in which the Fund invests may be located in the U.S. or outside the U.S. Under normal market conditions, at least 80% of the Fund's net assets are invested in securities of companies in the technology industry. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. RiverSource Investments, LLC (the investment manager) seeks to identify those technology companies that it believes have the greatest prospects for future growth, regardless of their countries of origin. The Fund uses an investment style that combines research into individual company attractiveness with macro analysis. This means that the investment manager uses extensive in depth research to identify attractive technology companies around the world, while seeking to identify particularly strong technology sectors and/or factors within regions or specific countries that may affect investment opportunities. In selecting individual securities, the investment manager looks for companies that it believes display one or more of the following: - Above-average growth prospects - High profit margins - Attractive valuations relative to earnings forecasts or other valuation criteria (e.g., return on equity) - Quality management and equity ownership by executives - Unique competitive advantages (e.g., market share, proprietary products) - Potential for improvement in overall operations The Fund generally sells a stock if the investment manager believes: - its target price has been reached; - its earnings are disappointing; -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 3P - its revenue growth has slowed; or - its underlying fundamentals have deteriorated. The Fund may also sell a stock if the investment manager believes that negative country or regional factors may affect a company's outlook, or to meet cash requirements. The investment manager may use derivatives such as futures, options and forward contracts to produce incremental earnings, to hedge existing positions, or to increase flexibility. 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: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. -------------------------------------------------------------------------------- 4P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 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. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including counterparty credit risk, leverage risk, hedging risk, correlation risk, and liquidity risk. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 5P MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. SECTOR RISK. The Fund may invest a significant part of its total assets in securities of companies primarily engaged in the technology, media or telecommunications sectors. This may result in greater fluctuations in value than would be the case for a fund invested in a wider variety of unrelated industries. As these sectors increase or decrease in favor with the investing public, the price of securities of companies that rely heavily on those sectors could become increasingly sensitive to downswings in the economy. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - how the Fund's average annual total returns compare to recognized indexes shown on the table. Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I and Class R4 shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - the maximum sales charge for Class A shares; - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - no sales charge for Class I and Class R4 shares; and - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. -------------------------------------------------------------------------------- 6P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +41.51% +145.12% -23.19% -53.79% -42.08% +72.64% +9.29% +5.00% +20.00% +12.30% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
During the periods shown in the bar chart, the highest return for a calendar quarter was +86.25% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -48.48% (quarter ended March 31, 2001). The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at Sept. 30, 2008 was -27.92%. Prior to April 19, 2000, the Fund had not engaged in a broad public offering of its shares, or been subject to redemption requests. It had sold shares only to a single investor. One factor impacting the Fund's 1999 performance was the high concentration in technology investments, particularly in securities of internet and communication companies. These investments performed well and had a greater effect on the Fund's performance than similar investments made by other funds because of the high concentration, the lack of cash flows and the smaller size of the Fund. There is no assurance that the Fund's future investments will result in the same level of performance. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 7P The Fund formerly was a "feeder" fund in a master/feeder arrangement where the Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Dec. 6, 2005, the Fund became a stand-alone fund that invests directly in a portfolio of securities. The information shown in the table and in the financial highlights for the Fund includes the activity of the Fund when it was a feeder in a master/feeder arrangement. -------------------------------------------------------------------------------- 8P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
SINCE SINCE INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS I) RiverSource Global Technology Fund: Class A Return before taxes +5.99% +20.37% +6.11% N/A N/A Return after taxes on distributions +5.99% +20.37% +3.46% N/A N/A Return after taxes on distributions and sale of fund shares +3.90% +18.10% +4.83% N/A N/A Class B Return before taxes +6.01% +20.37% +5.79% N/A N/A Class C Return before taxes +10.47% +20.66% N/A -9.28%(a) N/A Class I Return before taxes +12.84% N/A N/A N/A +16.68%(b) Class R4 Return before taxes +12.60% +21.96% +6.76% N/A N/A MSCI World Index (reflects no deduction for fees, expenses or taxes) +9.57% +18.29% +7.45% +4.02%(c) +16.17%(d) MSCI World IT Index (reflects no deduction for fees, expenses or taxes) +15.34% +15.12% +5.15% -8.54%(c) +12.12%(d) S&P NATS Index (reflects no deduction for fees, expenses or taxes) +16.94% +15.59% +5.74% -8.40%(c) +11.87%(d) Lipper Global Science and Technology Funds Index +18.29% +16.98% N/A N/A +14.62%(d) Lipper Science and Technology Funds Index +16.76% +15.65% +5.66% -8.67%(c) +13.18%(d)
(a) Inception date is June 26, 2000. (b) Inception date is July 15, 2004. (c) Measurement period started July 1, 2000. (d) Measurement period started Aug. 1, 2004. The Morgan Stanley Capital International (MSCI) World Index, an unmanaged index, is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The index reflects reinvestment of all distributions and changes in market prices. The Morgan Stanley Capital International (MSCI) World Information Technology (IT) Index, an unmanaged index, is a free float-adjusted market capitalization index designed to measure information technology stock performance in the global developed equity market. The index reflects reinvestment of all distributions and changes in market prices. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 9P The S&P North American Technology Sector Index(TM) (S&P NATS Index), formerly known as the S&P GSTI Composite Index, an unmanaged index, is a market capitalization-weighted index of approximately 200 stocks designed to measure the performance of companies in the technology sector. The index reflects reinvestment of all distributions and changes in market prices. The Lipper Global Science and Technology Funds Index includes the 10 largest global science and technology funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. Lipper Science and Technology Funds Index includes the 30 largest science and technology funds tracked by Lipper Inc. The index's returns include net reinvested dividends. On July 1, 2008, the Lipper Global Science and Technology Funds Index replaced the Lipper Science and Technology Funds Index for purposes of determining the performance incentive adjustment. Lipper divided the Lipper Science and Technology classification (which included both domestic and global funds) and reclassified the Fund. See "Fund Management and Compensation" for more information. The Fund's investment manager recommended to the Fund that the Fund change its comparative index from the S&P North American Technology Sector Index(TM) (S&P NATS Index) to the MSCI World Index. The investment manager made this recommendation because the new index more closely aligns to the Fund's investment strategy. Based on this recommendation, on Nov. 17, 2008, the S&P NATS Index was replaced with the MSCI World Index, which will be used as the Fund's primary benchmark going forward. Information on both indexes will be included for a one year transition period. In the future, however, only the MSCI World Index will be included. -------------------------------------------------------------------------------- 10P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS A CLASS B CLASS C CLASS R4 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C Management fees(c) 0.61% 0.61% 0.61% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% Other expenses(d) 0.59% 0.61% 0.60% Total annual fund operating expenses 1.45% 2.22% 2.21%
CLASS I CLASS R4 Management fees(c) 0.61% 0.61% Distribution and/or service (12b-1) fees 0.00% 0.00% Other expenses(d) 0.20% 0.51% Total annual fund operating expenses 0.81% 1.12%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) Includes the impact of a performance incentive adjustment fee that decreased the management fee by 0.11% for the most recent fiscal year. On July 1, 2008, the Lipper Global Science and Technology Funds Index replaced the Lipper Science and Technology Funds Index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. (d) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 11P EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $714 $1,008 $1,323 $2,215 Class B $725(b) $1,094(b) $1,391(b) $2,364(c) Class C $324(b) $ 691 $1,186 $2,549 Class I $ 83 $ 259 $ 450 $1,006 Class R4 $114 $ 356 $ 618 $1,368
(a) Includes a 5.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $714 $1,008 $1,323 $2,215 Class B $225 $ 694 $1,191 $2,364(b) Class C $224 $ 691 $1,186 $2,549 Class I $ 83 $ 259 $ 450 $1,006 Class R4 $114 $ 356 $ 618 $1,368
(a) Includes a 5.75% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. -------------------------------------------------------------------------------- 12P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 13P Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource funds (including the RiverSource Partners funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for all of the RiverSource funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. -------------------------------------------------------------------------------- 14P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.61% of the Fund's average daily net assets, including an adjustment under the terms of a performance incentive arrangement. The adjustment is computed by comparing the Fund's performance to the performance of an index of comparable funds published by Lipper Inc. On July 1, 2008, the Lipper Global Science and Technology Funds Index replaced the Lipper Science and Technology Funds Index for purposes of determining the performance incentive adjustment. The Fund's performance will be compared to a 12-month blended index return that reflects the performance of the Lipper Global Science and Technology Funds Index (current index) for the portion of the 12-month performance measurement period beginning the effective date of the current index and the performance of the Lipper Science and Technology Funds Index (prior index) for the remainder of the measurement period. At the conclusion of the transition period, the performance of the prior index will be eliminated from the performance incentive adjustment calculation, and the calculation will include only the performance of the current index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.12% of the Fund's average net assets on an annual basis. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. Portfolio Manager(s). The portfolio managers responsible for the day-to-day management of the Fund are: Richard M. Parower, Lead Portfolio Manager - Managed the Fund since Nov. 2008. - Prior to RiverSource Investments acquisition of J. & W. Seligman & Co. Incorporated (Seligman) in Nov. 2008, Mr. Parower was a Managing Director of Seligman. - Prior to joining Seligman in 2000, Mr. Parower was a Senior Analyst at Citibank Global Asset Management. Prior to that, he was a Senior Analyst with Montgomery Asset Management. Before that, Mr. Parower was a Securities Analyst with GT Capital Management and Cowen Asset Management. - Began investment career in 1988. - MBA, Columbia University. Paul H. Wick, Portfolio Manager - Managed the Fund since Nov. 2008. - Prior to RiverSource Investments acquisition of Seligman in Nov. 2008, Director and Managing Director of Seligman. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 15P - Joined Seligman in 1987. Since 1989 Portfolio Manager of Seligman Communications and Information Fund. - Began investment career in 1987. - MBA, Duke/Fuqua. Reema D. Shah, Portfolio Manager - Managed the Fund since Nov. 2008. - Prior to RiverSource Investments acquisition of Seligman in Nov. 2008, Managing Director of Seligman. - Prior to joining Seligman in 2000, Ms. Shah was Senior Computer Services Analyst with CS First Boston. Prior to then, she was a Software Research Analyst with Donaldson, Luftkin & Jenrette Technology Group. Before then, Ms. Shah was a Technology Equity Research Associate with Morgan Stanley. - Began investment career in 1997. - MBA, Northwestern University. Ajay Diwan, Portfolio Manager - Managed the Fund since Nov. 2008. - Prior to RiverSource Investments acquisition of Seligman in Nov. 2008, Managing Director of Seligman. - Prior to joining Seligman in 2001, Mr. Diwan was Vice President Equity Research for Goldman Sachs from 1994. Before then, he was an Equity Research Analyst with PaineWebber from 1992 to 1994. From 1987 to 1990, Mr. Diwan served as a Product Manager and Engineer for the Roseville Networks Division of Hewlett-Packard Company. - Began investment career in 1992. - MBA, Columbia University. Benjamin Lu, Portfolio Manager - Managed the Fund since Nov. 2008. - Prior to RiverSource Investments acquisition of Seligman in Nov. 2008, Vice President, Investment Officer of Seligman. - Prior to joining Seligman in 2005. Mr. Lu was an Associate Director for UBS from July 2002 to April 2005. Prior to then, Mr. Lu was an Associate Analyst with JP Morgan from 1999 to 2002. Before then, he was an Associate Analyst with Ryan Beck from 1998 to 1999. - Began investment career in 1997. - BS, New York University. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. -------------------------------------------------------------------------------- 16P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER OCT. 31, 2007 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIODS ENDED ON OR BEFORE OCT. 31, 2006 HAS BEEN AUDITED BY OTHER AUDITORS. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.04 $2.42 $1.99 $1.83 $1.72 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.02)(b) (.02) (.02) (.03) Net gains (losses) (both realized and unrealized) (1.36) .64 .45 .18 .14 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.37) .62 .43 .16 .11 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.67 $3.04 $2.42 $1.99 $1.83 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $69 $139 $123 $120 $146 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.45% 1.60% 1.69% 1.75% 1.74% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.34%) (.80%) (.89%) (.92%) (1.48%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.07%) 25.62% 21.61% 8.74% 6.40% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 17P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $2.61 $2.09 $1.74 $1.60 $1.53 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.02)(b) (.04)(b) (.03) (.03) (.04) Net gains (losses) (both realized and unrealized) (1.16) .56 .38 .17 .11 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.18) .52 .35 .14 .07 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.43 $2.61 $2.09 $1.74 $1.60 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $15 $43 $42 $46 $59 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.22% 2.38% 2.47% 2.53% 2.52% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (1.09%) (1.58%) (1.66%) (1.71%) (2.26%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.21%) 24.88% 20.12% 8.75% 4.58% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 18P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $2.62 $2.10 $1.74 $1.61 $1.53 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.02)(b) (.04)(b) (.03) (.03) (.04) Net gains (losses) (both realized and unrealized) (1.17) .56 .39 .16 .12 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.19) .52 .36 .13 .08 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.43 $2.62 $2.10 $1.74 $1.61 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 $4 $3 $3 $4 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.21% 2.36% 2.45% 2.52% 2.49% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (1.10%) (1.56%) (1.66%) (1.69%) (2.23%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.42%) 24.76% 20.69% 8.07% 5.23% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 19P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b) Net asset value, beginning of period $3.11 $2.46 $2.01 $1.83 $1.70 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01(c) (.01)(c) (.01) (.01) (.02) Net gains (losses) (both realized and unrealized) (1.40) .66 .46 .19 .15 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.39) .65 .45 .18 .13 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.72 $3.11 $2.46 $2.01 $1.83 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) .81% .99% 1.01% 1.04% 1.03%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .31% (.19%) (.22%) (.21%) (.73%)(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return (44.69%) 26.42% 22.39% 9.84% 7.65%(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 15, 2004 (inception date) to Oct. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. -------------------------------------------------------------------------------- 20P RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.07 $2.43 $2.00 $1.83 $1.72 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01(b) (.01)(b) (.02) (.02) (.02) Net gains (losses) (both realized and unrealized) (1.38) .65 .45 .19 .13 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.37) .64 .43 .17 .11 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.70 $3.07 $2.43 $2.00 $1.83 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $1 $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.12% 1.34% 1.47% 1.54% 1.55% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .87% 1.34% 1.47% 1.54% 1.55% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .22% (.52%) (.68%) (.73%) (1.28%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return (44.63%) 26.34% 21.50% 9.29% 6.40% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 PROSPECTUS 21P RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker- dealers, banks, and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial institutions to carry out its obligations to its customers. -------------------------------------------------------------------------------- S.1 S-6400-4 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. -------------------------------------------------------------------------------------------------------------------------------- Class B(d) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00% invested in shares year decreasing to of the fund. 0% after six years. -------------------------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00% invested in shares within one year of the fund. after purchase. -------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. --------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial institutions also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE -------------------------------------------------------------------------------- S.3 FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES New purchases of Class B shares will not be permitted if your Rights of Accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your Rights of Accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation (ROA)" for information on Rights of Accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial institution. CLASS I SHARES. The following eligible investors may purchase Class I shares: - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans. -------------------------------------------------------------------------------- S.4 - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds). - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS W SHARES. The following eligible investors may purchase Class W shares: - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. -------------------------------------------------------------------------------- S.5 SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial institution through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES:
MAXIMUM RE-ALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 5.00% $50,000 -- $99,999 4.75 4.99 4.00 $100,000 -- $249,999 3.50 3.63 3.00 $250,000 -- $499,999 2.50 2.56 2.15 $500,000 -- $999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00***
*Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. **Purchase price includes the sales charge. ***Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - Your current investment in a fund; and - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21 sharing a mailing address. The following accounts are eligible to be included in determining the sales charge on your purchase: - Individual or joint accounts; -------------------------------------------------------------------------------- S.6 - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in determining the sales charge on your purchase: - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - Investments in Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - Charitable and irrevocable trust accounts. 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. -------------------------------------------------------------------------------- S.7 INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including any existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial institution. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. -------------------------------------------------------------------------------- S.8 - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - In an account that has been closed because it falls below the minimum account balance. -------------------------------------------------------------------------------- S.9 - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. Class B shares purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 will convert to Class A shares one month after the completion of the eighth year of ownership. -------------------------------------------------------------------------------- S.10 FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial institutions that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - in the event of the shareholder's death; - held in trust for an employee benefit plan; or - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59 1/2 years old AND - taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR - selling under an approved substantially equal periodic payment arrangement. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares in the event of the shareholder's death. -------------------------------------------------------------------------------- S.11 CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W, there is no initial sales charge or CDSC. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial institution. You may establish and maintain your account with an authorized financial institution or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts maintained by the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS The financial institution through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or may be requested by calling (888) 791- 3380. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.12 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number, and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (888) 791-3380 to notify the fund's transfer agent of the wire and to receive further instructions. If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.13 MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS, RIVERSOURCE 120/20 CLASSES AND CONTRARIAN ACCOUNTS EXCEPT RIVERSOURCE EQUITY FUND THOSE LISTED TO DISCIPLINED THREADNEEDLE THE RIGHT TAX QUALIFIED SMALL CAP GLOBAL EXTENDED (NONQUALIFIED) ACCOUNTS VALUE FUND ALPHA FUND CLASS W ------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $10,000 $500 ------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None ------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $2,500 $5,000 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
FOR ALL FUNDS, RIVERSOURCE 120/20 CLASSES AND CONTRARIAN ACCOUNTS EXCEPT RIVERSOURCE EQUITY FUND THOSE LISTED TO DISCIPLINED THREADNEEDLE THE RIGHT TAX QUALIFIED SMALL CAP GLOBAL EXTENDED (NONQUALIFIED) ACCOUNTS VALUE FUND ALPHA FUND CLASS W ------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $10,000 $500 ------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None ------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $5,000 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. ------------------------------------------------------------------------------- These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are a part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial institution for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. -------------------------------------------------------------------------------- S.14 EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.15 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than yourself. - Your address has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial institution providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. -------------------------------------------------------------------------------- BY TELEPHONE Call (888) 791-3380. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $100,000 per day. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (888) 791-3380 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: $100 Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. -------------------------------------------------------------------------------- EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. 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 -------------------------------------------------------------------------------- S.17 IS CALCULATED. TO THE EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial institution for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial institutions in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - The fund may rely on the monitoring policy of a financial institution, for example, a retirement plan administrator or similar authorized financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - 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.18 - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial institutions where market timing activity may not always be successfully detected. Other exchange policies: - Exchanges must be made into the same class of shares of the new fund. - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - Once the fund receives your exchange request, you cannot cancel it. - Shares of the new fund may not be used on the same day for another exchange or sale. - Shares of Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund -------------------------------------------------------------------------------- S.19 you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. VALUING FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. For more information, contact your financial institution. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. Securities are valued primarily on the basis of market quotations. Market quotations 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 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 foreign securities or small cap stocks that may trade infrequently, fair valuation may be used more frequently than for other funds. The RiverSource funds use an unaffiliated service provider to assist in determining fair values for foreign securities. -------------------------------------------------------------------------------- S.20 Foreign investments are valued in U.S. dollars. Some of a fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's shares may change on days when shareholders will not be able to purchase or sell the fund's shares. DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund, unless you request distributions in cash. The financial institution through which you purchased shares may have different policies. -------------------------------------------------------------------------------- S.21 Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. REITs often do not provide complete tax information until after the calendar year-end; generally mid to late January and continuing through early February. Consequently, if your fund has significant investments in REITs, you may not receive your Form 1099-DIV until February. Other RiverSource funds tax statements are generally mailed in January. -------------------------------------------------------------------------------- S.22 IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the RiverSource funds. These services include administrative, accounting, treasury, and other services. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Custody Services. JPMorgan Chase Bank, N.A., 1 Chase Manhattan Plaza, 19(th) Floor, New York, NY 10005, provides custody services to the RiverSource funds. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide underwriting and distribution services to the RiverSource funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder -------------------------------------------------------------------------------- S.23 servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the RiverSource funds. The RiverSource funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial institutions that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the -------------------------------------------------------------------------------- S.24 purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial institution may elevate the prominence or profile of the fund within the financial institution's organization, and may provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial institution, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). -------------------------------------------------------------------------------- S.25 The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial institutions and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of RiverSource fund assets (in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker-dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. -------------------------------------------------------------------------------- S.26 The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." ADDITIONAL MANAGEMENT INFORMATION MANAGER OF MANAGERS EXEMPTION. The RiverSource funds have received an order from the Securities and Exchange Commission that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. 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. AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's -------------------------------------------------------------------------------- S.27 fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required 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.28 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-0102. Investment Company Act File #811-5696 TICKER SYMBOL Class A: AXIAX Class B: INVBX Class C: AXICX Class I: -- Class R4: RSGTX
(RIVERSOURCE INVESTMENTS LOGO) S-6395-99 N (12/08) Prospectus (THREADNEEDLE LOGO) THREADNEEDLE EMERGING MARKETS FUND PROSPECTUS DEC. 30, 2008 THREADNEEDLE EMERGING MARKETS FUND SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. Classes A, B, C, I, R4 and R5 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial institution if you have other accounts holding shares of RiverSource funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THE FUND.......................................... 3P Objective......................................... 3p Principal Investment Strategies................... 3p Principal Risks................................... 5p Past Performance.................................. 7p Fees and Expenses................................. 12p Other Investment Strategies and Risks............. 14p Fund Management and Compensation.................. 15p FINANCIAL HIGHLIGHTS.............................. 17P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.5 Opening an Account.............................. S.12 Exchanging or Selling Shares...................... S.15 Exchanges....................................... S.17 Selling Shares.................................. S.19 VALUING FUND SHARES............................... S.20 DISTRIBUTIONS AND TAXES........................... S.21 GENERAL INFORMATION............................... S.23
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. -------------------------------------------------------------------------------- 2P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS THE FUND OBJECTIVE Threadneedle Emerging Markets Fund (formerly RiverSource Emerging Markets Fund) (the Fund) seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance this objective can be achieved. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES The Fund's assets are primarily invested in equity securities of emerging markets companies. Emerging markets are countries characterized as developing or emerging by either the World Bank or the United Nations. Under normal market conditions, at least 80% of the Fund's net assets will be invested in securities of companies that are located in emerging markets countries, or that earn 50% or more of their total revenues from goods or services produced in emerging market countries or from sales made in emerging markets countries. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. RiverSource Investments, LLC (RiverSource Investments) serves as the investment manager to the Fund and is responsible for oversight of the subadviser, Threadneedle International Limited (Threadneedle), an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. Threadneedle chooses investments by: - Deploying an integrated approach to equity research that incorporates regional analyses, a global sector strategy, and stock specific perspectives. - Conducting detailed research on companies in a consistent strategic and macroeconomic framework. - Looking for catalysts of change and identifying the factors driving markets, which will vary over economic and market cycles. - Implementing rigorous risk control processes that seek to ensure that the risk and return characteristics of the Fund's portfolio are consistent with established portfolio management parameters. The Fund's portfolio management team constructs the portfolio by selecting what it considers to be the best stocks in each industry sector, based on return on invested capital analysis, growth and valuation. The Fund's sector exposure generally reflects the global macroeconomic environment, the outlook for each sector and the relative valuation of the stocks among the sectors. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 3P The Fund's portfolio management team constructs the portfolio by investing in most of the stocks on two core lists of holdings, the Largest Companies List and the Preferred List. In addition, the portfolio will hold other securities selected by the portfolio management team. These discretionary holdings will typically make up a much smaller portion of the Fund. - The Largest Companies List includes the largest stocks in the Fund's benchmark, the Morgan Stanley Capital International (MSCI) Emerging Markets Index. Threadneedle's research on sectors and specific companies is used to determine recommended weightings for each stock. - The Preferred List includes the stocks not included in the Largest Companies List that represent the best ideas generated by Threadneedle's research analysts. Stocks on the Preferred List are selected by: - Analyzing returns on invested capital for the largest companies within each sector; - Assessing valuations; and - Evaluating one or more of the following: balance sheets and cash flows, the demand for a company's products or services, its competitive position, or its management. The Fund will normally be overweight in the stocks on the Preferred List compared to the benchmark. - Discretionary holdings are selected by the individual portfolio management team based on the same criteria used to generate the Preferred List. These stocks are assigned ratings based on their perceived ability to outperform within their sector. The team typically selects the highest rated stocks outside the core category. A number of factors may prompt the portfolio management team to sell securities. A sale may result from a change in the composition of the Fund's benchmark or a change in sector strategy. A sale may also be prompted by factors specific to a stock, such as valuation or company fundamentals. The Fund will normally have exposure to foreign currencies. The portfolio management team closely monitors the Fund's exposure to foreign currency. From time to time the team may use forward currency transactions or other derivative instruments to hedge against currency fluctuations. -------------------------------------------------------------------------------- 4P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS PRINCIPAL RISKS This Fund is designed for long-term 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: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including counterparty credit risk, leverage risk, hedging risk, correlation risk, and liquidity risk. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 5P RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. 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. ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. -------------------------------------------------------------------------------- 6P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region or sector will be more susceptible to changes in price. The more a fund diversifies across sectors, the more it spreads risk and potentially reduces the risks of loss and volatility. SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management 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. PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - how the Fund's average annual total returns compare to recognized indexes shown on the table. Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 7P Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class I, Class R4 and Class R5 shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - the maximum sales charge for Class A shares; - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - no sales charge for Class I, Class R4 and Class R5 shares; and - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. -------------------------------------------------------------------------------- 8P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) -30.26% +79.03% -33.03% -3.85% -3.06% +40.60% +24.44% +34.10% +34.25% +37.23% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
During the periods shown in the bar chart, the highest return for a calendar quarter was +37.49% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -27.03% (quarter ended Sept. 30, 1998). The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at Sept. 30, 2008 was -36.39%. The Fund formerly was a "feeder" fund in a master/feeder arrangement where the Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Nov. 8, 2005, the Fund became a stand-alone fund that invests directly in a portfolio of securities. The information shown in the table and in the financial highlights for the Fund includes the activity of the Fund when it was a feeder in a master/feeder arrangement. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 9P AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
SINCE SINCE INCEPTION INCEPTION 1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS I) Threadneedle Emerging Markets Fund: Class A Return before taxes +29.37% +32.44% +12.34% N/A N/A Return after taxes on distributions +21.76% +29.38% +11.02% N/A N/A Return after taxes on distributions and sale of fund shares +20.99% +27.63% +10.40% N/A N/A Class B Return before taxes +31.20% +32.83% +12.04% N/A N/A Class C Return before taxes +35.24% +32.98% N/A +15.28%(a) N/A Class I Return before taxes +37.82% N/A N/A N/A +30.48%(b) Class R4 Return before taxes +37.55% +34.27% +13.15% N/A N/A MSCI Emerging Markets Index (reflects no deduction for fees, expenses or taxes) +39.78% +37.46% +14.53%(c)+17.71%(c) +32.00%(d) Lipper Emerging Markets Funds Index +36.25% +36.33% +13.98%(c)+17.32%(c) +30.71%(d)
(a) Inception date is June 26, 2000. (b) Inception date is March 4, 2004. (c) Measurement period started July 1, 2000. (d) Measurement period started March 1, 2004. The Morgan Stanley Capital International (MSCI) Emerging Markets Index, an unmanaged market capitalization-weighted index, is designed to measure equity market performance in the global emerging markets. The index reflects reinvestment of all distributions and changes in market prices. The Lipper Emerging Markets Funds Index includes the 30 largest emerging markets funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. -------------------------------------------------------------------------------- 10P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS Past performance for Class R5 for the period prior to the beginning of operations for that class may be calculated based on the performance of Class R4. The blended class performance will be adjusted to reflect differences in sales charges, but not differences in annual Fund operating expenses (for example, 12b-1 fees). The use of blended performance generally results in a presentation of higher performance for classes with higher operating expenses than those of the class with which they are blended, and a presentation of lower performance for classes with lower operating expenses than those of the class with which they are blended. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 11P FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R4 CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C Management fees(c) 1.16% 1.16% 1.16% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% Other expenses(d) 0.46% 0.46% 0.47% Total annual fund operating expenses 1.87% 2.62% 2.63% Fee waiver/expense reimbursement 0.00% 0.00% 0.00% Total annual (net) fund operating expenses(e) 1.87% 2.62% 2.63% CLASS I CLASS R4 CLASS R5 Management fees(c) 1.16% 1.16% 1.16% Distribution and/or service (12b-1) fees 0.00% 0.00% 0.00% Other expenses(d) 0.26% 0.57% 0.31% Total annual fund operating expenses 1.42% 1.73% 1.47% Fee waiver/expense reimbursement 0.00% 0.01% 0.00% Total annual (net) fund operating expenses(e) 1.42% 1.72% 1.47%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) Includes the impact of a performance incentive adjustment fee that increased the management fee by 0.08% for the most recent fiscal year. The index against which the Fund's performance is measured for purposes of determining the performance incentive adjustment is the Lipper Emerging Markets Funds Index. See "Fund Management and Compensation" for more information. (d) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (e) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.64% for Class R4. -------------------------------------------------------------------------------- 12P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $754 $1,129 $1,529 $2,644 Class B $765(b) $1,215(b) $1,591(b) $2,775(c) Class C $366(b) $ 818 $1,396 $2,967 Class I $145 $ 450 $ 777 $1,707 Class R4 $175 $ 544 $ 939 $2,045 Class R5 $150 $ 465 $ 804 $1,762
(a) Includes a 5.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $754 $1,129 $1,529 $2,644 Class B $265 $ 815 $1,391 $2,775(b) Class C $266 $ 818 $1,396 $2,967 Class I $145 $ 450 $ 777 $1,707 Class R4 $175 $ 544 $ 939 $2,045 Class R5 $150 $ 465 $ 804 $1,762
(a) Includes a 5.75% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 13P OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. -------------------------------------------------------------------------------- 14P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. FUND MANAGEMENT AND COMPENSATION INVESTMENT MANAGER RiverSource Investments, LLC (the investment manager or RiverSource Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is the investment manager to the RiverSource funds (including the RiverSource Partners funds, Threadneedle funds, and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for all of the RiverSource funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 1.16% of the Fund's average daily net assets, including an adjustment under the terms of a performance incentive arrangement. The adjustment is computed by comparing the Fund's performance to the performance of an index of comparable funds published by Lipper Inc. The index against which the Fund's performance is currently measured for purposes of the performance incentive adjustment is the Lipper Emerging Markets Funds Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.12% of the Fund's average net assets on an annual basis. Under the Agreement, the Fund also pays taxes, -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 15P brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. RiverSource Investments contracts with and compensates Threadneedle International Limited (Subadviser or Threadneedle) to manage the investment of the Fund's assets. RiverSource Investments monitors the compliance of Threadneedle with the investment objectives and related policies of the Fund, reviews the performance of Threadneedle, and reports periodically to the Board. Threadneedle manages the Fund's assets based upon its experience managing funds with investment goals and strategies substantially similar to those of the Fund. THREADNEEDLE Threadneedle, located at 60 St. Mary Axe, London EC3A 8JQ, England, is an affiliate of RiverSource Investments, and an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. The portfolio managers who lead the team responsible for the day-to-day management of the Fund are: Julian A.S. Thompson, Portfolio Manager - Managed the Fund since 2000. - Joined Threadneedle in 2003. - Began investment career in 1993 as an Investment Manager for Stewart Ivory, a Scottish investment company, 1993 to 1999. Portfolio Manager, American Express Asset Management International, 1999 to 2003. - BA and Ph.D., Magdalene College, Cambridge University. Jules Mort, Deputy Portfolio Manager - Deputy managed the Fund since 2003. - Joined Threadneedle in 2001 as a fund manager. - Began investment career in 1997 as an Analyst and Portfolio Manager, Baillie Gifford & Co., 1997 to 2001. - BA (Hons), Oxford University 1996. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. -------------------------------------------------------------------------------- 16P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER OCT. 31, 2007 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIODS ENDED ON OR BEFORE OCT. 31, 2006 HAS BEEN AUDITED BY OTHER AUDITORS. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 17P CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $14.99 $11.32 $8.23 $6.27 $5.46 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .04(b) .01 .04 .03 Net gains (losses) (both realized and unrealized) (7.24) 6.27 3.10 1.95 .84 -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.16) 6.31 3.11 1.99 .87 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) -- (.02) (.03) (.06) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.87) (2.64) (.02) (.03) (.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.96 $14.99 $11.32 $8.23 $6.27 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $250 $661 $425 $295 $191 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.87% 1.83% 1.81% 1.79% 1.83% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.87% 1.83% 1.81% 1.79% 1.83% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .78% .31% .19% .54% .41% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return(g) (57.79%) 68.21% 37.85% 31.83% 16.09% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 18P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $13.73 $10.63 $7.77 $5.95 $5.19 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(b),(c) (.05)(b) (.05) (.01) (.02) Net gains (losses) (both realized and unrealized) (6.53) 5.79 2.91 1.83 .81 -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.53) 5.74 2.86 1.82 .79 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) -- -- -- (.03) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.77) (2.64) -- -- (.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.43 $13.73 $10.63 $7.77 $5.95 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $28 $94 $77 $74 $73 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.62% 2.58% 2.57% 2.55% 2.59% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 2.62% 2.58% 2.57% 2.55% 2.59% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .02% (.48%) (.55%) (.24%) (.32%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return(h) (58.08%) 66.95% 36.81% 30.59% 15.18% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 19P CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $13.78 $10.66 $7.79 $5.97 $5.20 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(b),(c) (.05)(b) (.06) -- (.01) Net gains (losses) (both realized and unrealized) (6.54) 5.81 2.93 1.82 .81 -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.54) 5.76 2.87 1.82 .80 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) -- -- -- (.03) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.80) (2.64) -- -- (.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.44 $13.78 $10.66 $7.79 $5.97 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $8 $5 $3 $1 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.63% 2.59% 2.58% 2.56% 2.60% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 2.63% 2.59% 2.58% 2.56% 2.60% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .03% (.48%) (.57%) (.19%) (.34%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return(h) (58.15%) 67.03% 36.84% 30.54% 15.37% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 20P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b) Net asset value, beginning of period $15.38 $11.50 $8.35 $6.36 $6.54 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(c) .09(c) .03 .06 .01 Net gains (losses) (both realized and unrealized) (7.45) 6.43 3.16 1.98 (.19) -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.34) 6.52 3.19 2.04 (.18) -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.23) -- (.04) (.05) -- Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.92) (2.64) (.04) (.05) -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.12 $15.38 $11.50 $8.35 $6.36 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $56 $41 $19 $13 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.42% 1.39% 1.35% 1.30% 1.35%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.42% 1.39% 1.35% 1.30% 1.35%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .97% .75% .63% .97% .79%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return (57.63%) 69.07% 38.36% 32.32% (2.75%)(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to Oct. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 21P CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $15.32 $11.50 $8.33 $6.35 $5.52 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .05(b) .03 .05 .04 Net gains (losses) (both realized and unrealized) (7.45) 6.41 3.14 1.97 .86 -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.34) 6.46 3.17 2.02 .90 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) -- -- (.04) (.07) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.84) (2.64) -- (.04) (.07) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.14 $15.32 $11.50 $8.33 $6.35 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $2 $6 $2 $18 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.73% 1.65% 1.63% 1.59% 1.65% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.47% 1.65% 1.63% 1.59% 1.65% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.12% .45% .41% .81% .61% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return (57.58%) 68.51% 38.06% 31.87% 16.50% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. -------------------------------------------------------------------------------- 22P THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.32 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (4.22) -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.13 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e),(f) 1.47%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.57%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% -------------------------------------------------------------------------------------------------------------- Total return (44.96%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Adjusted to an annual basis. (h) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 PROSPECTUS 23P RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker- dealers, banks, and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial institutions to carry out its obligations to its customers. -------------------------------------------------------------------------------- S.1 S-6400-4 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. -------------------------------------------------------------------------------------------------------------------------------- Class B(d) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00% invested in shares year decreasing to of the fund. 0% after six years. -------------------------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00% invested in shares within one year of the fund. after purchase. -------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. --------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial institutions also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE -------------------------------------------------------------------------------- S.3 FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES New purchases of Class B shares will not be permitted if your Rights of Accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your Rights of Accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation (ROA)" for information on Rights of Accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial institution. CLASS I SHARES. The following eligible investors may purchase Class I shares: - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans. -------------------------------------------------------------------------------- S.4 - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds). - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS W SHARES. The following eligible investors may purchase Class W shares: - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. -------------------------------------------------------------------------------- S.5 SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial institution through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES:
MAXIMUM RE-ALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 5.00% $50,000 -- $99,999 4.75 4.99 4.00 $100,000 -- $249,999 3.50 3.63 3.00 $250,000 -- $499,999 2.50 2.56 2.15 $500,000 -- $999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00***
*Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. **Purchase price includes the sales charge. ***Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - Your current investment in a fund; and - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21 sharing a mailing address. The following accounts are eligible to be included in determining the sales charge on your purchase: - Individual or joint accounts; -------------------------------------------------------------------------------- S.6 - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in determining the sales charge on your purchase: - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - Investments in Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - Charitable and irrevocable trust accounts. 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. -------------------------------------------------------------------------------- S.7 INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including any existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial institution. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. -------------------------------------------------------------------------------- S.8 - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - In an account that has been closed because it falls below the minimum account balance. -------------------------------------------------------------------------------- S.9 - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. Class B shares purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 will convert to Class A shares one month after the completion of the eighth year of ownership. -------------------------------------------------------------------------------- S.10 FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial institutions that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - in the event of the shareholder's death; - held in trust for an employee benefit plan; or - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59 1/2 years old AND - taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR - selling under an approved substantially equal periodic payment arrangement. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares in the event of the shareholder's death. -------------------------------------------------------------------------------- S.11 CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W, there is no initial sales charge or CDSC. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial institution. You may establish and maintain your account with an authorized financial institution or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts maintained by the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS The financial institution through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or may be requested by calling (888) 791- 3380. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.12 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number, and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (888) 791-3380 to notify the fund's transfer agent of the wire and to receive further instructions. If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.13 MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS, RIVERSOURCE 120/20 CLASSES AND CONTRARIAN ACCOUNTS EXCEPT RIVERSOURCE EQUITY FUND THOSE LISTED TO DISCIPLINED THREADNEEDLE THE RIGHT TAX QUALIFIED SMALL CAP GLOBAL EXTENDED (NONQUALIFIED) ACCOUNTS VALUE FUND ALPHA FUND CLASS W ------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $10,000 $500 ------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None ------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $2,500 $5,000 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
FOR ALL FUNDS, RIVERSOURCE 120/20 CLASSES AND CONTRARIAN ACCOUNTS EXCEPT RIVERSOURCE EQUITY FUND THOSE LISTED TO DISCIPLINED THREADNEEDLE THE RIGHT TAX QUALIFIED SMALL CAP GLOBAL EXTENDED (NONQUALIFIED) ACCOUNTS VALUE FUND ALPHA FUND CLASS W ------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $10,000 $500 ------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None ------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $5,000 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. ------------------------------------------------------------------------------- These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are a part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial institution for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. -------------------------------------------------------------------------------- S.14 EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.15 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than yourself. - Your address has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial institution providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. -------------------------------------------------------------------------------- BY TELEPHONE Call (888) 791-3380. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $100,000 per day. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (888) 791-3380 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: $100 Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. -------------------------------------------------------------------------------- EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. 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 -------------------------------------------------------------------------------- S.17 IS CALCULATED. TO THE EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial institution for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial institutions in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - The fund may rely on the monitoring policy of a financial institution, for example, a retirement plan administrator or similar authorized financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - 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.18 - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial institutions where market timing activity may not always be successfully detected. Other exchange policies: - Exchanges must be made into the same class of shares of the new fund. - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - Once the fund receives your exchange request, you cannot cancel it. - Shares of the new fund may not be used on the same day for another exchange or sale. - Shares of Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund -------------------------------------------------------------------------------- S.19 you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. VALUING FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. For more information, contact your financial institution. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. Securities are valued primarily on the basis of market quotations. Market quotations 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 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 foreign securities or small cap stocks that may trade infrequently, fair valuation may be used more frequently than for other funds. The RiverSource funds use an unaffiliated service provider to assist in determining fair values for foreign securities. -------------------------------------------------------------------------------- S.20 Foreign investments are valued in U.S. dollars. Some of a fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's shares may change on days when shareholders will not be able to purchase or sell the fund's shares. DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund, unless you request distributions in cash. The financial institution through which you purchased shares may have different policies. -------------------------------------------------------------------------------- S.21 Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. REITs often do not provide complete tax information until after the calendar year-end; generally mid to late January and continuing through early February. Consequently, if your fund has significant investments in REITs, you may not receive your Form 1099-DIV until February. Other RiverSource funds tax statements are generally mailed in January. -------------------------------------------------------------------------------- S.22 IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the RiverSource funds. These services include administrative, accounting, treasury, and other services. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Custody Services. JPMorgan Chase Bank, N.A., 1 Chase Manhattan Plaza, 19(th) Floor, New York, NY 10005, provides custody services to the RiverSource funds. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide underwriting and distribution services to the RiverSource funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder -------------------------------------------------------------------------------- S.23 servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the RiverSource funds. The RiverSource funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial institutions that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the -------------------------------------------------------------------------------- S.24 purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial institution may elevate the prominence or profile of the fund within the financial institution's organization, and may provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial institution, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). -------------------------------------------------------------------------------- S.25 The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial institutions and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of RiverSource fund assets (in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker-dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. -------------------------------------------------------------------------------- S.26 The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." ADDITIONAL MANAGEMENT INFORMATION MANAGER OF MANAGERS EXEMPTION. The RiverSource funds have received an order from the Securities and Exchange Commission that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. 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. AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's -------------------------------------------------------------------------------- S.27 fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required 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.28 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-0102. Investment Company Act File #811-5696 TICKER SYMBOL Class A: IDEAX Class B: IEMBX Class C: RMCEX Class I: RSRIX Class R4: -- Class R5: REMFX
(RIVERSOURCE INVESTMENTS LOGO) S-6354-99 V (12/08) Prospectus (THREADNEEDLE LOGO) THREADNEEDLE GLOBAL EQUITY FUND THREADNEEDLE GLOBAL EQUITY INCOME FUND THREADNEEDLE GLOBAL EXTENDED ALPHA FUND PROSPECTUS DEC. 30, 2008 THREADNEEDLE GLOBAL EQUITY FUND SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. THREADNEEDLE GLOBAL EQUITY INCOME FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME AND SECONDARILY, GROWTH OF CAPITAL. THREADNEEDLE GLOBAL EXTENDED ALPHA FUND SEEKS TO PROVIDE SHAREHOLDERS WITH LONG-TERM CAPITAL GROWTH. Threadneedle Global Equity Fund Classes A, B, C, I, R2, R3, R4, R5 and W Threadneedle Global Equity Income Fund Threadneedle Global Extended Alpha Fund Classes A, B, C, I, R2, R3, R4 and R5 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. You may qualify for sales charge discounts on purchases of Class A shares. Please notify your financial institution if you have other accounts holding shares of RiverSource funds to determine whether you qualify for a sales charge discount. See "Buying and Selling Shares" for more information. NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE TABLE OF CONTENTS THREADNEEDLE GLOBAL EQUITY FUND................... 3P THE FUND........................................ 3P Objective....................................... 3p Principal Investment Strategies................. 3p Principal Risks................................. 4p Past Performance................................ 7p Fees and Expenses............................... 11p THREADNEEDLE GLOBAL EQUITY INCOME FUND............ 13P THE FUND........................................ 13P Objective....................................... 13p Principal Investment Strategies................. 13p Principal Risks................................. 14p Past Performance................................ 16p Fees and Expenses............................... 17p THREADNEEDLE GLOBAL EXTENDED ALPHA FUND........... 19P THE FUND........................................ 19P Objective....................................... 19p Principal Investment Strategies................. 19p Principal Risks................................. 21p Past Performance................................ 25p Fees and Expenses............................... 26p Other Investment Strategies and Risks............. 28p Fund Management and Compensation.................. 29p FINANCIAL HIGHLIGHTS FOR THREADNEEDLE GLOBAL EQUITY FUND..................................... 33P FINANCIAL HIGHLIGHTS FOR THREADNEEDLE GLOBAL EQUITY INCOME FUND.............................. 43P FINANCIAL HIGHLIGHTS FOR THREADNEEDLE GLOBAL EXTENDED ALPHA FUND............................. 52P BUYING AND SELLING SHARES......................... S.1 Description of Share Classes...................... S.2 Investment Options -- Classes of Shares......... S.2 Sales Charges................................... S.6 Opening an Account.............................. S.12 Exchanging or Selling Shares...................... S.15 Exchanges....................................... S.17 Selling Shares.................................. S.19 VALUING FUND SHARES............................... S.20 DISTRIBUTIONS AND TAXES........................... S.21 GENERAL INFORMATION............................... S.23
RIVERSOURCE COMPLEX OF FUNDS The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds. RiverSource Variable Portfolio Funds and Seligman (Variable) Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and annuity contracts offered by affiliated and unaffiliated insurance companies. -------------------------------------------------------------------------------- 2P THREADNEEDLE GLOBAL FUNDS -- 2008 PROSPECTUS THREADNEEDLE GLOBAL EQUITY FUND THE FUND OBJECTIVE Threadneedle Global Equity Fund (formerly RiverSource Global Equity Fund) (the Fund) seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance this objective can be achieved. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, at least 80% of the Fund's net assets will be invested in equity securities, including companies located in developed and emerging countries. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. RiverSource Investments, LLC (RiverSource Investments) serves as the investment manager to the Fund and is responsible for oversight of the subadviser, Threadneedle International Limited (Threadneedle), an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. Threadneedle chooses investments by: - Deploying an integrated approach to equity research that incorporates regional analyses, a global sector strategy, and stock specific perspectives. - Conducting detailed research on companies in a consistent strategic and macroeconomic framework. - Looking for catalysts of change and identifying the factors driving markets, which will vary over economic and market cycles. - Implementing rigorous risk control processes that seek to ensure that the risk and return characteristics of the Fund's portfolio are consistent with established portfolio management parameters. Using the global sector strategy, Threadneedle constructs the portfolio by investing in most of the stocks on two core lists of holdings, the Largest Companies List and the Preferred List. In addition, the portfolio will hold other securities selected by the portfolio management team. These discretionary holdings will typically make up a much smaller portion of the Fund. - The Largest Companies List includes the largest stocks in the Fund's benchmark, the Morgan Stanley Capital International (MSCI) All Country World Index. Threadneedle's research on regions, sectors, and specific companies is used to determine recommended weightings for each stock. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 3P - The Preferred List includes the stocks not included in the Largest Companies List that represent the best ideas generated by Threadneedle's research area. Stocks on the Preferred List are selected by: - Evaluating the opportunities and risks within regions and sectors; - Assessing valuations; and - Evaluating one or more of the following: balance sheets and cash flows, the demand for a company's products or services, its competitive position, or its management. The Fund will normally be overweight in the stocks on the Preferred List compared to the benchmark. - Discretionary holdings are selected by the individual portfolio management team based on the same criteria used to generate the Preferred List. These stocks are assigned ratings based on their perceived ability to outperform within their sector. The team typically selects the highest rated stocks outside the core category. A number of factors may prompt Threadneedle to sell securities. A sale may result from a change in the composition of the Fund's benchmark or a change in sector strategy. A sale may also be prompted by factors specific to a stock, such as valuation or company fundamentals. The Fund will normally have exposure to foreign currencies. Threadneedle closely monitors the Fund's exposure to foreign currency. From time to time the team may use forward currency transactions or other derivative instruments to hedge against currency fluctuations. PRINCIPAL RISKS This Fund is designed for long-term 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: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may -------------------------------------------------------------------------------- 4P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS expose the Fund to additional risks, including correlation risk, counterparty credit risk, hedging risk, leverage risk and liquidity risk. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 5P Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. GEOGRAPHIC CONCENTRATION RISK. The Fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the Fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the Fund may be more volatile than a more geographically diversified fund. ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. -------------------------------------------------------------------------------- 6P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS PAST PERFORMANCE The following bar chart and table provide some illustration of the risks of investing in the Fund by showing, respectively: - how the Fund's performance has varied for each full calendar year shown on the bar chart; and - how the Fund's average annual total returns compare to recognized indexes shown on the table. Both the bar chart and the table assume that all distributions have been reinvested. The performance of different classes varies because of differences in sales charges and other fees and expenses. How the Fund has performed in the past (before and after taxes) does not indicate how the Fund will perform in the future. Performance reflects any fee waivers/expense caps in effect for the periods reported. In the absence of such fee waivers/expense caps, performance would have been lower. See "Fees and Expenses" for any current fee waivers/expense caps. Bar Chart. Class A share information is shown in the bar chart; the sales charge for Class A shares is not reflected in the bar chart. Table. The table shows total returns from hypothetical investments in Class A, Class B, Class C, Class R2, Class R3, Class R4, Class R5 and Class W shares of the Fund. These returns are compared to the indexes shown for the same periods. For purposes of the performance calculation in the table we assumed: - the maximum sales charge for Class A shares; - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares; - no sales charge for Class R2, Class R3, Class R4, Class R5 and Class W shares; and - with the exception of Class A shares, no adjustments for taxes paid by an investor on the reinvested income and capital gains. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 7P AFTER-TAX RETURNS After-tax returns are shown only for Class A shares. After-tax returns for the other classes will vary. After-tax returns are calculated using the highest historical individual federal marginal income tax rate and do not reflect the impact of state and local taxes. Actual after-tax returns will depend on your tax situation and most likely will differ from the returns shown in the table. If you hold your shares in a tax-deferred account, such as a 401(k) plan or an IRA, the after-tax returns do not apply to you since you will not incur taxes until you begin to withdraw from your account. The return after taxes on distributions for a period may be the same as the return before taxes for the same period if there were no distributions or if the distributions were small. The return after taxes on distributions and sale of Fund shares for a period may be greater than the return before taxes for the same period if there was a tax loss realized on sale of Fund shares. The benefit of the tax loss (since it can be used to offset other gains) may result in a higher return. CLASS A SHARE PERFORMANCE (BASED ON CALENDAR YEARS) (BAR CHART) +26.16% +37.02% -23.37% -22.29% -23.38% +25.16% +16.08% +18.41% +19.15% +13.60% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
During the periods shown in the bar chart, the highest return for a calendar quarter was +32.17% (quarter ended Dec. 31, 1999) and the lowest return for a calendar quarter was -18.41% (quarter ended Sept. 30, 2001). The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The Fund's Class A year-to-date return at Sept. 30, 2008 was -27.90%. The Fund formerly was a "feeder" fund in a master/feeder arrangement where the Fund invested all of its assets in a corresponding "master" fund with an identical investment objective and investment strategies. As of Nov. 8, 2005, the Fund became a stand-alone fund that invests directly in a portfolio of securities. The information shown in the table and in the financial highlights for the Fund includes the activity of the Fund when it was a feeder in a master/feeder arrangement. -------------------------------------------------------------------------------- 8P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2007)
SINCE SINCE INCEPTION INCEPTION (CLASSES R2, 1 YEAR 5 YEARS 10 YEARS (CLASS C) R3, R5 AND W) Threadneedle Global Equity Fund: Class A Return before taxes +7.06% +17.01% +5.72% N/A N/A Return after taxes on distributions +6.90% +16.84% +4.85% N/A N/A Return after taxes on distributions and sale of fund shares +4.59% +14.92% +4.58% N/A N/A Class B Return before taxes +7.80% +17.28% +5.46% N/A N/A Class C Return before taxes +11.79% +17.47% N/A +0.84%(a) N/A Class R2 Return before taxes +13.38% N/A N/A N/A +13.94%(b) Class R3 Return before taxes +13.75% N/A N/A N/A +14.30%(b) Class R4 Return before taxes +13.77% +18.55% +6.43% N/A N/A Class R5 Return before taxes +14.06% N/A N/A N/A +14.61%(b) Class W Return before taxes +13.53% N/A N/A N/A +14.64%(c) MSCI All Country World Index (reflects no deduction for fees, expenses or taxes) +12.18% +18.80% +7.94% +4.84%(d) +13.51%(e) Lipper Global Funds Index +9.28% +17.10% +7.78% +4.36%(d) +10.72%(e)
(a) Inception date is June 26, 2000. (b) Inception date is Dec. 11, 2006. (c) Inception date is Dec. 1, 2006. (d) Measurement period started July 1, 2000. (e) Measurement period started Dec. 1, 2006. The Morgan Stanley Capital International (MSCI) All Country World Index, an unmanaged index of equity securities, is designed to measure equity market performance in the global developed and emerging markets. The index reflects reinvestment of all distributions and changes in market prices. The Lipper Global Funds Index includes the 30 largest global funds tracked by Lipper Inc. The index's returns include net reinvested dividends. The Fund's performance is currently measured against this index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 9P Class I has not been in existence for a full calendar year and therefore performance information for this class is not shown. Past performance for Class R2 for the period prior to the beginning of operations for that class may be calculated based on the performance of Class B. Past performance for Class R3 and Class W for the period prior to the beginning of operations for that class may be calculated based on the performance of Class A. Past performance for Class R5 for the period prior to the beginning of operations for that class may be calculated based on the performance of Class R4. In each case, the blended class performance will be adjusted to reflect differences in sales charges, but not differences in annual Fund operating expenses (for example, 12b-1 fees). The use of blended performance generally results in a presentation of higher performance for classes with higher operating expenses than those of the class with which they are blended, and a presentation of lower performance for classes with lower operating expenses than those of the class with which they are blended. -------------------------------------------------------------------------------- 10P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal year. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5 CLASS A CLASS B CLASS C CLASS W Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS W Management fees(c) 0.83% 0.83% 0.83% 0.83% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% 0.25% Other expenses(d) 0.38% 0.40% 0.39% 0.35% Total annual fund operating expenses(e) 1.46% 2.23% 2.22% 1.43%
CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5 Management fees(c) 0.83% 0.83% 0.83% 0.83% 0.83% Distribution and/or service (12b-1) fees 0.00% 0.50% 0.25% 0.00% 0.00% Other expenses(d) 0.02% 0.46% 0.46% 0.46% 0.21% Total annual fund operating expenses(e) 0.85% 1.79% 1.54% 1.29% 1.04%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) Includes the impact of a performance incentive adjustment fee that increased the management fee by 0.06% for the most recent fiscal year. The index against which the Fund's performance is measured for purposes of determining the performance incentive adjustment is the Lipper Global Funds Index. See "Fund Management and Compensation" for more information. (d) Other expenses include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R2, Class R3 and Class R4). Other expenses for Class I are based on estimated amounts for the current fiscal year. Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the most recent fiscal period was less than 0.01%. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (e) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.27% for Class R4. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 11P EXAMPLES These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $715 $1,010 $1,328 $2,226 Class B $726(b) $1,097(b) $1,396(b) $2,374(c) Class C $325(b) $ 694 $1,191 $2,559 Class I $ 87 $ 271 $ 472 $1,053 Class R2 $182 $ 564 $ 971 $2,110 Class R3 $157 $ 487 $ 840 $1,840 Class R4 $131 $ 409 $ 709 $1,561 Class R5 $106 $ 331 $ 575 $1,276 Class W $146 $ 453 $ 783 $1,718
(a) Includes a 5.75% sales charge. (b) Includes the applicable CDSC. (c) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $715 $1,010 $1,328 $2,226 Class B $226 $ 697 $1,196 $2,374(b) Class C $225 $ 694 $1,191 $2,559 Class I $ 87 $ 271 $ 472 $1,053 Class R2 $182 $ 564 $ 971 $2,110 Class R3 $157 $ 487 $ 840 $1,840 Class R4 $131 $ 409 $ 709 $1,561 Class R5 $106 $ 331 $ 575 $1,276 Class W $146 $ 453 $ 783 $1,718
(a) Includes a 5.75% sales charge. (b) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. -------------------------------------------------------------------------------- 12P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS THREADNEEDLE GLOBAL EQUITY INCOME FUND THE FUND OBJECTIVE Threadneedle Global Equity Income Fund (the Fund) seeks to provide shareholders with a high level of current income and secondarily, growth of capital. Because any investment involves risk, there is no assurance that these objectives can be achieved. Only shareholders can change the Fund's objectives. PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Fund will invest at least 80% of its net assets in equity securities. The Fund will normally invest at least 40% of its net assets in equity securities of companies located in (non U.S.) developed and emerging markets. The securities in which the Fund invests will typically include dividend-paying common and preferred stocks that produce current income or that offer potential to produce income. The Fund may invest in any economic sector and, at times, it may emphasize one or more particular sectors. The Fund will provide shareholders with at least 60 days' notice of any change in the 80% policy. RiverSource Investments, LLC (RiverSource Investments) serves as the investment manager to the Fund and is responsible for oversight of the subadviser, Threadneedle International Limited (Threadneedle), an indirect wholly-owned subsidiary of Ameriprise Financial, Inc., the parent of RiverSource Investments. Threadneedle's investment process includes: - Deploying an integrated approach to equity research that incorporates regional analyses, a global sector strategy, and stock specific perspectives; - Conducting detailed research on companies across the capitalization spectrum (large-, mid- and small-cap companies) in a consistent strategic and macroeconomic framework; - Looking for catalysts of change in making and identifying the factors driving markets, which will vary over economic and market cycles; and - Implementing rigorous risk control processes that are designed to ensure that the risk and return characteristics of the Fund's portfolio are consistent with established portfolio management parameters. Threadneedle determines stock selection and recommended weightings for each stock by researching regions, sectors and specific companies, taking into account factors such as: - Current yield; - Dividend growth capability (considering a company's financial statements and its management's ability to increase the dividend if it chooses to do so) and dividend history; -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 13P - Balance sheet strength; - Earnings per share and free cash flow sustainability; - Dividend payout ratio (the percentage of earnings paid to shareholders in dividends); and - Competitive position within its industry. A number of factors may prompt Threadneedle to sell securities. For example, a sale may result from a change in the composition of the Fund's benchmark or a change in sector strategy. A sale may also be prompted by factors specific to a stock, such as valuation or company fundamentals. The Fund will normally have exposure to foreign currencies. Threadneedle closely monitors the Fund's exposure to foreign currency. From time to time the team may use forward currency transactions or other derivative instruments to hedge against currency fluctuations. Threadneedle may use derivatives such as futures, options, swaps, forward contracts and structured investments, to produce incremental earnings, to hedge existing positions and/or currency fluctuations, or to increase flexibility. PRINCIPAL RISKS This Fund is designed for long-term investors with above-average risk tolerance. The Fund has a higher potential for volatility and loss of principal. Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objectives. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including correlation risk, counterparty credit risk, hedging risk, leverage risk and liquidity risk. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. -------------------------------------------------------------------------------- 14P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times, it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 15P Emerging markets risk includes the dramatic pace of change (economic, social and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. When an issuer performs poorly, it may realize a reduction in earned income which will impact its ability to pay dividends. 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. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region or sector will be more susceptible to changes in price. The more a fund diversifies across sectors, the more it spreads risk and potentially reduces the risks of loss and volatility. SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management 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. PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund has not had a full calendar year of operations. The Fund's shares became available to the public on Aug. 1, 2008. When available, the Fund intends to compare its performance to the performance of the Morgan Stanley Capital International (MSCI) All Country World Index, an unmanaged index of equity securities that is designed to measure equity market performance in the global developed and emerging markets. The index reflects reinvestment of all distributions and changes in market prices. The Fund's performance will be measured against this index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. -------------------------------------------------------------------------------- 16P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal period, adjusted to reflect current fees. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C Management fees(c) 0.80% 0.80% 0.80% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% Other expenses(d) 3.57% 3.58% 3.57% Total annual fund operating expenses 4.62% 5.38% 5.37% Fee waiver/expense reimbursement 3.17% 3.17% 3.17% Total annual (net) fund operating expenses(e) 1.45% 2.21% 2.20%
CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5 Management fees(c) 0.80% 0.80% 0.80% 0.80% 0.80% Distribution and/or service (12b-1) fees 0.00% 0.50% 0.25% 0.00% 0.00% Other expenses(d) 3.32% 3.62% 3.62% 3.64% 3.37% Total annual fund operating expenses 4.12% 4.92% 4.67% 4.44% 4.17% Fee waiver/expense reimbursement 3.07% 3.07% 3.07% 3.09% 3.07% Total annual (net) fund operating expenses(e) 1.05% 1.85% 1.60% 1.35% 1.10%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) The Fund's management fee may be increased or decreased due to the effect of a performance incentive adjustment. The index against which the Fund's performance will be measured for purposes of determining the performance incentive adjustment is the MSCI All Country World Index. See "Fund Management and Compensation" for more information. (d) Other expenses are based on estimated amounts for the current fiscal year and include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R2, Class R3 and Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the current fiscal period is expected to be less than 0.01%. Because acquired funds will have -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 17P varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (e) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.45% for Class A, 2.21% for Class B, 2.20% for Class C, 1.05% for Class I, 1.85% for Class R2, 1.60% for Class R3, 1.35% for Class R4 and 1.10% for Class R5. 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) $714 $1,620 Class B $724(b) $1,726(b) Class C $323(b) $1,323 Class I $107 $ 972 Class R2 $188 $1,204 Class R3 $163 $1,132 Class R4 $137 $1,064 Class R5 $112 $ 987
(a) Includes a 5.75% 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) $714 $1,620 Class B $224 $1,326 Class C $223 $1,323 Class I $107 $ 972 Class R2 $188 $1,204 Class R3 $163 $1,132 Class R4 $137 $1,064 Class R5 $112 $ 987
(a) Includes a 5.75% sales charge. -------------------------------------------------------------------------------- 18P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS THREADNEEDLE GLOBAL EXTENDED ALPHA FUND THE FUND OBJECTIVE Threadneedle Global Extended Alpha Fund (the Fund) seeks to provide shareholders with long-term capital growth. Because any investment involves risk, there is no assurance this objective can be achieved. Only shareholders can change the Fund's objective. PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Fund will invest primarily in equity securities, including at least 40% of its net assets in companies located in (non-U.S.) developed and emerging markets. The Fund will hold both long and short positions. A long position is an ordinary purchase of a security. When the Fund takes a short position, it sells a security that it has borrowed in anticipation of a decline in the price of the security. The investment manager is able to invest the proceeds from its short positions in additional long positions, 'extending' the equity exposure of the Fund in an effort to achieve an enhanced level of 'alpha.' Alpha represents how much the Fund's return is attributable to the investment manager's ability to deliver above-average returns, adjusted for risk. To complete a short sale transaction, the Fund buys back the same security in the market and returns it to the lender. If the price of the security falls sufficiently, the Fund will make money. If it instead increases in price, the Fund will lose money. Both long and short positions may be obtained through buying or selling individual securities or creating similar long or short exposure through the use of derivative instruments. The Fund expects to maintain an approximate net long asset exposure to the equity market (long market exposure minus short market exposure) between 90% and 105%, targeting 110% to 140% gross long exposure and 10% to 40% gross short exposure. Actual exposure will vary over time based on factors such as market movements and the portfolio management team's assessment of market conditions and may result in the Fund not taking short positions from time to time. In addition to individual stocks, the portfolio management team may use exchange traded funds (ETFs), and certain derivative instruments, including portfolio and equity swaps, futures, options and forward contracts. These instruments may be used by the Fund to obtain additional long or short exposure to a security (or basket of securities) or to hedge existing long or short positions. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 19P INVESTMENT PROCESS RiverSource Investments, LLC (RiverSource Investments) serves as the investment manager to the Fund and is responsible for oversight of the subadviser, Threadneedle International Limited (Threadneedle), an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. (which is also the parent of RiverSource Investments). In pursuit of the Fund's objective, Threadneedle seeks to identify securities that offer the greatest promise for out-performance (long positions) and securities with the greatest promise for underperformance (short positions). Threadneedle's approach to investing is based on bottom up research focusing mainly on business fundamentals and valuation of individual securities. Detailed research is carried out by Threadneedle's team of over 120 investment professionals through: - extensive interviews with company management teams, - use of publicly published information, and - use of research from independent sources and brokers. While bottom up research is the primary driver when evaluating securities, proprietary macro-economic and thematic in-house research is also produced which may influence bottom-up research as well as broader portfolio positioning. Threadneedle seeks multiple sources of enhancing alpha and is not rigidly driven by a focus on solely securities that may be described as 'growth' or 'value' which Threadneedle believes increases the chances of out-performance across the investment cycle and potentially maximizes the benefits of diversification. Based on this investment approach, Threadneedle constructs a Global Team Preferred List of stocks (the Preferred List) that is updated regularly. The majority of the Fund's long positions (including the additional long positions) will be invested in stocks on the Preferred List. In addition, discretionary holdings (long and short positions) are selected by the portfolio management team based on the same fundamental criteria (investment approach) used to generate the Preferred List. In addition to selling securities short that Threadneedle believes have the greatest promise for underperformance, Threadneedle may also establish short positions in an effort to mitigate potential additional risks introduced through the selection of the Fund's active long and short positions. A number of factors may prompt the portfolio management team to sell a long position or close out a short position. A sale is most likely to be prompted by factors specific to a stock, such as deterioration in the company's fundamentals or an increase in the company's valuation. A sale could also be triggered by a change in macro or thematic strategy by Threadneedle or for risk management purposes. -------------------------------------------------------------------------------- 20P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS The Fund will normally have exposure to foreign currencies. The portfolio management team closely monitors the Fund's exposure to foreign currency. From time to time the team may hold foreign currencies, or use forward currency transactions or other derivative instruments to hedge against currency fluctuations. PRINCIPAL RISKS This Fund is designed for long-term 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: ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the Fund's investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. Because the Fund takes both long and short positions, there is the risk that the value of the securities held long might decrease and the value of the securities sold short might increase in response to activities of an individual company or in response to general market conditions. In this case, the Fund's potential losses could exceed those of other mutual funds that hold only long stock positions. There is no guarantee that the investment techniques and risk analyses employed by the investment manager will produce the desired results. DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including hedging risk, correlation risk and liquidity risk. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 21P Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks. RISKS OF FOREIGN INVESTING. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. 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. -------------------------------------------------------------------------------- 22P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. COUNTERPARTY RISK. 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. LEVERAGE RISK. Leverage occurs when the Fund increases its assets available for investment using borrowings, short sales, derivatives, or similar instruments or techniques. Due to the fact that short sales involve borrowing securities and then selling them, the Fund's short sales effectively leverage the Fund's assets. The use of leverage may make any change in the Fund's net asset value (NAV) even greater and thus result in increased volatility of returns. The Fund's assets that are used as collateral to secure the short sales may decrease in value while the short positions are outstanding, which may force the Fund to use its other assets to increase the collateral. Leverage can also create an interest expense that may lower the Fund's overall returns. Lastly, there is no guarantee that a leveraging strategy will be successful. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 23P SHORT SELLING RISK. The Fund may make short sales, which involves selling a security the Fund does not own in anticipation that the security's price will decline. The Fund must borrow those securities to make delivery to the buyer. The Fund may not always be able to borrow a security it wants to sell short. The Fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. It is possible that the Fund's long positions will decline in value at the same time that the value of its short positions increase, thereby increasing potential losses to the Fund. Short sales expose the Fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Fund. The Fund may also be required to close out a short position at a time when it might not otherwise choose, for example, if the lender of the security calls it back, which may have the effect of reducing or eliminating potential gain, or cause the Fund to realize a loss. Short positions introduce more risk to the Fund than long positions (purchases) because the maximum sustainable loss on a security purchased (held long) is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Additionally, the Fund's use of short sales in effect "leverages" the Fund, as the Fund may use the cash proceeds from short sales to invest in additional long positions. This leverage effect potentially exposes the Fund to greater risks due to unanticipated market movements, which may magnify losses and increase the volatility of returns. See also Leverage Risk and Market Risk. In addition, the Fund will incur additional expenses by engaging in short sales in the form of transaction costs, and interest and dividend expenses paid to the lender of the security. ETF RISK. The price movement of an ETF may not track the underlying index and may result in a loss. In addition, shareholders bear both their proportionate share of the Fund's expenses and similar expenses incurred through ownership of the ETF. 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. -------------------------------------------------------------------------------- 24P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS PAST PERFORMANCE The bar chart and past performance table are not presented because the Fund has not had a full calendar year of operations. The Fund's shares became available to the public on Aug. 1, 2008. When available, the Fund intends to compare its performance to the performance of the Morgan Stanley Capital International (MSCI) All Country World Index, an unmanaged index of equity securities that is designed to measure equity market performance in the global developed and emerging markets. The index reflects reinvestment of all distributions and changes in market prices. The Fund's performance will be measured against this index for purposes of determining the performance incentive adjustment. See "Fund Management and Compensation" for more information. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 25P FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Expenses are based on the Fund's most recent fiscal period. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS A CLASS B CLASS C CLASS R5 Maximum sales charge (load) imposed on purchases (as a percentage of offering price) 5.75%(a) None None None Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) None(b) 5% 1% None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C Management fees(c) 1.05% 1.05% 1.05% Distribution and/or service (12b-1) fees 0.25% 1.00% 1.00% Other expenses(d) 4.25% 4.28% 4.17% Total annual fund operating expenses 5.55% 6.33% 6.22% Fee waiver/expense reimbursement 4.00% 4.02% 3.92% Total annual (net) fund operating expenses(e) 1.55% 2.31% 2.30%
CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5 Management fees(c) 1.05% 1.05% 1.05% 1.05% 1.05% Distribution and/or service (12b-1) fees 0.00% 0.50% 0.25% 0.00% 0.00% Other expenses(d) 3.89% 4.19% 4.19% 4.33% 3.94% Total annual fund operating expenses 4.94% 5.74% 5.49% 5.38% 4.99% Fee waiver/expense reimbursement 3.72% 3.72% 3.72% 3.86% 3.72% Total annual (net) fund operating expenses(e) 1.22% 2.02% 1.77% 1.52% 1.27%
(a) This charge may be reduced depending on the value of your total investments in RiverSource Funds. See "Sales Charges." (b) A 1% CDSC may be assessed on Class A shares sold without a sales charge within 18 months after purchase. See "Sales Charges." (c) The Fund's management fee may be increased or decreased due to the effect of a performance incentive adjustment. The index against which the Fund's performance will be measured for purposes of determining the performance incentive adjustment is the MSCI All Country World Index. See "Fund Management and Compensation" for more information. (d) Other expenses are based on estimated amounts for the current fiscal year and include an administrative services fee, a transfer agency fee (for all classes except Class I), a custody fee, other nonadvisory expenses and a plan administration services fee (for Class R2, Class R3 and Class R4). Other expenses may also include fees and expenses of affiliated and unaffiliated funds (acquired funds) which the Fund indirectly bears when it invests in the acquired funds. The impact of these acquired funds fees and expenses for the current fiscal period is expected to be less than 0.01%. Because acquired funds will have -------------------------------------------------------------------------------- 26P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. (e) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment, will not exceed 1.55% for Class A, 2.31% for Class B, 2.30% for Class C, 1.22% for Class I, 2.02% for Class R2, 1.77% for Class R3, 1.52% for Class R4 and 1.27% for Class R5. 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) $724 $1,801 Class B $734(b) $1,917(b) Class C $333(b) $1,496 Class I $124 $1,151 Class R2 $205 $1,379 Class R3 $180 $1,308 Class R4 $155 $1,265 Class R5 $129 $1,165
(a) Includes a 5.75% 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) $724 $1,801 Class B $234 $1,517 Class C $233 $1,496 Class I $124 $1,151 Class R2 $205 $1,379 Class R3 $180 $1,308 Class R4 $155 $1,265 Class R5 $129 $1,165
(a) Includes a 5.75% sales charge. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 27P REFERENCES TO "THE FUND" THROUGHOUT THE REMAINDER OF THE PROSPECTUS REFER TO THREADNEEDLE GLOBAL EQUITY FUND, THREADNEEDLE GLOBAL EQUITY INCOME FUND AND THREADNEEDLE GLOBAL EXTENDED ALPHA FUND SINGULARLY OR COLLECTIVELY AS THE CONTEXT REQUIRES. OTHER INVESTMENT STRATEGIES AND RISKS Other Investment Strategies. In addition to the principal investment strategies previously described, the Fund may utilize investment strategies that are not principal investment strategies, including for Threadneedle Global Equity Fund and Threadneedle Global Equity Income Fund, investment in affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds (ETFs), also referred to as "acquired funds") ownership of which results in the Fund bearing its proportionate share of the acquired funds' fees and expenses. Investment in ETFs is a principal investment strategy for Threadneedle Global Extended Alpha Fund. Although ETFs are designed to replicate the price and yield of a specified market index, there is no guarantee that an ETF will track its specified market index, which may result in a loss. For more information on strategies and holdings, and the risks of such strategies, including derivative instruments that the Fund may use, see the Fund's SAI and its annual and semiannual reports. Unusual Market Conditions. During unusual market conditions, the Fund may temporarily invest more of its assets in money market securities than during normal market conditions. Although investing in these securities would serve primarily to attempt to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, the portfolio managers may make frequent securities trades that could result in increased fees, expenses and taxes, and decreased performance. Instead of investing in money market securities directly, the Fund may invest in shares of an affiliated money market fund. See "Cash Reserves" under the section "General Information" for more information. Securities Transaction Commissions. Securities transactions involve the payment by the Fund of brokerage commissions to broker-dealers, on occasion as compensation for research or brokerage services (commonly referred to as "soft dollars"), as the portfolio managers buy and sell securities for the Fund in pursuit of its objective. A description of the policies governing the Fund's securities transactions and the dollar value of brokerage commissions paid by the Fund are set forth in the SAI. The brokerage commissions set forth in the SAI do not include implied commissions or mark-ups (implied commissions) paid by the Fund for principal transactions (transactions made directly with a dealer or other counterparty), including most fixed income securities (and certain other instruments, including derivatives). Brokerage commissions do not reflect other elements of transaction costs, including the extent to which the Fund's purchase -------------------------------------------------------------------------------- 28P THREADNEEDLE GLOBAL FUNDS -- 2008 PROSPECTUS and sale transactions may cause the market to move and change the market price for an investment. Although brokerage commissions and implied commissions are not reflected in the expense table under "Fees and Expenses," they are reflected in the total return of the Fund. Portfolio Turnover. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, is shown in the "Financial Highlights." Directed Brokerage. The Fund's Board of Directors (Board) has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the Fund as a factor in the selection of broker-dealers through which to execute securities transactions. Additional information regarding securities transactions can be found in the SAI. 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 (including the RiverSource Partners funds, Threadneedle funds and Seligman funds), and is a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise Financial is a financial planning and financial services company that has been offering solutions for clients' asset accumulation, income management and protection needs for more than 110 years. In addition to managing investments for all of the RiverSource funds, RiverSource Investments manages investments for itself and its affiliates. For institutional clients, RiverSource Investments and its affiliates provide investment management and related services, such as separate account asset management, and institutional trust and custody, as well as other investment products. For all of its clients, RiverSource Investments seeks to allocate investment opportunities in an equitable manner over time. See the SAI for more information. THREADNEEDLE GLOBAL EQUITY FUND The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal year was 0.83% of the Fund's average daily net assets, including an adjustment under the terms of a performance incentive arrangement. The -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL FUNDS -- 2008 PROSPECTUS 29P adjustment is computed by comparing the Fund's performance to the performance of an index of comparable funds published by Lipper Inc. The index against which the Fund's performance is currently measured for purposes of the performance incentive adjustment is the Lipper Global Funds Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.12% of the Fund's average net assets on an annual basis. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. THREADNEEDLE GLOBAL EQUITY INCOME FUND The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal period was 0.80% of the Fund's average daily net assets. Beginning Feb. 1, 2009, the management fee will include an adjustment under the terms of a performance incentive arrangement under the Agreement. The adjustment will be computed by comparing the Fund's performance to the performance of the MSCI All Country World Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.12% of the Fund's average net assets on an annual basis. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. THREADNEEDLE GLOBAL EXTENDED ALPHA FUND The Fund pays RiverSource Investments a fee for managing its assets. Under the Investment Management Services Agreement (Agreement), the fee for the most recent fiscal period was 1.05% of the Fund's average daily net assets. Beginning Aug. 1, 2010, the management fee will include an adjustment under the terms of a performance incentive arrangement under the Agreement. The adjustment will be computed by comparing the Fund's performance to the performance of the MSCI All Country World Index. In certain circumstances, the Fund's Board may approve a change in the index. The maximum adjustment (increase or decrease) is 0.50% of the Fund's average net assets on an annual basis. Under the Agreement, the Fund also pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement is available in the Fund's most recent annual or semiannual shareholder report. -------------------------------------------------------------------------------- 30P THREADNEEDLE GLOBAL FUNDS -- 2008 PROSPECTUS RiverSource Investments contracts with and compensates Threadneedle International Limited (Subadviser or Threadneedle) to manage the investment of the Fund's assets. RiverSource Investments monitors the compliance of Threadneedle with the investment objective and related policies of the Fund, reviews the performance of Threadneedle, and reports periodically to the Board. THREADNEEDLE Threadneedle, located at 60 St. Mary Axe, London EC3A 8JQ, England, is an affiliate of RiverSource Investments, and an indirect wholly-owned subsidiary of Ameriprise Financial, Inc. The portfolio managers who lead the team responsible for the day-to-day management of the Fund are: THREADNEEDLE GLOBAL EQUITY FUND Stephen Thornber, Portfolio Manager - Head of global oil sector. - Managed the Fund since 2003. - Joined Threadneedle in 1993 as a fund manager. - Began investment career in 1987. - BA, Plymouth Polytechnic. Andrew Holliman, CFA, Deputy Portfolio Manager - Deputy managed the Fund since 2008. - Joined Threadneedle in 2004 as a fund manager. - Began investment career in 1997 as an investment analyst and portfolio manager, Baillie Gifford & Co., 1997 to 2004. - BCom (Hons), University of Edinburgh; MSc, University of Stirling. THREADNEEDLE GLOBAL EQUITY INCOME FUND Stephen Thornber, Portfolio Manager - Head of global oil sector. - Managed the Fund since 2008. - Joined Threadneedle in 1993 as a fund manager. - Began investment career in 1987. - BA, Plymouth Polytechnic. Jeremy Podger, Deputy Portfolio Manager - Head of global equity team. - Deputy managed the Fund since 2008. - Joined Threadneedle in 2003 as a fund manager. - Began investment career in 1987. - BA, Cambridge University; MBA, London Business School. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL FUNDS -- 2008 PROSPECTUS 31P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND Andrew Holliman, CFA, Portfolio Manager - Managed the Fund since 2008. - Joined Threadneedle in 2004 as a fund manager. - Began investment career in 1997 as an investment analyst and portfolio manager, Baillie Gifford & Co., 1997 to 2004. - BCom (Hons), University of Edinburgh; MSc, University of Stirling. Jeremy Podger, Deputy Portfolio Manager - Head of global equity team. - Deputy managed the Fund since 2008. - Joined Threadneedle in 2003 as a fund manager. - Began investment career in 1987. - BA, Cambridge University; MBA, London Business School. The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Fund. -------------------------------------------------------------------------------- 32P THREADNEEDLE GLOBAL FUNDS -- 2008 PROSPECTUS FINANCIAL HIGHLIGHTS FOR THREADNEEDLE GLOBAL EQUITY FUND THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL YEARS ENDED ON OR AFTER OCT. 31, 2007 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. THE INFORMATION FOR THE PERIODS ENDED ON OR BEFORE OCT. 31, 2006 HAS BEEN AUDITED BY OTHER AUDITORS. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 33P CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.61 $7.52 $6.23 $5.16 $4.62 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(b) .02(b) .01 .02 -- Net gains (losses) (both realized and unrealized) (4.41) 2.13 1.30 1.08 .54 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.36) 2.15 1.31 1.10 .54 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.06) (.02) (.03) -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $9.61 $7.52 $6.23 $5.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $380 $737 $608 $446 $364 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.46% 1.39% 1.51% 1.57% 1.41% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .65% .28% .23% .33% .07% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.55%) 28.82% 21.01% 21.48% 11.72% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 34P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.02 $7.06 $5.88 $4.87 $4.40 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.04)(b) (.01) (.02) (.03) Net gains (losses) (both realized and unrealized) (4.14) 2.00 1.19 1.03 .50 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.15) 1.96 1.18 1.01 .47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- .00(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.87 $9.02 $7.06 $5.88 $4.87 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $104 $110 $102 $104 -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 2.23% 2.15% 2.28% 2.34% 2.18% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.11%) (.45%) (.54%) (.41%) (.66%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return(f) (46.01%) 27.81% 20.07% 20.74% 10.68% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 35P CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $8.93 $7.02 $5.85 $4.85 $4.38 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.04)(b) (.01) (.02) (.02) Net gains (losses) (both realized and unrealized) (4.09) 1.98 1.18 1.03 .49 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.10) 1.94 1.17 1.01 .47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.03) -- (.01) -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.83 $8.93 $7.02 $5.85 $4.85 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $8 $6 $2 $1 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.22% 2.15% 2.27% 2.33% 2.19% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.09%) (.48%) (.50%) (.53%) (.69%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.91%) 27.76% 20.03% 20.89% 10.73% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 36P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $7.47 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (2.25) -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.22) -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) .85%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.55%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% -------------------------------------------------------------------------------------------------------------- Total return (29.72%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 37P CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.62 $7.89 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .05 (.01) Net gains (losses) (both realized and unrealized) (4.42) 1.84 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.83 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.23 $9.62 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.79% 1.74%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.54% 1.74%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .57% (.13%)(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.48%) 23.41%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- 38P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.65 $7.89 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .06 .01 Net gains (losses) (both realized and unrealized) (4.43) 1.85 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.86 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.24 $9.65 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.54% 1.49%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.29% 1.49%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .82% .12%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.43%) 23.80%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 39P CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.70 $7.60 $6.29 $5.20 $4.65 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(b) .04(b) .02 .04 .01 Net gains (losses) (both realized and unrealized) (4.46) 2.13 1.31 1.09 .54 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.39) 2.17 1.33 1.13 .55 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.07) (.02) (.04) .00 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.26 $9.70 $7.60 $6.29 $5.20 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $10 $9 $6 $4 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.29% 1.23% 1.32% 1.38% 1.23% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.28% 1.23% 1.32% 1.38% 1.23% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .83% .45% .44% .49% .25% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return (45.47%) 28.85% 21.26% 21.90% 11.88% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. -------------------------------------------------------------------------------- 40P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.69 $7.89 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 .05 Net gains (losses) (both realized and unrealized) (4.45) 1.85 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.90 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 $9.69 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 1.04% .99%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.07% .62%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.40%) 24.33%(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS 41P CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.66 $7.83 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .05 .02 Net gains (losses) (both realized and unrealized) (4.44) 1.91 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.39) 1.93 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.23 $9.66 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 1.43% 1.39%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .68% .20%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.62%) 24.87%(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. -------------------------------------------------------------------------------- 42P THREADNEEDLE GLOBAL EQUITY FUND -- 2008 PROSPECTUS FINANCIAL HIGHLIGHTS FOR THREADNEEDLE GLOBAL EQUITY INCOME FUND THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL PERIOD ENDED OCT. 31, 2008 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 43P CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.24 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.71%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.45%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.78%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return(h) (27.12%)(i) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 44P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .06 Net gains (losses) (both realized and unrealized) (2.76) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.24 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.48%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 2.21%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.11%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return(h) (27.15%)(i) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 45P CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.24 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.15%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 2.21%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.31%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return(h) (27.18%)(i) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 46P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .09 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.68) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.03) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.12%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.07%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.95%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.00%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 47P CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.01) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.92%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.72%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.36%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.10%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. -------------------------------------------------------------------------------- 48P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.69) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.68%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.47%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.61%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.07%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 49P CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.69) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.42%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.24%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.89%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.04%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. -------------------------------------------------------------------------------- 50P THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .09 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.68) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.03) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.17%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.12%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.91%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.00%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 PROSPECTUS 51P FINANCIAL HIGHLIGHTS FOR THREADNEEDLE GLOBAL EXTENDED ALPHA FUND THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR THE FISCAL PERIOD ENDED OCT. 31, 2008 HAS BEEN DERIVED FROM THE FINANCIAL STATEMENTS AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS, IS INCLUDED IN THE ANNUAL REPORT WHICH, IF NOT INCLUDED WITH THIS PROSPECTUS, IS AVAILABLE UPON REQUEST. -------------------------------------------------------------------------------- 52P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c),(d) .00 Net gains (losses) (both realized and unrealized) (6.03) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.97 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.55%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.55%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.07%)(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return(h) (30.15%)(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 53P CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) (.02) Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.94 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 6.33%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 2.31%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.55%)(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return(g) (30.30%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Total return does not reflect payment of a sales charge. (h) Not annualized. -------------------------------------------------------------------------------- 54P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) (.03) Net gains (losses) (both realized and unrealized) (6.03) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.94 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 6.22%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 2.30%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.79%)(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return(g) (30.30%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Total return does not reflect payment of a sales charge. (h) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 55P CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (6.05) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.02) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 4.94%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.21%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .63%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.10%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. -------------------------------------------------------------------------------- 56P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c),(d) .00 Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.04) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.96 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.74%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.81%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .03%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.20%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 57P CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .01 Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.97 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 5.49%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.56%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .28%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.15%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. -------------------------------------------------------------------------------- 58P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .01 Net gains (losses) (both realized and unrealized) (6.03) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.02) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 5.38%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.36%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .30%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.10%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS 59P CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .02 Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.02) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 4.99%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.26%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .58%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.10%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. -------------------------------------------------------------------------------- 60P THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 PROSPECTUS RIVERSOURCE COMPLEX OF FUNDS THE RIVERSOURCE COMPLEX OF FUNDS INCLUDES "RIVERSOURCE" FUNDS, "RIVERSOURCE PARTNERS" FUNDS, AND "THREADNEEDLE" FUNDS (EACH INDIVIDUALLY A "FUND" OR A "RIVERSOURCE FUND" AND COLLECTIVELY THE "FUNDS" OR THE "RIVERSOURCE FUNDS"). THE RIVERSOURCE COMPLEX OF FUNDS ALSO INCLUDES "SELIGMAN" FUNDS. THE RIVERSOURCE FUNDS AND THE SELIGMAN FUNDS SHARE THE SAME BOARD OF DIRECTORS/TRUSTEES (THE "BOARD"), BUT INVESTORS MAY NOT CURRENTLY MAKE EXCHANGES BETWEEN THE SELIGMAN FUNDS AND THE RIVERSOURCE FUNDS. SELIGMAN FUNDS GENERALLY HAVE SEPARATE AND DISTINCT POLICIES AND PROCEDURES FROM THE RIVERSOURCE FUNDS. THE RIVERSOURCE FUNDS SHARE THE SAME POLICIES AND PROCEDURES INCLUDING THOSE SET FORTH IN THIS SERVICE SECTION OF THIS PROSPECTUS. FOR EXAMPLE, FOR PURPOSES OF CALCULATING THE INITIAL SALES CHARGE ON THE PURCHASE OF CLASS A SHARES OF A RIVERSOURCE FUND, AN INVESTOR OR FINANCIAL ADVISOR SHOULD CONSIDER THE COMBINED MARKET VALUE OF ALL RIVERSOURCE FUNDS (INCLUDING "THREADNEEDLE" OR "RIVERSOURCE PARTNERS" FUNDS), OWNED BY THE INVESTOR AS DEFINED UNDER "INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA)." AN INVESTOR OR FINANCIAL ADVISOR MAY NOT INCLUDE THE MARKET VALUE OF ANY SELIGMAN FUNDS OWNED BY THE INVESTOR IN THIS CALCULATION. BUYING AND SELLING SHARES The RiverSource funds are generally available directly and through broker- dealers, banks, and other financial intermediaries or institutions (financial institutions), including certain qualified and non-qualified plans, wrap fee products or other investment products sponsored by financial institutions. THESE FINANCIAL INSTITUTIONS MAY CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. Additionally, recordkeeping, transaction processing and payments of distributions relating to your account may be performed by the financial institutions through which your shares of the fund(s) are held. Since the fund (and its service providers) may not have a record of your account transactions, you should always contact the financial institution through which you purchased or at which you maintain your shares of the fund to make changes to your account or to give instructions concerning your account, or to obtain information about your account. The fund and its service providers, including the distributor and the transfer agent, are not responsible for the failure of one of these financial institutions to carry out its obligations to its customers. -------------------------------------------------------------------------------- S.1 S-6400-4 DESCRIPTION OF SHARE CLASSES INVESTMENT OPTIONS -- CLASSES OF SHARES The RiverSource funds offer different classes of shares. There are differences among the fees and expenses for each share class. See the "Fees and Expenses" table for more information. Not everyone is eligible to buy every share class. After determining which share classes you are eligible to buy, decide which share class best suits your needs. Your financial institution can help you with this decision. The following table shows the key features of each share class. (THE COVER OF THIS PROSPECTUS INDICATES WHICH SHARE CLASSES ARE CURRENTLY OFFERED FOR THIS FUND.) INVESTMENT OPTIONS SUMMARY
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class A Available to Yes. Payable at No.(c) Yes. No. all investors. time of purchase. 0.25% Lower or no sales charge for larger investments. -------------------------------------------------------------------------------------------------------------------------------- Class B(d) Available to No. Entire Maximum 5% CDSC Yes. No. all investors. purchase price is during the first 1.00% invested in shares year decreasing to of the fund. 0% after six years. -------------------------------------------------------------------------------------------------------------------------------- Class C Available to No. Entire 1% CDSC may apply Yes. No. all investors. purchase price is if you sell shares 1.00% invested in shares within one year of the fund. after purchase. -------------------------------------------------------------------------------------------------------------------------------- Class I Limited to No. No. No. No. qualifying institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R2 Limited to No. No. Yes. Yes. qualifying 0.50% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R3 Limited to No. No. Yes. Yes. qualifying 0.25% 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R4 Limited to No. No. No. Yes. qualifying 0.25% institutional investors. -------------------------------------------------------------------------------------------------------------------------------- Class R5 Limited to No. No. No. No. qualifying institutional investors. --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- S.2 INVESTMENT OPTIONS SUMMARY (CONTINUED)
Contingent Plan Initial Deferred Sales Distribution and Administration AVAILABILITY(a) Sales Charge Charge (CDSC) Service Fee(b) Fee -------------------------------------------------------------------------------------------------------------------------------- Class W Limited to No. No. Yes. No. qualifying 0.25% discretionary managed accounts. --------------------------------------------------------------------------------------------------------------------------------
(a) See "Buying and Selling Shares, Determining which class of shares to purchase" for more information on availability of share classes and eligible investors. See "Buying and Selling Shares, Opening an Account" for information on minimum investment and account balance requirements. (b) For each of Class A, Class B, Class C, Class R2, Class R3 and Class W shares, as applicable, each fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, that allows it to pay distribution and shareholder servicing-related expenses for the sale of shares and the servicing of shareholders. This plan has been reviewed and approved by the Board. Because these fees are paid out of fund assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of distribution (sales) or servicing charges. (c) A 1% CDSC may be assessed on Class A shares sold within 18 months after purchase. See "Buying and Selling Shares, Sales Charges, Class A -- contingent deferred sales charge" for more information. (d) See "Buying and Selling Shares, Sales Charges, Class B and Class C -- contingent deferred sales charge alternative" for more information on the timing of conversion of Class B shares to Class A shares. Timing of conversion will vary depending on the date of your original purchase of the Class B shares. DISTRIBUTION AND SERVICE FEES The distribution and shareholder servicing fees for Class A, Class B, Class C, Class R2, Class R3 and Class W shares are subject to the requirements of Rule 12b-1 under the Investment Company Act of 1940, as amended, and are used to reimburse the distributor for certain expenses it incurs in connection with distributing a fund's shares and directly or indirectly providing services to fund shareholders. These expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund or provide services to fund shareholders, up to 0.50% of the average daily net assets of Class R2 shares sold and held through them and up to 0.25% of the average daily net assets of Class A, Class B, Class C, Class R3 and Class W shares sold and held through them. For Class A, Class B, Class R2, Class R3 and Class W shares, the distributor begins to pay these fees immediately after purchase. For Class C shares, the distributor pays these fees in advance for the first 12 months. Financial institutions also receive distribution fees up to 0.75% of the average daily net assets of Class C shares sold and held through them, which the distributor begins to pay 12 months after purchase. For Class B shares, and, for the first 12 months following the sale of Class C shares, the fund's distributor retains the distribution fee of up to 0.75% in order to finance the payment of sales commissions to financial institutions that sell Class B shares, and to pay for other distribution related expenses. Financial institutions may compensate their financial advisors with the shareholder servicing and distribution fees paid to them by the distributor. IF YOU MAINTAIN SHARES OF THE FUND DIRECTLY WITH THE -------------------------------------------------------------------------------- S.3 FUND, WITHOUT WORKING DIRECTLY WITH A FINANCIAL INSTITUTION OR FINANCIAL ADVISOR, DISTRIBUTION AND SERVICE FEES WILL BE RETAINED BY THE DISTRIBUTOR. PLAN ADMINISTRATION FEE Class R2, Class R3 and Class R4 shares pay an annual plan administration services fee for the provision of various administrative, recordkeeping, communication and educational services. The fee for Class R2, Class R3 and Class R4 shares is equal on an annual basis to 0.25% of average daily net assets attributable to the respective class. DETERMINING WHICH CLASS OF SHARES TO PURCHASE CLASS A, CLASS B AND CLASS C SHARES New purchases of Class B shares will not be permitted if your Rights of Accumulation are $50,000 or higher, and new purchases of Class C shares will not be permitted if your Rights of Accumulation are $1,000,000 or higher. See "Sales Charges, Initial Sales Charge -- Rights of Accumulation (ROA)" for information on Rights of Accumulation. Class B shares have a higher annual distribution fee than Class A shares and a contingent deferred sales charge (CDSC) for six years. Class B shares convert to Class A shares in the ninth year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for longer than one year. Unlike Class B shares, Class C shares do not convert to Class A shares. As a result, you will pay a distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), you should consider the length of time you intend to hold your shares. To help you determine which investment is best for you, consult your financial institution. CLASS I SHARES. The following eligible investors may purchase Class I shares: - Any fund distributed by RiverSource Distributors, Inc., if the fund seeks to achieve its investment objective by investing primarily in shares of the fund and other RiverSource funds. Class I shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS R SHARES. The following eligible institutional investors may purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans. -------------------------------------------------------------------------------- S.4 - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code. - Non-qualified deferred compensation plans whose participants are included in a qualified employee benefit plan described above. - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, if approved by the distributor, the following eligible institutional investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds). - Bank Trust departments. Class R shares generally are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Educational Savings Accounts, SEPs, SAR- SEPs, SIMPLE IRAs and individual 403(b) plans. Class R shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. CLASS W SHARES. The following eligible investors may purchase Class W shares: - Investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs. Class W shares may be purchased, sold or exchanged only through the distributor or an authorized financial institution. Shares originally purchased in a discretionary managed account may continue to be held in Class W outside of a discretionary managed account, but no additional Class W purchases may be made and no exchanges to Class W shares of another fund may be made outside of a discretionary managed account. IN ADDITION, FOR CLASS I, CLASS R AND CLASS W SHARES, THE DISTRIBUTOR, IN ITS SOLE DISCRETION, MAY ACCEPT OR AUTHORIZE FINANCIAL INSTITUTIONS TO ACCEPT INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE. For more information, see the SAI. -------------------------------------------------------------------------------- S.5 SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE Your purchase price for Class A shares is generally the net asset value (NAV) plus a front-end sales charge. The distributor receives the sales charge and re- allows a portion of the sales charge to the financial institution through which you purchased the shares. The distributor retains the balance of the sales charge. The distributor retains the full sales charge you pay when you purchase shares of the fund directly (not through a separately authorized financial institution). Sales charges vary depending on the amount of your purchase. SALES CHARGE* FOR CLASS A SHARES:
MAXIMUM RE-ALLOWANCE AS A % OF AS A % OF AS A % OF TOTAL MARKET VALUE PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE ---------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 5.00% $50,000 -- $99,999 4.75 4.99 4.00 $100,000 -- $249,999 3.50 3.63 3.00 $250,000 -- $499,999 2.50 2.56 2.15 $500,000 -- $999,999 2.00 2.04 1.75 $1,000,000 or more 0.00 0.00 0.00***
*Because of rounding in the calculation of the offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. **Purchase price includes the sales charge. ***Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION (ROA). You may be able to reduce the sales charge on Class A shares, based on the combined market value of accounts in your ROA group, as described below. The current market values of the following investments are eligible to be added together for purposes of determining the sales charge on your purchase: - Your current investment in a fund; and - Previous investments you and members of your household have made in Class A, Class B or Class C shares in the fund and other RiverSource funds, provided your investment was subject to a sales charge. Your household consists of you, your spouse or domestic partner and your unmarried children under age 21 sharing a mailing address. The following accounts are eligible to be included in determining the sales charge on your purchase: - Individual or joint accounts; -------------------------------------------------------------------------------- S.6 - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested in Class A, Class B or Class C shares that were subject to a sales charge; - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is parent or guardian of the minor child; - Revocable trust accounts for which you or a member of your household, individually, is the beneficial owner/grantor; - Accounts held in the name of your, your spouse's, or your domestic partner's sole proprietorship or single owner limited liability company or S corporation; and - Qualified retirement plan assets, provided that you are the sole owner of the business sponsoring the plan, are the sole participant (other than a spouse) in the plan, and have no intention of adding participants to the plan. The following accounts are NOT eligible to be included in determining the sales charge on your purchase: - Accounts of pension and retirement plans with multiple participants, such as 401(k) plans (which are combined to reduce the sales charge for the entire pension or retirement plan and therefore are not used to reduce the sales charge for your individual accounts); - Investments in Class A shares where the sales charge is waived, for example, purchases through wrap accounts; - Investments in Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W or Class Y shares; - Investments in 529 plans, donor advised funds, variable annuities, variable life insurance products, wrap accounts or managed separate accounts; and - Charitable and irrevocable trust accounts. 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. -------------------------------------------------------------------------------- S.7 INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to invest $50,000 or more (including any existing ROA) over a period of up to 13 months, you may be able to reduce the front-end sales charge(s) for investments in Class A shares by completing and filing an LOI. The required form of LOI may vary by financial institution. Existing ROA can be included in your LOI. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI. Five percent of the commitment amount will be placed in escrow. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. Existing ROA Example. Shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Notification Obligation. You must request the reduced sales charge when you buy shares. If you do not complete and file an LOI, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. You should request that your financial institution provide this information to the fund when placing your purchase order. For more detail on LOIs, please contact your financial institution or see the SAI. INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales charges do not apply to: - current or retired Board members, officers or employees of RiverSource funds or RiverSource Investments or its affiliates, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - current or retired Ameriprise Financial Services, Inc. (Ameriprise Financial Services) financial advisors, employees of financial advisors, their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - registered representatives and other employees of financial institutions having a selling agreement with the distributor, including their spouses, domestic partners, children, parents and their spouse's or domestic partner's parents. - portfolio managers employed by subadvisers of the RiverSource funds, including their spouses or domestic partners, children, parents and their spouse's or domestic partner's parents. - retirement plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code, if those purchases are made through a broker, agent, or other financial institution. -------------------------------------------------------------------------------- S.8 - direct rollovers from qualified employee benefit plans, provided that the rollover involves a transfer to Class A shares in the same fund. - purchases made: - with dividend or capital gain distributions from a fund or from the same class of another RiverSource fund; - through or under a wrap fee product or other investment product sponsored by a financial institution having a selling agreement with the distributor; - through state sponsored college savings plans established under Section 529 of the Internal Revenue Code; - through bank trust departments. - shareholders whose original purchase was in a Strategist fund merged into a RiverSource fund in 2000. The distributor may, in its sole discretion, authorize the waiver of sales charges for additional purchases or categories of purchases. Policies related to reducing or waiving the sales charge may be modified or withdrawn at any time. Unless you provide your financial institution with information in writing about all of the factors that may count toward a waiver of the sales charge, there can be no assurance that you will receive all of the waivers for which you may be eligible. You should request that your financial institution provide this information to the fund when placing your purchase order. Because the current prospectus is available on riversource.com free of charge, RiverSource Investments does not separately disclose information regarding breakpoint discounts on the website. CLASS A -- CONTINGENT DEFERRED SALES CHARGE For Class A shares purchased after Dec. 1, 2008 without a sales charge, a 1% CDSC may be charged if you sell your shares within 18 months after purchase. A CDSC will be based on the original purchase cost or the current market value of the shares being sold, whichever is less. CDSC -- WAIVERS OF THE CDSC FOR CLASS A SHARES. The CDSC will be waived on sales of shares: - To which no sales commission or transaction fee was paid to an authorized financial institution at the time of purchase. - Purchased through reinvestment of dividends and capital gain distributions. - In the event of the shareholder's death. - From a monthly, quarterly or annual systematic redemption plan of up to an annual amount of 12% of the account value on a per fund basis. - In an account that has been closed because it falls below the minimum account balance. -------------------------------------------------------------------------------- S.9 - That result in mandatory withdrawals from an ERISA plan of a shareholder who is at least 70 1/2 years old. - That result from returns of excess contributions or excess deferral amounts made to a retirement plan participant. - Purchased prior to Dec. 1, 2008. The distributor may, in its sole discretion, authorize the waiver of the CDSC for additional purchases or categories of purchases. Policies relating to waiving the CDSC may be modified or withdrawn at any time. CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of years between purchase and sale. The following table shows how CDSC percentages on sales decline:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS:* First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh or eighth year 0%
* Because of rounding in the calculation, the portion of the CDSC retained by the distributor may vary and the actual CDSC you pay may be more or less than the CDSC calculated using these percentages. Although there is no front-end sales charge when you buy Class B shares, the distributor pays a sales commission of 4% to financial institutions that sell Class B shares. A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class B shares. You may not make additional purchases of Class B shares if your ROA exceeds $49,999.99. Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases made beginning May 21, 2005 age on a daily basis. For example, a purchase made on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year aging. However, a purchase made on Nov. 12, 2005 completed its first year on Nov. 11, 2006 under daily aging. Class B shares purchased prior to May 21, 2005 will convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased beginning May 21, 2005 will convert to Class A shares one month after the completion of the eighth year of ownership. -------------------------------------------------------------------------------- S.10 FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year after purchase. Although there is no front-end sales charge when you buy Class C shares, the distributor pays a total amount up to 1% (including sales commission and advance of service fees) to financial institutions that sell Class C shares. See "Buying and Selling Shares -- Distribution and Service Fees." A portion of this commission may, in turn, be paid to your financial advisor. The distributor receives any CDSC imposed when you sell your Class C shares. You may not make additional purchases of Class C shares if your ROA exceeds $999,999.99. For both Class B and Class C, if the amount you sell causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC will be based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you do not have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 3 1/2 years, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 3% because the sale was made during the fourth year after the purchase. CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales of shares: - in the event of the shareholder's death; - held in trust for an employee benefit plan; or - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59 1/2 years old AND - taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR - selling under an approved substantially equal periodic payment arrangement. CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales of shares in the event of the shareholder's death. -------------------------------------------------------------------------------- S.11 CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE. For each of Class I, Class R2, Class R3, Class R4, Class R5 and Class W, there is no initial sales charge or CDSC. OPENING AN ACCOUNT Financial institutions are required by law to obtain certain personal information from each person who opens an account in order to verify the identity of the person. As a result, when you open an account you will be asked to provide your name, permanent street address, date of birth, and Social Security or Employer Identification number. You may also be asked for other identifying documents or information. If you do not provide this information, the financial institution through which you are investing in the fund may not be able to open an account for you. If the financial institution through which you are investing in the fund is unable to verify your identity, your account may be closed, or other steps may be taken, as deemed appropriate. When you buy shares, your order will be priced at the next NAV calculated after your order is accepted by the fund or an authorized financial institution. You may establish and maintain your account with an authorized financial institution or directly with the fund. The fund may appoint servicing agents to accept purchase orders and to accept exchange (and sale) orders on its behalf. Accounts maintained by the fund will be supported by the fund's transfer agent. METHODS OF PURCHASING SHARES These methods of purchasing shares generally apply to Class A, Class B, and Class C shares. ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS The financial institution through which you buy shares may have different policies not described in this prospectus, including different minimum investment amounts and minimum account balances. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL You or the financial institution through which you buy shares may establish an account directly with the fund. To establish an account in this fashion, complete a RiverSource funds account application with your financial advisor or investment professional, and mail the account application to the address below. Account applications may be obtained at riversource.com or may be requested by calling (888) 791- 3380. Make your check payable to the fund. The fund does not accept cash, credit card convenience checks, ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.12 METHODS OF PURCHASING SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) money orders, traveler's checks, starter checks, third or fourth party checks, or other cash equivalents. Mail your check and completed application to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 If you already have an account, include your name, account number, and the name of the fund and class of shares you wish to purchase along with your check. You can make scheduled investments in the fund by moving money from your checking account or savings account. See the Minimum Investment and Account Balance chart below for more information regarding scheduled investment plans. -------------------------------------------------------------------------------- BY WIRE OR ACH Fund shares purchased in an account established and maintained with the fund may be paid for by federal funds wire. Before sending a wire, call (888) 791-3380 to notify the fund's transfer agent of the wire and to receive further instructions. If you are establishing an account with a wire purchase, you are required to send a signed account application to the address above. Please include the wire control number or your new account number on the application. Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY EXCHANGE Call (888) 791-3380 or send signed written instructions to the address above. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.13 MINIMUM INVESTMENT AND ACCOUNT BALANCE
FOR ALL FUNDS, RIVERSOURCE 120/20 CLASSES AND CONTRARIAN ACCOUNTS EXCEPT RIVERSOURCE EQUITY FUND THOSE LISTED TO DISCIPLINED THREADNEEDLE THE RIGHT TAX QUALIFIED SMALL CAP GLOBAL EXTENDED (NONQUALIFIED) ACCOUNTS VALUE FUND ALPHA FUND CLASS W ------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $2,000 $1,000 $5,000 $10,000 $500 ------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $100 $100 $100 None ------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE* $300 None $2,500 $5,000 $500
*If your fund account balance falls below the minimum account balance for any reason, including a market decline, you may be asked to increase it to the minimum account balance or establish a scheduled investment plan. If you do not do so within 30 days, your shares may be automatically redeemed and the proceeds mailed to you. ------------------------------------------------------------------------------- MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
FOR ALL FUNDS, RIVERSOURCE 120/20 CLASSES AND CONTRARIAN ACCOUNTS EXCEPT RIVERSOURCE EQUITY FUND THOSE LISTED TO DISCIPLINED THREADNEEDLE THE RIGHT TAX QUALIFIED SMALL CAP GLOBAL EXTENDED (NONQUALIFIED) ACCOUNTS VALUE FUND ALPHA FUND CLASS W ------------------------------------------------------------------------------------------------------------- INITIAL INVESTMENT $100 $100 $5,000 $10,000 $500 ------------------------------------------------------------------------------------------------------------- ADDITIONAL INVESTMENTS $100 $50 $100 $100 None ------------------------------------------------------------------------------------------------------------- ACCOUNT BALANCE** None None $2,500 $5,000 $500
**If your fund account balance is below the minimum initial investment described above, you must make payments at least monthly. ------------------------------------------------------------------------------- These minimums may be waived for accounts that are managed by an investment professional, for accounts held in approved discretionary or non-discretionary wrap programs, for accounts that are a part of an employer-sponsored retirement plan, or for other account types if approved by the distributor. The fund reserves the right to modify its minimum account requirements at any time, with or without prior notice. Please contact your financial institution for information regarding wire or electronic funds transfer. IMPORTANT: Payments sent by electronic fund transfers (ACH), a bank authorization or check that are not guaranteed may take up to 10 days to clear. If you request a sale within 10 days of purchase, this may cause your sale request to fail to process if the requested amount includes unguaranteed funds. -------------------------------------------------------------------------------- S.14 EXCHANGING OR SELLING SHARES You may exchange or sell shares by having your financial institution process your transaction. If your account is maintained directly with your financial institution, you must contact that financial institution to exchange or sell shares of the fund. If your account was established with the fund, there are a variety of methods you may use to exchange or sell shares of the fund. WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION ALL REQUESTS You can exchange or sell shares by having your financial institution process your transaction. The financial institution through which you purchased shares may have different policies not described in this prospectus, including different transaction limits, exchange policies and sale procedures. -------------------------------------------------------------------------------- ACCOUNT ESTABLISHED WITH THE FUND BY MAIL Mail your exchange or sale request to: REGULAR MAIL RIVERSOURCE FUNDS P.O. BOX 8041 BOSTON, MA 02266-8041 EXPRESS MAIL RIVERSOURCE FUNDS C/O BFDS 30 DAN ROAD CANTON, MA 02021-2809 Include in your letter: - your name - the name of the fund(s) - your account number - the class of shares to be exchanged or sold - your Social Security number or Employer Identification number - the dollar amount or number of shares you want to exchange or sell - specific instructions regarding delivery or exchange destination - signature(s) of registered account owner(s) - any special documents the transfer agent may require in order to process your order ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.15 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY MAIL (CONT.) Corporate, trust or partnership accounts may need to send additional documents. Payment will be mailed to the address of record and made payable to the names listed on the account, unless your request specifies differently and is signed by all owners. A Medallion Signature Guarantee is required if: - Amount is over $50,000. - You want your check made payable to someone other than yourself. - Your address has changed within the last 30 days. - You want the check mailed to an address other than the address of record. - You want the proceeds sent to a bank account not on file. - You are the beneficiary of the account and the account owner is deceased (additional documents may be required). A Medallion Signature Guarantee assures that a signature is genuine and not a forgery. The financial institution providing the Guarantee is financially liable for the transaction if the signature is a forgery. Eligible guarantors include commercial banks, trust companies, savings associations, and credit unions as defined by the Federal Deposit Insurance Act. Note: A guarantee from a notary public is not acceptable. NOTE: Any express mail delivery charges you pay will vary depending on domestic or international delivery instructions. -------------------------------------------------------------------------------- BY TELEPHONE Call (888) 791-3380. Unless you elect not to have telephone exchange and sale privileges, they will automatically be available to you. Reasonable procedures will be used to confirm authenticity of telephone exchange or sale requests. Telephone privileges may be modified or discontinued at any time. Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing to the address above. Payment will be mailed to the address of record and made payable to the names listed on the account. Telephone sale requests are limited to $100,000 per day. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- S.16 WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED) ACCOUNT ESTABLISHED WITH THE FUND (CONT.) BY WIRE OR ACH You can wire money from your fund account to your bank account. Make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. Call (888) 791-3380 or send a letter of instruction, with a Medallion Signature Guarantee if required, to the address above. A service fee may be charged against your account for each wire sent. Minimum amount: $100 Your bank or financial institution may charge additional fees for wire transactions. -------------------------------------------------------------------------------- BY SCHEDULED You may elect to receive regular periodic payments through an PAYOUT PLAN automatic sale of shares. See the SAI for more information. -------------------------------------------------------------------------------- EXCHANGES Generally, you may exchange your fund shares for shares of the same class of any other publicly offered RiverSource fund without a sales charge. For complete information on the fund you are exchanging into, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after your transaction request is received in good order. You may be subject to a sales charge if you exchange from a money market fund into an equity or fixed income fund. SHORT-TERM TRADING AND OTHER SO-CALLED MARKET TIMING PRACTICES ARE FREQUENT TRADING PRACTICES BY CERTAIN SHAREHOLDERS INTENDED TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING THE FUND'S TRANSACTION COSTS. 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 -------------------------------------------------------------------------------- S.17 IS CALCULATED. TO THE EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS OR FOREIGN SECURITIES, THE RISKS OF MARKET TIMING MAY BE GREATER FOR THE FUND THAN FOR OTHER FUNDS. SEE "PRINCIPAL INVESTMENT STRATEGIES" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN WHICH YOUR FUND INVESTS. SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND EFFECT OF MARKET TIMING. THE RIVERSOURCE FUNDS' BOARD HAS ADOPTED A POLICY THAT IS DESIGNED TO DETECT AND DETER MARKET TIMING THAT MAY BE HARMFUL TO THE FUNDS. EACH FUND SEEKS TO ENFORCE THIS POLICY THROUGH ITS SERVICE PROVIDERS AS FOLLOWS: - The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging or other purchase and exchange transactions not believed to be inconsistent with the best interest of fund shareholders or the Board's policy. The fund uses a variety of techniques to monitor for and detect abusive trading practices. These techniques may vary depending on the type of fund, the class of shares and where the shares are maintained. Under the fund's procedures, there is no set number of transactions in the fund that constitutes market timing. Even one purchase and subsequent sale by related accounts may be market timing. Generally, the fund seeks to restrict the exchange privilege of an investor who makes more than three exchanges into or out of the fund in any 90-day period. Accounts held by a retirement plan or a financial institution for the benefit of its participants or clients, which typically engage in daily transactions, are not subject to this limit, although the fund may seek the assistance of financial institutions in applying similar restrictions on their participants or clients. The fund's ability to monitor and discourage abusive trading practices in omnibus accounts is more limited. - The fund may rely on the monitoring policy of a financial institution, for example, a retirement plan administrator or similar authorized financial institution authorized to distribute the funds, if it determines the policy and procedures of such financial institutions are sufficient to protect the fund and its shareholders. - 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.18 - Although the fund does not knowingly permit market timing, it cannot guarantee that it will be able to identify and restrict all short-term trading activity. The fund receives purchase and sale orders through financial institutions where market timing activity may not always be successfully detected. Other exchange policies: - Exchanges must be made into the same class of shares of the new fund. - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from Class A shares. - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - Once the fund receives your exchange request, you cannot cancel it. - Shares of the new fund may not be used on the same day for another exchange or sale. - Shares of Class W originally purchased, but no longer held in a discretionary managed account, may not be exchanged for Class W shares of another fund. You may continue to hold these shares in the fund. Changing your investment to a different fund will be treated as a sale and purchase, and you will be subject to applicable taxes on the sale and sales charges on the purchase of the new fund. - If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange of those shares. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC imposed at that time will be based on the period that begins when you bought shares of the original fund and ends when you sell the shares of the fund you exchanged to. SELLING SHARES You may sell your shares at any time. The payment will be sent within seven days after your request is received in good order. When you sell shares, the amount you receive may be more or less than the amount you invested. Your sale price will be the next NAV calculated after your request is received in good order, minus any applicable CDSC. REPURCHASES. You can change your mind after requesting a sale of shares and use all or part of the sale proceeds to purchase new shares of RiverSource funds. If your original purchase was in Class A or Class B, you may use all or part of the sale proceeds to purchase new Class A shares in any RiverSource fund account linked together for ROA purposes. Your repurchase will be in Class A shares at NAV, up to the amount of the sale proceeds. Repurchases of Class B shares will also be in Class A shares at NAV. Any CDSC paid upon redemption of your Class B shares will not be reimbursed. If your original purchase was in Class C, you will be allowed to reinvest in the same Class C account and fund -------------------------------------------------------------------------------- S.19 you originally purchased. In a Class C repurchase, the CDSC you paid will be reinvested and the shares will be deemed to have the original cost and purchase date for purposes of applying the CDSC (if any) to subsequent redemptions. Systematic withdrawals and purchases will be excluded from this policy. In order for you to take advantage of this repurchase waiver, you must notify your financial institution within 90 days of the date your sale request was processed. Contact your financial institution for information on required documentation. The repurchase privilege may be modified or discontinued at any time and use of this option may have tax consequences. The fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. VALUING FUND SHARES For classes of shares sold with an initial sales charge, the public offering or purchase price is the net asset value plus the sales charge. For funds or classes of shares sold without an initial sales charge, the public offering price is the NAV. Orders in good form are priced at the NAV next determined after you place your order. Good form or good order means that your instructions have been received in the form required by the fund. This may include, for example, providing the fund name and account number, the amount of the transaction and all required signatures. For more information, contact your financial institution. The NAV is the value of a single share of the fund. The NAV is determined by dividing the value of the fund's assets, minus any liabilities, by the number of shares outstanding. The NAV is calculated as of the close of business on the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that the NYSE is open. Securities are valued primarily on the basis of market quotations. Market quotations 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 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 foreign securities or small cap stocks that may trade infrequently, fair valuation may be used more frequently than for other funds. The RiverSource funds use an unaffiliated service provider to assist in determining fair values for foreign securities. -------------------------------------------------------------------------------- S.20 Foreign investments are valued in U.S. dollars. Some of a fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the fund's shares may change on days when shareholders will not be able to purchase or sell the fund's shares. DISTRIBUTIONS AND TAXES As a shareholder you are entitled to your share of your fund's net income and net gains. Each fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS Your fund's net investment income is distributed to you as dividends. Dividends may be composed of qualified dividend income, which is eligible for preferential tax rates under current tax law, as well as other ordinary dividend income, which may include dividends which are non-qualified dividends, interest income and short-term capital gains. Generally, capital gains are realized when a security is sold for a higher price than was paid for it. Generally, capital losses are realized when a security is sold for a lower price than was paid for it. Typically, each realized capital gain or loss is long-term or short-term depending on the length of time the fund held the security. Realized capital gains and losses offset each other. The fund offsets any net realized capital gains by any available capital loss carryovers. Net short-term capital gains, if any, are included in net investment income and are taxable as ordinary income when distributed to the shareholder. Net realized long-term capital gains, if any, are distributed by the end of the calendar year as capital gain distributions. If the fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to the shareholders to the extent of their basis in their shares. A return of capital will generally not be taxable; however, any amounts received in excess of basis are treated as capital gain. Forms 1099 sent to shareholders report any return of capital. Certain derivative instruments subject the fund to special tax rules, the effect of which may be to accelerate income to the fund, defer fund losses, cause adjustments in the holding periods of fund securities, convert capital gains into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund, unless you request distributions in cash. The financial institution through which you purchased shares may have different policies. -------------------------------------------------------------------------------- S.21 Distributions are reinvested at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. TAXES If you buy shares shortly before the record date of a distribution, you may pay taxes on money earned by the fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. Generally, if you sell shares for less than their cost, the difference is a capital loss or if you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). You may not create a tax loss or reduce a tax gain, based on paying a sales charge, by exchanging shares before the 91(st) day after the day of purchase. If you buy Class A shares and exchange into another fund before the 91(st) day after the day of purchase, you may not be able to include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For more information, see the SAI. Distributions related to shares not held in IRAs or other retirement accounts are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. Shares held in an IRA or qualified retirement account are generally subject to different tax rules. Taking a distribution from your IRA or qualified retirement plan may subject you to federal taxes, withholding, penalties and reporting requirements. Please consult your tax advisor. Income received by a fund may be subject to foreign tax and withholding. Tax conventions between certain countries and the U.S. may reduce or eliminate these taxes. REITs often do not provide complete tax information until after the calendar year-end; generally mid to late January and continuing through early February. Consequently, if your fund has significant investments in REITs, you may not receive your Form 1099-DIV until February. Other RiverSource funds tax statements are generally mailed in January. -------------------------------------------------------------------------------- S.22 IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to an investment in a fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. GENERAL INFORMATION AVAILABILITY AND TRANSFERABILITY OF FUND SHARES Please consult with your financial institution to determine the availability of the RiverSource funds. RiverSource funds may only be purchased or sold directly or through financial institutions authorized by the distributor to offer the RiverSource funds. NOT ALL FINANCIAL INSTITUTIONS ARE AUTHORIZED TO SELL THE FUNDS. If you set up an account at a financial institution that does not have, and is unable to obtain, a selling agreement with the distributor of the RiverSource funds, you will not be able to transfer RiverSource fund holdings to that account. In that event, you must either maintain your RiverSource fund holdings with your current financial institution, find another financial institution with a selling agreement, or sell your shares, paying any applicable CDSC. Please be aware that transactions in taxable accounts are taxable events and may result in income tax liability. ADDITIONAL SERVICES AND COMPENSATION In addition to acting as the fund's investment manager, RiverSource Investments and its affiliates also receive compensation for providing other services to the funds. Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the RiverSource funds. These services include administrative, accounting, treasury, and other services. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Custody Services. JPMorgan Chase Bank, N.A., 1 Chase Manhattan Plaza, 19(th) Floor, New York, NY 10005, provides custody services to the RiverSource funds. In addition to paying the custodian for these services, the RiverSource funds pay for certain transaction fees and out-of-pocket expenses incurred while providing custody services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474, and Seligman Advisors, Inc., 100 Park Avenue, New York, New York 10017, (collectively, the distributor), provide underwriting and distribution services to the RiverSource funds. Under the Distribution Agreement and related distribution and shareholder servicing plans, the distributor receives distribution and shareholder -------------------------------------------------------------------------------- S.23 servicing fees. The distributor may retain a portion of these fees to support its distribution and shareholder servicing activity. The distributor reallows the remainder of these fees (or the full fee) to the financial institutions that sell fund shares and provide services to shareholders. Fees paid by a fund for these services are set forth under "Distribution and/or service (12b-1) fees" in the expense table under "Fees and Expenses." More information on how these fees are used is set forth under "Investment Options -- Classes of Shares" and in the SAI. The distributor also administers any sales charges paid by an investor at the time of purchase or at the time of sale. See "Shareholder Fees (fees paid directly from your investment)" under "Fees and Expenses" for the scheduled sales charge of each share class. See "Buying and Selling Shares, Sales Charges" for variations in the scheduled sales charges, and for how these sales charges are used by the distributor. See "Other Investment Strategies and Risks" for the RiverSource funds' policy regarding directed brokerage. Transfer Agency Services. RiverSource Service Corporation, 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the transfer agent or RiverSource Service Corporation), provides or compensates others to provide transfer agency services to the RiverSource funds. The RiverSource funds pay the transfer agent a fee that varies by class, as set forth in the SAI, and reimburses the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." RiverSource Service Corporation pays a portion of these fees to financial institutions that provide sub-recordkeeping and other services to fund shareholders. The SAI provides additional information about the services provided and the fee schedules for the transfer agent agreements. Plan Administration Services. Under a Plan Administration Services Agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set-up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). Fees paid by a fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses." PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the fund) to financial institutions, including inter-company allocation of resources or payments to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the fund. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors in the fund or fund shareholders for the -------------------------------------------------------------------------------- S.24 purchase or ownership of fund shares of the fund, and these payments are not reflected in the fees and expenses of the fund, as they are not paid by the fund. In exchange for these payments, a financial institution may elevate the prominence or profile of the fund within the financial institution's organization, and may provide the distributor and its affiliates with preferred access to the financial institution's registered representatives or preferred access to the financial institution's customers. These arrangements are sometimes referred to as marketing and/or sales support payments, program and/or shareholder servicing payments, or revenue sharing payments. These arrangements create potential conflicts of interest between a financial institution's pecuniary interest and its duties to its customers, for example, if the financial institution receives higher payments from the sale of a certain fund than it receives from the sale of other funds, the financial institution or its representatives may be incented to recommend or sell shares of the fund where it receives or anticipates receiving the higher payment instead of other investment options that may be more appropriate for the customer. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management, sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments and the distributor, and the products they offer, including the fund. These payments are typically negotiated based on various factors including, but not limited to, the scope and quality of the services provided by the financial institution, its reputation in the industry, its ability to attract and retain assets, its access to target markets, its customer relationships, the profile the fund may obtain within the financial institution, and the access the distributor or other representatives of the fund may have within the financial institution for advertisement, training or education, including opportunities to present at or sponsor conferences for the registered representatives of the financial institution and its customers. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of, or in addition to, these asset-based fees as compensation for including or maintaining a fund on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its registered representatives for effecting transactions in the fund. The amount of payment varies by financial institution (e.g., initial platform set-up fees, ongoing maintenance or service fees, or asset or sales based fees). -------------------------------------------------------------------------------- S.25 The amount of payments also varies by the type of sale. For instance, purchases of one fund may warrant a greater or lesser amount of payments than purchases of another fund. Additionally, sale and maintenance of shares on a stand alone basis may result in a greater or lesser amount of payments than the sale and maintenance of shares made through a plan, wrap or other fee-based program. Payments to affiliates may include payments as compensation to employees of RiverSource Investments who are licensed by the distributor in respect of certain sales and solicitation activity on behalf of the fund. These payments may be and often are significant. Additional information concerning the amount and calculation of these payments is available in the fund's SAI. Payments to affiliated broker-dealers are within the range of the payments the distributor pays to similarly-situated third party financial institutions and the payments such affiliated broker-dealers receive from third party fund sponsors related to the sale of their sponsored funds. However, because of the large amount of RiverSource fund assets (in aggregate) currently held in customer accounts of the affiliated broker-dealers, the distributor and its affiliates, in the aggregate, pay significantly more in absolute dollars than other third-party fund sponsors pay to the affiliated broker-dealers for the sale and servicing of their sponsored funds. This level of payment creates potential conflicts of interest which the affiliated broker-dealers seek to mitigate by disclosure and implementation of internal controls, as well as the rules and regulations of applicable regulators. From time to time, to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payments to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. The financial institution through which you are purchasing or own shares of the fund has been authorized directly or indirectly by the distributor to sell the fund and/or to provide services to you as a shareholder of the fund. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of the fund, please contact your financial institution. The SAI contains additional detail regarding payments made by the distributor to financial institutions. -------------------------------------------------------------------------------- S.26 The payments described in this section are in addition to fees paid by the fund to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the fund to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the fund. Financial institutions may separately charge you additional fees. See "Buying and Selling Shares." ADDITIONAL MANAGEMENT INFORMATION MANAGER OF MANAGERS EXEMPTION. The RiverSource funds have received an order from the Securities and Exchange Commission that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. 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. AFFILIATED PRODUCTS. RiverSource Investments also serves as investment manager to RiverSource funds which are structured to provide asset-allocation services to shareholders of those funds by investing in shares of other RiverSource funds (Funds of Funds) and to discretionary managed accounts that invest exclusively in RiverSource funds (collectively referred to as "affiliated products"). These affiliated products, individually or collectively, may own a significant percentage of the fund's outstanding shares. The fund may experience relatively large purchases or redemptions from the affiliated products. Although RiverSource Investments may seek to minimize the impact of these transactions, for example, by structuring them over a reasonable period of time or through other measures, the fund may experience increased expenses as it buys and sells securities to manage transactions for the affiliated products. In addition, because the affiliated products may own a substantial portion of the fund, a redemption by one or more affiliated products could cause the fund's expense ratio to increase as the fund's -------------------------------------------------------------------------------- S.27 fixed costs would be spread over a smaller asset base. RiverSource Investments monitors expense levels and is committed to offering funds that are competitively priced. RiverSource Investments reports to the Board on the steps it has taken to manage any potential conflicts. See the SAI for information on the percent of the fund owned by affiliated products. CASH RESERVES. A fund may invest its daily cash balance in RiverSource Short- Term Cash Fund (Short-Term Cash Fund), a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. While Short-Term Cash Fund does not pay an advisory fee to RiverSource Investments, it does incur other expenses, and is expected to operate at a very low expense ratio. A fund will invest in Short-Term Cash Fund only to the extent it is consistent with the fund's investment objectives and policies. Short-Term Cash Fund is not insured or guaranteed by the FDIC or any other government agency. FUND HOLDINGS DISCLOSURE. The Board has adopted policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the securities owned by a fund. A description of these policies and procedures is included in the SAI. LEGAL PROCEEDINGS. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the fund. Information regarding certain pending and settled legal proceedings may be found in the fund's shareholder reports and in the SAI. Additionally, Ameriprise Financial is required 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.28 RiverSource Funds can be purchased from authorized financial institutions. The fund can be found under the "RiverSource" banner in most mutual fund quotations. Additional information about the fund and its investments is available in the fund's SAI, and annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of market conditions and investment strategies that significantly affected the fund's performance during its most recent fiscal year. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI, the annual report, or the semiannual report, or to request other information about the fund, contact RiverSource Funds or your financial institution. To make a shareholder inquiry, contact the financial institution through whom you purchased the fund. RiverSource Funds 734 Ameriprise Financial Center Minneapolis, MN 55474 (888) 791-3380 RiverSource Funds information available at RiverSource Investments website address: riversource.com/funds You may review and copy information about the fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202- 551-8090). Reports and other information about the fund are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E., Washington, D.C. 20549-0102. Investment Company Act File #811-5696 TICKER SYMBOL Threadneedle Global Equity Fund Class A: IGLGX Class B: IDGBX Class C: RGCEX Class I: -- Class R2: -- Class R3: -- Class R4: IDGYX Class R5: RGERX Class W: -- Threadneedle Global Equity Income Fund Class A: RTNAX Class B: -- Class C: RTNEX Class I: -- Class R2: RGEOX Class R3: RGETX Class R4: RGEYX Class R5: RGEFX Threadneedle Global Extended Alpha Fund Class A: RTAAX Class B: -- Class C: RTACX Class I: -- Class R2: REAOX Class R3: RTNRX Class R4: REYRX Class R5: REAFX
(RIVERSOURCE INVESTMENTS LOGO) S-6334-99 AG (12/08) STATEMENT OF ADDITIONAL INFORMATION DEC. 30, 2008 RIVERSOURCE BOND SERIES, INC. RiverSource Floating Rate Fund RiverSource Income Opportunities Fund RiverSource Inflation Protected Securities Fund RiverSource Limited Duration Bond Fund RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RiverSource California Tax-Exempt Fund RIVERSOURCE DIMENSIONS SERIES, INC. RiverSource Disciplined Small and Mid Cap Equity Fund RiverSource Disciplined Small Cap Value Fund RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RiverSource Diversified Bond Fund RIVERSOURCE EQUITY SERIES, INC. RiverSource Mid Cap Growth Fund RIVERSOURCE GLOBAL SERIES, INC. RiverSource Absolute Return Currency and Income Fund RiverSource Emerging Markets Bond Fund RiverSource Global Bond Fund RiverSource Global Technology Fund Threadneedle Emerging Markets Fund Threadneedle Global Equity Fund Threadneedle Global Equity Income Fund Threadneedle Global Extended Alpha Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RiverSource Short Duration U.S. Government Fund RiverSource U.S. Government Mortgage Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RiverSource High Yield Bond Fund RIVERSOURCE INCOME SERIES, INC. RiverSource Income Builder Basic Income Fund RiverSource Income Builder Enhanced Income Fund RiverSource Income Builder Moderate Income Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RiverSource Partners International Select Growth Fund RiverSource Partners International Select Value Fund RiverSource Partners International Small Cap Fund RIVERSOURCE INTERNATIONAL SERIES, INC. RiverSource Disciplined International Equity Fund Threadneedle European Equity Fund Threadneedle International Opportunity Fund RIVERSOURCE INVESTMENT SERIES, INC. RiverSource Balanced Fund RiverSource Disciplined Large Cap Growth Fund RiverSource Disciplined Large Cap Value Fund RiverSource Diversified Equity Income Fund RiverSource Mid Cap Value Fund RIVERSOURCE LARGE CAP SERIES, INC. RiverSource Disciplined Equity Fund RiverSource Growth Fund RiverSource Large Cap Equity Fund RiverSource Large Cap Value Fund RIVERSOURCE MANAGERS SERIES, INC. RiverSource Partners Aggressive Growth Fund RiverSource Partners Fundamental Value Fund RiverSource Partners Select Value Fund RiverSource Partners Small Cap Equity Fund RiverSource Partners Small Cap Value Fund RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RiverSource Portfolio Builder Aggressive Fund RiverSource Portfolio Builder Conservative Fund RiverSource Portfolio Builder Moderate Aggressive Fund RiverSource Portfolio Builder Moderate Conservative Fund RiverSource Portfolio Builder Moderate Fund RiverSource Portfolio Builder Total Equity Fund RiverSource S&P 500 Index Fund RiverSource Small Company Index Fund RIVERSOURCE MONEY MARKET SERIES, INC. RiverSource Cash Management Fund RIVERSOURCE SECTOR SERIES, INC. RiverSource Dividend Opportunity Fund RiverSource Real Estate Fund RIVERSOURCE SELECTED SERIES, INC. RiverSource Precious Metals and Mining Fund RIVERSOURCE SERIES TRUST RiverSource 120/20 Contrarian Equity Fund RiverSource Retirement Plus 2010 Fund RiverSource Retirement Plus 2015 Fund RiverSource Retirement Plus 2020 Fund RiverSource Retirement Plus 2025 Fund RiverSource Retirement Plus 2030 Fund RiverSource Retirement Plus 2035 Fund RiverSource Retirement Plus 2040 Fund RiverSource Retirement Plus 2045 Fund RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RiverSource Minnesota Tax-Exempt Fund RiverSource New York Tax-Exempt Fund RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RiverSource Strategic Allocation Fund RiverSource Strategic Income Allocation Fund RIVERSOURCE STRATEGY SERIES, INC. RiverSource Equity Value Fund RiverSource Partners Small Cap Growth Fund RiverSource Small Cap Advantage Fund RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RiverSource Tax-Exempt High Income Fund RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RiverSource Tax-Exempt Money Market Fund RIVERSOURCE TAX-EXEMPT SERIES, INC. RiverSource Intermediate Tax-Exempt Fund RiverSource Tax-Exempt Bond Fund
This is the Statement of Additional Information (SAI) for each of the funds listed on the previous page. This SAI is not a prospectus. It should be read together with the appropriate current fund prospectus, the date of which can be found in Table 1 of this SAI. Each fund's financial statements for its most recent fiscal period are contained in the fund's Annual or Semiannual Report to shareholders. The Independent Registered Public Accounting Firm's Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities and any applicable Schedule of Affiliated Funds, contained in the Annual Report, are incorporated in this SAI by reference. No other portion of the Annual Report is incorporated by reference. For a free copy of a fund prospectus, annual or semiannual report, contact your financial institution or write to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474, call (888) 791-3380 or visit riversource.com/funds. Each fund is governed by a Board of Directors/Trustees (the "Board") that meets regularly to review a wide variety of matters affecting the funds. Detailed information about fund governance, the funds' investment manager, RiverSource Investments, LLC (the "investment manager" or "RiverSource Investments"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), and other aspects of fund management can be found by referencing the Table of Contents below, or the List of Tables on the following page. TABLE OF CONTENTS Fundamental and Nonfundamental Investment Policies.............................. p. 6 Investment Strategies and Types of Investments.................................. p. 11 Information Regarding Risks and Investment Strategies........................... p. 13 Securities Transactions......................................................... p. 37 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager.... p. 51 Valuing Fund Shares............................................................. p. 55 Portfolio Holdings Disclosure................................................... p. 66 Proxy Voting.................................................................... p. 67 Investing in a Fund............................................................. p. 70 Selling Shares.................................................................. p. 74 Pay-out Plans................................................................... p. 74 Capital Loss Carryover.......................................................... p. 75 Taxes........................................................................... p. 78 Service Providers............................................................... p. 84 Investment Management Services................................................ p. 84 Administrative Services....................................................... p. 134 Transfer Agency Services...................................................... p. 138 Plan Administration Services.................................................. p. 139 Distribution Services......................................................... p. 139 Plan and Agreement of Distribution............................................ p. 142 Payments to Financial Institutions............................................ p. 147 Custodian Services............................................................ p. 148 Board Services Corporation.................................................... p. 149 Organizational Information...................................................... p. 149 Board Members and Officers...................................................... p. 154 Control Persons and Principal Holders of Securities............................. p. 168 Information Regarding Pending and Settled Legal Proceedings..................... p. 184 Independent Registered Public Accounting Firm................................... p. 185 Appendix A: Description of Ratings.............................................. p. A-1 Appendix B: State Risk Factors.................................................. p. B-1 Appendix C: Additional Information about the S&P 500 Index...................... p. C-1 Appendix D: Seligman Funds...................................................... p. D-1
Statement of Additional Information - Dec. 30, 2008 Page 2 LIST OF TABLES 1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories........... p. 4 2. Fundamental Policies....................................................... p. 7 3. Investment Strategies and Types of Investments............................. p. 11 4. Total Brokerage Commissions................................................ p. 39 5. Brokerage Directed for Research and Turnover Rates......................... p. 42 6. Securities of Regular Brokers or Dealers................................... p. 45 7. Brokerage Commissions Paid to Investment Manager or Affiliates............. p. 51 8. Valuing Fund Shares........................................................ p. 55 9. Class A Sales Charge....................................................... p. 70 10. Public Offering Price...................................................... p. 71 11. Capital Loss Carryover..................................................... p. 76 12. Corporate Deduction and Qualified Dividend Income.......................... p. 80 13. Investment Management Services Agreement Fee Schedule...................... p. 84 14. PIA Indexes................................................................ p. 92 15A. Performance Incentive Adjustment Calculation............................... p. 94 15B. Performance Incentive Adjustment Calculation............................... p. 95 16. Management Fees and Nonadvisory Expenses................................... p. 96 17. Subadvisers and Subadvisory Agreement Fee Schedules........................ p. 99 18. Subadvisory Fees........................................................... p. 101 19. Portfolio Managers......................................................... p. 104 20. Administrative Services Agreement Fee Schedule............................. p. 134 21. Administrative Fees........................................................ p. 136 22. Sales Charges Paid to Distributor.......................................... p. 139 23. 12b-1 Fees................................................................. p. 143 24. Unreimbursed Distribution Expenses......................................... p. 146 25. Fund History Table......................................................... p. 150 26. Board Members.............................................................. p. 154 27. Fund Officers.............................................................. p. 155 28. Committee Meetings......................................................... p. 157 29A. Board Member Holdings...................................................... p. 158 29B. Board Member Holdings -- as of Quarter End................................. p. 161 30. Board Member Compensation -- All Funds..................................... p. 164 31. Board Member Compensation -- Individual Funds.............................. p. 165 32. Control Persons and Principal Holders of Securities........................ p. 168
The RiverSource complex of funds includes a comprehensive array of funds from RiverSource Investments, including several Seligman funds. RiverSource Investments has also partnered with a number of professional investment managers, including its affiliate, Threadneedle Investments, to expand the array of funds offered in the RiverSource complex. RiverSource funds, RiverSource Partners funds and Threadneedle funds share the same Board of Directors/Trustees (the Board), and the same policies and procedures including those set forth in the service section. Although the Seligman funds share the same Board, they do not currently have the same policies and procedures, and may not be exchanged for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle funds. Please reference Appendix D for a complete list of Seligman funds. Statement of Additional Information - Dec. 30, 2008 Page 3 TABLE 1. FUND FISCAL YEAR ENDS, PROSPECTUS DATE AND INVESTMENT CATEGORIES
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY --------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity April 30 June 27, 2008 Equity --------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income October 31 Dec. 30, 2008 Taxable fixed income* --------------------------------------------------------------------------------------------------------------- Balanced September 30 Nov. 28, 2008 Balanced --------------------------------------------------------------------------------------------------------------- California Tax-Exempt August 31** Oct. 30, 2007 State tax-exempt fixed income --------------------------------------------------------------------------------------------------------------- Cash Management July 31 Sept. 29, 2008 Taxable money market --------------------------------------------------------------------------------------------------------------- Disciplined Equity July 31 Sept. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Disciplined International Equity October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth September 30 Nov. 28, 2008 Equity --------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value September 30 Nov. 28, 2008 Equity --------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity July 31 Sept. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value July 31 Sept. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Diversified Bond August 31 Oct. 30, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Diversified Equity Income September 30 Nov. 28, 2008 Equity --------------------------------------------------------------------------------------------------------------- Dividend Opportunity June 30 Aug. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Emerging Markets Bond October 31 Dec. 30, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Equity Value March 31 May 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Floating Rate July 31 Sept. 29, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Global Bond October 31 Dec. 30, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Global Technology October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Growth July 31 Sept. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- High Yield Bond May 31 July 30, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Income Builder Basic Income January 31*** March 31, 2008 Fund-of-funds - fixed income --------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income January 31*** March 31, 2008 Fund-of-funds - fixed income --------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income January 31*** March 31, 2008 Fund-of-funds - fixed income --------------------------------------------------------------------------------------------------------------- Income Opportunities July 31 Sept. 29, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Inflation Protected Securities July 31 Sept. 29, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt November 30 Jan. 29, 2008 Tax-exempt fixed income --------------------------------------------------------------------------------------------------------------- Large Cap Equity July 31 Sept. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Large Cap Value July 31 Sept. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Limited Duration Bond July 31 Sept. 29, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Mid Cap Growth November 30 Jan. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Mid Cap Value September 30 Nov. 28, 2008 Equity --------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income --------------------------------------------------------------------------------------------------------------- New York Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income --------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth May 31 July 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners Fundamental Value May 31 July 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners International Select Growth October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners International Select Value October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners International Small Cap October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners Select Value May 31 July 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity May 31 July 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth March 31 May 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Partners Small Cap Value May 31 July 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive January 31 March 31, 2008 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative January 31 March 31, 2008 Fund-of-funds - fixed income --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate January 31 March 31, 2008 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive January 31 March 31, 2008 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative January 31 March 31, 2008 Fund-of-funds - fixed income --------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity January 31 March 31, 2008 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Precious Metals and Mining March 31 May 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Real Estate June 30 Aug. 29, 2008 Equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 April 30 June 29, 2007 Fund-of-funds - equity ---------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 4
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY --------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 April 30 June 29, 2007 Fund-of-funds - equity --------------------------------------------------------------------------------------------------------------- S&P 500 Index January 31 March 31, 2008 Equity --------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government May 31 July 30, 2008 Taxable fixed income --------------------------------------------------------------------------------------------------------------- Small Cap Advantage March 31 May 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Small Company Index January 31 March 31, 2008 Equity --------------------------------------------------------------------------------------------------------------- Strategic Allocation September 30 Nov. 29, 2007 Balanced --------------------------------------------------------------------------------------------------------------- Strategic Income Allocation September 30 Nov. 29, 2007 Taxable fixed income* --------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond November 30 Jan. 29, 2008 Tax-exempt fixed income --------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income November 30 Jan. 29, 2008 Tax-exempt fixed income --------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market December 31 Feb. 29, 2008 Tax-exempt money market --------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Threadneedle European Equity October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income Fund October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha Fund October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity October 31 Dec. 30, 2008 Equity --------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage May 31 July 30, 2008 Taxable fixed income ---------------------------------------------------------------------------------------------------------------
* The taxable fixed income fund investment category includes Absolute Return Currency and Income Fund, which is an alternative investment strategy. Although Strategic Income Allocation Fund is a taxable fixed income fund, it may invest up to 10% of its portfolio in equity securities. ** The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended June 30. *** The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 to Jan. 31, 2008. For years prior to 2008, the fiscal period ended May 31. Statement of Additional Information - Dec. 30, 2008 Page 5 FUNDAMENTAL AND NONFUNDAMENTAL INVESTMENT POLICIES Fundamental investment policies adopted by a fund cannot be changed without the approval of a majority of the outstanding voting securities of the fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Nonfundamental investment policies may be changed by the Board at any time. Notwithstanding any of a fund's other investment policies, each fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the fund for the purpose of having those assets managed as part of a combined pool. FUNDS-OF-FUNDS Funds-of-funds invest in a combination of underlying funds. These underlying funds have their own investment policies that may be more or less restrictive than the policies of the funds-of-funds. The policies of the underlying funds may permit funds-of-funds to engage in investment strategies indirectly that would otherwise be prohibited under the investment restrictions of the funds-of- funds. FUNDAMENTAL POLICIES Fundamental policies are policies that can be changed only with shareholder approval. FOR EACH FUND, THE FUND WILL NOT: - Act as an underwriter (sell securities for others). However, under the securities laws, the fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. - Lend securities or participate in an interfund lending program if the total of all such loans would exceed 33 1/3% of the fund's total assets except this fundamental investment policy shall not prohibit the fund from purchasing money market securities, loans, loan participation or other debt securities, or from entering into repurchase agreements. For funds- of-funds - equity, under current Board policy, the fund has no current intention to lend to a material extent. - Borrow money, except for temporary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings) immediately after the borrowings. For funds-of-funds - equity, under current Board policy, the fund has no current intention to borrow to a material extent. - Issue senior securities, except as permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. ADDITIONALLY FOR CASH MANAGEMENT, THE FUND WILL NOT: - Buy on margin or sell short or deal in options to buy or sell securities. - Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds or debentures, state bonds, municipal bonds, or industrial revenue bonds. ADDITIONALLY FOR TAX-EXEMPT MONEY MARKET, THE FUND WILL NOT: - Buy on margin or sell short. ADDITIONALLY FOR DISCIPLINED LARGE CAP VALUE, PORTFOLIO BUILDER FUNDS, THREADNEEDLE GLOBAL EQUITY INCOME AND THREADNEEDLE GLOBAL EXTENDED ALPHA, THE FUNDS WILL NOT: - Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief. Statement of Additional Information - Dec. 30, 2008 Page 6 In addition to the policies described above and any fundamental policy described in the prospectus, the chart below shows fund-specific policies that may be changed only with shareholder approval. The chart indicates whether or not the fund has a policy on a particular topic. A dash indicates that the fund does not have a policy on a particular topic. The specific policy is stated in the paragraphs that follow the table. TABLE 2. FUNDAMENTAL POLICIES The fund will not:
C D E BUY MORE INVEST MORE CONCENTRATE A B THAN THAN IN F BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80% -------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity A1 B5 C1 D1 E8 -- -------------------------------------------------------------------------------------------------------------- Absolute Return Currency and A1 B1 -- -- E7 -- Income -------------------------------------------------------------------------------------------------------------- Balanced A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- California Tax-Exempt A1 B1 -- -- -- F1 -------------------------------------------------------------------------------------------------------------- Cash Management A3 A3 C1 D1 -- -- -------------------------------------------------------------------------------------------------------------- Disciplined Equity A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Disciplined International Equity A1 B4 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth A1 B3 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value A1 B3 -- -- E1 -- -------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap A1 B4 C1 D1 E1 -- Equity -------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value A1 B4 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Diversified Bond A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Diversified Equity Income A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Dividend Opportunity A1 B1 C1 D1 -- -- -------------------------------------------------------------------------------------------------------------- Emerging Markets Bond A1 B4 -- -- E5 -- -------------------------------------------------------------------------------------------------------------- Equity Value A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Floating Rate A1 B4 C1 D1 E6 -- -------------------------------------------------------------------------------------------------------------- Global Bond A1 B1 C1 -- E1 -- -------------------------------------------------------------------------------------------------------------- Global Technology A1 B1 -- -- -- -- -------------------------------------------------------------------------------------------------------------- Growth A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- High Yield Bond A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Income Builder Basic Income* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Income Opportunities A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Inflation Protected Securities A1 B1 -- -- E1 -- -------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt A1 B1 C1 D1 -- F3(i) -------------------------------------------------------------------------------------------------------------- Large Cap Equity A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Large Cap Value A1 B3 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Limited Duration Bond A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Mid Cap Growth A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Mid Cap Value A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt A1 B1 -- -- -- F1 -------------------------------------------------------------------------------------------------------------- New York Tax-Exempt A1 B1 -- -- -- F1 -------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Partners Fundamental Value A1 B3 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Partners International Select A1 B3 C1 D1 E1 -- Growth -------------------------------------------------------------------------------------------------------------- Partners International Select A1 B3 C1 D1 E1 -- Value -------------------------------------------------------------------------------------------------------------- Partners International Small Cap A1 B3 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Partners Select Value A1 B3 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity A1 B3 C1 D1 E1 -- --------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 7
C D E BUY MORE INVEST MORE CONCENTRATE A B THAN THAN IN F BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80% -------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Partners Small Cap Value A1 B3 -- -- E1 -- -------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive* A1 B1 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative* A1 B1 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate* A1 B1 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 -- -- E2 -- Aggressive* -------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate A1 B1 -- -- E2 -- Conservative* -------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity* A1 B1 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Precious Metals and Mining A1 B1(ii) -- -- E3 -- -------------------------------------------------------------------------------------------------------------- Real Estate A1 B1 -- -- -- -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2010* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2015* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2020* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2025* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2030* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2035* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2040* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- Retirement Plus 2045* A1 B4 -- -- E2 -- -------------------------------------------------------------------------------------------------------------- S&P 500 Index A1 B1 -- -- E4 -- -------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Small Cap Advantage A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Small Company Index A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Strategic Allocation A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Strategic Income Allocation A1 B3 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond A1 B1 C1 D1 -- F3(iii) -------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income A1 B1 C1 D1 -- F2 -------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market A2 B2 C1 D1 -- F3 -------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Threadneedle European Equity A1 B1 -- -- E1 -- -------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity A1 B1 C1 D1 E1 -- -------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity A1 B3 -- -- E1 -- Income -------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended A1 B3 -- -- E1 -- Alpha -------------------------------------------------------------------------------------------------------------- Threadneedle International A1 B1 C1 D1 E1 -- Opportunity -------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage A1 B1 C1 D1 E1 -- --------------------------------------------------------------------------------------------------------------
* The fund invests in a combination of underlying funds. These underlying funds have adopted their own investment policies that may be more or less restrictive than those of the fund. The policies of the underlying funds may permit a fund to engage in investment strategies indirectly that would otherwise be prohibited under the fund's investment restrictions. (i) For purposes of this policy, the fund will not include any investments subject to the alternative minimum tax. (ii) Additionally, the fund may purchase gold, silver, or other precious metals, strategic metals or other metals occurring naturally with such metals. (iii) The fund does not intend to purchase bonds or other debt securities the interest from which is subject to the alternative minimum tax. A. BUY OR SELL REAL ESTATE A1 - The fund will not buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. A2 - The fund will not invest in real estate, but the fund can invest in municipal bonds and notes secured by real estate or interest therein. For purposes of this policy, real estate includes real estate limited partnerships. Statement of Additional Information - Dec. 30, 2008 Page 8 A3 - The fund will not buy or sell real estate, commodities or commodity contracts. For purposes of this policy, real estate includes real estate limited partnerships. B. BUY OR SELL PHYSICAL COMMODITIES B1 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B2 - The fund will not invest in commodities or commodity contracts. B3 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B4 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from entering into forward currency contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B5 - The fund will not buy or sell commodities, except that the fund may to the extent consistent with its investment objective(s), invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This restriction does not apply to foreign currency transactions including without limitation forward currency contracts. C. BUY MORE THAN 10% OF AN ISSUER C1 - The fund will not purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. For tax-exempt funds, for purposes of this policy, the terms of a municipal security determine the issuer. D. INVEST MORE THAN 5% IN AN ISSUER D1 - The fund will not invest more than 5% of its total assets in securities of any company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or other investment companies, and except that up to 25% of the fund's total assets may be invested without regard to this 5% limitation. For tax-exempt funds, for purposes of this policy, the terms of a municipal security determine the issuer. E. CONCENTRATE E1 - The fund will not concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. E2 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. The fund itself does not intend to concentrate, however, the aggregation of holdings of the underlying funds may result in the fund indirectly investing more than 25% of its assets in a particular industry. The fund does not control the investments of the underlying funds and any indirect concentration will occur only as a result of the fund following its investment objectives by investing in the underlying funds. E3 - The fund will not invest less than 25% of its total assets in the precious metals industry, based on current market value at the time of purchase, unless market conditions temporarily require a defensive investment strategy. E4 - The fund will not concentrate in any one industry unless that industry represents more than 25% of the index tracked by the fund. For all other industries, in accordance with the current interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. E5 - While the fund may invest 25% or more of its total assets in the securities of foreign governmental and corporate entities located in the same country, it will not invest 25% or more of its total assets in any single foreign governmental issuer. E6 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any Statement of Additional Information - Dec. 30, 2008 Page 9 one industry. For purposes of this restriction, loans will be considered investments in the industry of the underlying borrower, rather than that of the seller of the loan. E7 - The fund will not concentrate in any one industry, provided however, that this restriction shall not apply to securities or obligations issued or guaranteed by the U.S. Government, banks or bank holding companies or finance companies. For all other industries, this means that up to 25% of the fund's total assets, based on current market value at the time of purchase, can be invested in any one industry. E8 - The fund will not purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. F. INVEST LESS THAN 80% F1 - The fund will not under normal market conditions, invest less than 80% of its net assets in municipal obligations that are generally exempt from federal income tax as well as respective state and local income tax. F2 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and notes issued by or on behalf of state and local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax and is not subject to the alternative minimum tax. F3 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and other debt securities issued by or on behalf of state or local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax. NONFUNDAMENTAL POLICIES Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The following nonfundamental policies are in addition to those described in the prospectus. FOR FUNDS OTHER THAN MONEY MARKET FUNDS: - No more than 15% of the fund's net assets will be held in securities and other instruments that are illiquid. FOR MONEY MARKET FUNDS: - No more than 10% of the fund's net assets will be held in securities and other instruments that are illiquid. ADDITIONALLY, REGARDING LIMITING INVESTMENTS IN FOREIGN SECURITIES: FOR 120/20 CONTRARIAN EQUITY, BALANCED, DISCIPLINED EQUITY, DISCIPLINED LARGE CAP GROWTH, DISCIPLINED LARGE CAP VALUE DISCIPLINED SMALL AND MID CAP EQUITY, DISCIPLINED SMALL CAP VALUE, DIVERSIFIED BOND, DIVERSIFIED EQUITY INCOME, DIVIDEND OPPORTUNITY, EQUITY VALUE, FLOATING RATE, GROWTH, HIGH YIELD BOND, INCOME OPPORTUNITIES, INFLATION PROTECTED SECURITIES, LARGE CAP EQUITY, LARGE CAP VALUE, LIMITED DURATION BOND, MID CAP GROWTH, MID CAP VALUE, PARTNERS AGGRESSIVE GROWTH, PARTNERS FUNDAMENTAL VALUE, PARTNERS SELECT VALUE, PARTNERS SMALL CAP EQUITY, PARTNERS SMALL CAP GROWTH, PARTNERS SMALL CAP VALUE, REAL ESTATE, AND SMALL CAP ADVANTAGE: - Up to 25% of the fund's net assets may be invested in foreign investments. FOR PRECIOUS METALS AND MINING: - Under normal market conditions, the fund intends to invest at least 50% of its total assets in foreign investments. FOR SHORT DURATION U.S. GOVERNMENT AND U.S. GOVERNMENT MORTGAGE: - Up to 20% of the fund's net assets may be invested in foreign investments. FOR STRATEGIC ALLOCATION: - The fund may invest its total assets, up to 50%, in foreign investments. Statement of Additional Information - Dec. 30, 2008 Page 10 INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS This table shows many of the various investment strategies and investments the funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager or subadviser (individually and collectively, the "investment manager") may make on behalf of a fund. For a description of principal risks for an individual fund, please see the applicable prospectus for that fund. Notwithstanding a fund's ability to utilize these strategies and techniques, the investment manager is not obligated to use them at any particular time. For example, even though the investment manager is authorized to adopt temporary defensive positions and is authorized to attempt to hedge against certain types of risk, these practices are left to the investment manager's sole discretion. Fund-of-funds invest in a combination of underlying funds, although they may invest directly in stocks, bonds and other securities. These underlying funds have their own investment strategies and types of investments they are allowed to engage in and purchase. Fund-of-funds currently only invest in underlying funds, which may invest directly in securities and engage in investment strategies, indicated in the table below. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS: A black circle indicates that the investment strategy or type of investment generally is authorized for a category of funds. Exceptions are noted in the footnotes to the table. See Table 1 for fund categories. TABLE 3. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME --------------------------------------------------------------------------------------------------------------------------------- Agency and government securities - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Borrowing - - - - - -- - - --------------------------------------------------------------------------------------------------------------------------------- Cash/money market instruments - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Collateralized bond obligations - - A - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Commercial paper - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Common stock - - - - B -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Convertible securities - - - - C -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Corporate bonds - - - - D -- - - --------------------------------------------------------------------------------------------------------------------------------- Debt obligations - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Depositary receipts - - - - -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Derivative instruments (including options and futures) - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Exchange-traded funds - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Floating rate loans - -- - - -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Foreign currency transactions - - - - -- -- - -- --------------------------------------------------------------------------------------------------------------------------------- Foreign securities - - - - - -- - - --------------------------------------------------------------------------------------------------------------------------------- Funding agreements - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- High yield debt securities (junk bonds) - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Illiquid and restricted securities - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Indexed securities - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Inflation protected securities - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Inverse floaters - E - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Investment companies - - - - - -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Lending of portfolio securities - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Loan participations - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Mortgage- and asset-backed securities - - F - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Mortgage dollar rolls - G - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Municipal obligations - - - - -- - - - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 11
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME --------------------------------------------------------------------------------------------------------------------------------- Pay-in-kind securities - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Preferred stock - - - - H -- -- - H - --------------------------------------------------------------------------------------------------------------------------------- Real estate investment trusts - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Repurchase agreements - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Reverse repurchase agreements - - - - - -- - - --------------------------------------------------------------------------------------------------------------------------------- Short sales I I - I -- -- I I --------------------------------------------------------------------------------------------------------------------------------- Sovereign debt - - - - - -- - - --------------------------------------------------------------------------------------------------------------------------------- Structured investments - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Swap agreements - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Variable- or floating-rate securities - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Warrants - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- When-issued securities and forward commitments - - - - -- -- - - --------------------------------------------------------------------------------------------------------------------------------- Zero-coupon and step-coupon securities - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
A. The following funds are not authorized to invest in collateralized bond obligations: Partners International Select Growth, Partners International Select Value, Partners International Small Cap, Partners Select Value, Partners Small Cap Equity, Partners Small Cap Growth, Partners Small Cap Value, and Small Cap Advantage. B. The following funds are not authorized to invest in common stock: Short Duration U.S. Government, U.S. Government Mortgage. C. The following funds are not authorized to invest in convertible securities: Short Duration U.S. Government, U.S. Government Mortgage. D. While the fund is prohibited from investing in corporate bonds, it may invest in securities classified as corporate bonds if they meet the requirements of Rule 2a-7 of the 1940 Act. E. The following funds are authorized to invest in inverse floaters: Real Estate. F. The following funds are not authorized to invest in mortgage- and asset- backed securities: Partners Small Cap Growth, S&P 500 Index, Small Cap Advantage, Small Company Index. G. The following funds are authorized to invest in mortgage dollar rolls: Real Estate. H. The following funds are not authorized to invest in preferred stock: Tax- Exempt High Income, Intermediate Tax-Exempt, Tax-Exempt Bond, Short Duration U.S. Government, U.S. Government Mortgage. I. The funds are not prohibited from engaging in short sales, however, each fund will seek Board approval prior to utilizing short sales as an active part of its investment strategy. Statement of Additional Information - Dec. 30, 2008 Page 12 INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES RISKS The following is a summary of common risk characteristics. Following this summary is a description of certain investments and investment strategies and the risks most commonly associated with them (including certain risks not described below and, in some cases, a more comprehensive discussion of how the risks apply to a particular investment or investment strategy). A mutual fund's risk profile is largely defined by the fund's primary securities and investment strategies. However, most mutual funds are allowed to use certain other strategies and investments that may have different risk characteristics. Accordingly, one or more of the following types of risk may be associated with a fund at any time (for a description of principal risks for an individual fund, please see that fund's prospectus): ACTIVE MANAGEMENT RISK. For a fund that is actively managed, its performance will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, a fund could underperform other mutual funds with similar investment objectives. AFFILIATED FUND RISK. For funds-of-funds, the risk that the investment manager may have potential conflicts of interest in selecting underlying funds because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the investment manager is a fiduciary to the funds and is legally obligated to act in their best interests when selecting underlying funds, without taking fees into consideration. ALLOCATION RISK. For funds-of-funds, the risk that the investment manager's evaluations regarding asset classes or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also a risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the asset class. BORROWING RISK. To the extent the fund borrows money for investment purposes, which is commonly referred to as "leveraging," the fund's exposure to fluctuations in the prices of its assets will be increased as compared to the fund's exposure if the fund did not borrow. The fund's borrowing activities will exaggerate any increase or decrease in the net asset value of the fund. In addition, the interest which the fund pays on borrowed money, together with any additional costs of maintaining a borrowing facility, are additional costs borne by the fund and could reduce or eliminate any net investment profits. Unless profits on assets acquired with borrowed funds exceed the costs of borrowing, the use of borrowing will diminish the investment performance of the fund compared with what it would have been without borrowing. When the fund borrows money it must comply with certain asset coverage requirements, which at times may require the fund to dispose of some of its holdings, even though it may be disadvantageous to do so at the time. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the fund purchases unrated securities, or if the rating of a security is reduced after purchase, the fund will depend on the investment manager's analysis of credit risk more heavily than usual. CONFIDENTIAL INFORMATION ACCESS RISK. For funds investing in floating rate loans, the investment manager normally will seek to avoid the receipt of material, non-public information (Confidential Information) about the issuers of floating rate loans being considered for acquisition by the fund, or held in the fund. In many instances, issuers of floating rate loans offer to furnish Confidential Information to prospective purchasers or holders of the issuer's floating rate loans to help potential investors assess the value of the loan. The investment manager's decision not to receive Confidential Information from these issuers may disadvantage the fund as compared to other floating rate loan investors, and may adversely affect the price the fund pays for the loans it purchases, or the price at which the fund sells the loans. Further, in situations when holders of floating rate loans are asked, for example, to grant consents, waivers or amendments, the investment manager's ability to assess the desirability of such consents, waivers or amendments may be compromised. For these and other reasons, it is possible that the investment manager's decision under normal circumstances not to receive Confidential Information could adversely affect the fund's performance. COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a financial instrument entered into by the fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. The fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The fund may obtain only limited recovery or may obtain no recovery in such circumstances. The fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager. Statement of Additional Information - Dec. 30, 2008 Page 13 DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including correlation risk, counterparty credit risk, hedging risk, leverage risk, and liquidity risk. Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses. Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the Fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Certain derivatives have the potential for unlimited losses regardless of the size of the initial investment. DIVERSIFICATION RISK. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the fund's performance, the fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. For funds-of-funds, although most of the underlying funds are diversified funds, because the fund invests in a limited number of underlying funds, it is considered a non-diversified fund. EXCHANGE-TRADED FUND (ETF) RISK. The price movement of an ETF may not track the underlying index and may result in a loss. In addition, shareholders bear both their proportionate share of the fund's expenses and similar expenses incurred through ownership of the ETF. FOREIGN/EMERGING MARKETS RISK. Foreign securities are securities of issuers based outside the United States. An issuer is deemed to be based outside the United States if it is organized under the laws of another country. Foreign securities are primarily denominated in foreign currencies. In addition to the risks normally associated with domestic securities of the same type, foreign securities are subject to the following foreign risks: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rates between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. GEOGRAPHIC CONCENTRATION RISK. The fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the fund focuses its investments. Currency Statement of Additional Information - Dec. 30, 2008 Page 14 devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the fund may be more volatile than a more geographically diversified fund. For state-specific funds. Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub- divisions of the state, each fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax- exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. See Appendix B for details. The value of municipal securities owned by a fund also may be adversely affected by future changes in federal or state income tax laws. In addition, because of the relatively small number of issuers of tax-exempt securities, the fund may invest a higher percentage of its assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. HIGHLY LEVERAGED TRANSACTIONS RISK. Certain corporate loans and corporate debt securities involve refinancings, recapitalizations, mergers and acquisitions, and other financings for general corporate purposes. These investments also may include senior obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code (commonly known as "debtor-in-possession" financings), provided that such senior obligations are determined by the fund's investment manager upon its credit analysis to be a suitable investment by the fund. In such highly leveraged transactions, the borrower assumes large amounts of debt in order to have the financial resources to attempt to achieve its business objectives. Such business objectives may include but are not limited to: management's taking over control of a company (leveraged buy-out); reorganizing the assets and liabilities of a company (leveraged recapitalization); or acquiring another company. Loans or securities that are part of highly leveraged transactions involve a greater risk (including default and bankruptcy) than other investments. IMPAIRMENT OF COLLATERAL RISK. The value of collateral, if any, securing a floating rate loan can decline, and may be insufficient to meet the borrower's obligations or difficult to liquidate. In addition, the fund's access to collateral may be limited by bankruptcy or other insolvency laws. Further, certain floating rate loans may not be fully collateralized and may decline in value. INDEXING RISK. For funds that are managed to an index, the fund's performance will rise and fall as the performance of the index rises and falls. INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation- protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of fund distributions that comes from inflation adjustments. INITIAL PUBLIC OFFERING (IPO) RISK. IPOs are subject to many of the same risks as investing in companies with smaller market capitalizations. To the extent a fund determines to invest in IPOs it may not be able to invest to the extent desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available. The investment performance of a fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the fund is able to do so. In addition, as a fund increases in size, the impact of IPOs on the fund's performance will generally decrease. IPOs will frequently be sold within 12 months of purchase. This may result in increased short-term capital gains, which will be taxable to shareholders as ordinary income. INTEREST RATE RISK. The securities in the portfolio are subject to the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. ISSUER RISK. An issuer, or the value of its stocks or bonds, may perform poorly. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. LEVERAGE RISK. Leverage occurs when the fund increases its assets available for investment using borrowings, short sales, derivatives, or similar instruments or techniques. Due to the fact that short sales involve borrowing securities and then selling them, the fund's short sales effectively leverage the fund's assets. The use of leverage may make any change in the fund's Statement of Additional Information - Dec. 30, 2008 Page 15 net asset value ("NAV") even greater and thus result in increased volatility of returns. The fund's assets that are used as collateral to secure the short sales may decrease in value while the short positions are outstanding, which may force the fund to use its other assets to increase the collateral. Leverage can also create an interest expense that may lower the fund's overall returns. Lastly, there is no guarantee that a leveraging strategy will be successful. LIQUIDITY RISK. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be called, or otherwise converted, prepaid, or redeemed, before maturity. This risk is primarily associated with asset-backed securities, including mortgage backed securities. If a security is converted, prepaid, or redeemed, before maturity, particularly during a time of declining interest rates, the portfolio managers may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The portfolio managers may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may perform differently from the market as a whole as a result of the factors used in the quantitative method, the weight placed on each factor, and changes in the factors' historical trends. The quantitative methodology employed by the investment manager has been extensively tested using historical securities market data, but has only recently begun to be used to manage open-end mutual funds. There can be no assurance that the methodology will enable the fund to achieve its objective. REINVESTMENT RISK. The risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility. SHORT SALES RISK. The fund may make short sales, which involves selling a security the fund does not own in anticipation that the security's price will decline. The fund must borrow those securities to make delivery to the buyer. The fund may not always be able to borrow a security it wants to sell short. The fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. It is possible that the fund's long positions will decline in value at the same time that the value of its short positions increase, thereby increasing potential losses to the fund. Short sales expose the fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the fund. The fund may also be required to close out a short position at a time when it might not otherwise choose, for example, if the lender of the security calls it back, which may have the effect of reducing or eliminating potential gain, or cause the fund to realize a loss. Short positions introduce more risk to the fund than long positions (purchases) because the maximum sustainable loss on a security purchased (held long) is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Additionally, the fund's use of short sales in effect "leverages" the fund, as the fund intends to use the cash proceeds from short sales to invest in additional long positions. This leverage effect potentially exposes the fund to greater risks due to unanticipated market movements, which may magnify losses and increase the volatility of returns. See Leverage Risk and Market Risk. SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience, and competitive strengths of larger companies. Additionally, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies. TAX RISK. As a regulated investment company, a fund must derive at least 90% of its gross income for each taxable year from sources treated as "qualifying income" under the Internal Revenue Code of 1986, as amended. The Fund currently intends to take positions in forward currency contracts with notional value up to the Fund's total net assets. Although foreign currency gains currently constitute "qualifying income" the Treasury Department has the authority to issue regulations Statement of Additional Information - Dec. 30, 2008 Page 16 excluding from the definition of "qualifying incomes" a fund's foreign currency gains not "directly related" to its "principal business" of investing in stocks or securities (or options and futures with respect thereto). Such regulations might treat gains from some of the Fund's foreign currency-denominated positions as not "qualifying income" and there is a remote possibility that such regulations might be applied retroactively, in which case, the Fund might not qualify as a regulated investment company for one or more years. In the event the Treasury Department issues such regulations, the Fund's Board of Directors may authorize a significant change in investment strategy or Fund liquidation. TRACKING ERROR RISK. For funds that are managed to an index, the fund may not track the index perfectly because differences between the index and the fund's portfolio can cause differences in performance. The investment manager purchases securities and other instruments in an attempt to replicate the performance of the index. However, the tools that the investment manager uses to replicate the index are not perfect and the fund's performance is affected by factors such as the size of the fund's portfolio, transaction costs, management fees and expenses, brokerage commissions and fees, the extent and timing of cash flows in and out of the fund and changes in the index. In addition, the returns from a specific type of security (for example, mid-cap stocks) may trail returns from other asset classes or the overall market. Each type of security will go through cycles of doing better or worse than stocks or bonds in general. These periods may last for several years. UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category. INVESTMENT STRATEGIES The following information supplements the discussion of each fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes strategies that many mutual funds use and types of securities that they purchase. Please refer to the table titled Investment Strategies and Types of Investments to see which are applicable to various categories of funds. AGENCY AND GOVERNMENT SECURITIES The U.S. government and its agencies issue many different types of securities. U.S. Treasury bonds, notes, and bills and securities, including mortgage pass through certificates of the Government National Mortgage Association (GNMA), are guaranteed by the U.S. government. Other U.S. government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not guaranteed by the U.S. government. This may increase the credit risk associated with these investments. Government- sponsored entities issuing securities include privately owned, publicly chartered entities created to reduce borrowing costs for certain sectors of the economy, such as farmers, homeowners, and students. They include the Federal Farm Credit Bank System, Farm Credit Financial Assistance Corporation, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation(*) (FHLMC), Federal National Mortgage Association(*) (FNMA), Student Loan Marketing Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Agency and government securities are subject to the same concerns as other debt obligations. (See also Debt Obligations and Mortgage- and Asset- Backed Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with agency and government securities include: Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and Reinvestment Risk. BORROWING If the fund borrows money, its share price may be subject to greater fluctuation until the borrowing is paid off. If the fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage. Under the 1940 Act, the fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the fund's holdings may be disadvantageous from an investment standpoint. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities or the fund's NAV, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. Statement of Additional Information - Dec. 30, 2008 Page 17 Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Inflation Risk. * On Sept. 7, 2008, the Federal Housing Finance Agency (FHFA), an agency of the U.S. government, placed the FHLMC and FNMA into conservatorship, a statutory process with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate the enterprises until they are stabilized. CASH/MONEY MARKET INSTRUMENTS Cash-equivalent investments include short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances, and letters of credit of banks or savings and loan associations having capital, surplus, and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. A fund also may purchase short-term notes and obligations of U.S. and foreign banks and corporations and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types of instruments generally offer low rates of return and subject a fund to certain costs and expenses. See Appendix A for a discussion of securities ratings. Bankers' acceptances are marketable short-term credit instruments used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity. Bank certificates of deposit are certificates issued against funds deposited in a bank (including eligible foreign branches of U.S. banks), are for a definite period of time, earn a specified rate of return and are normally negotiable. A fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk and Inflation Risk. COLLATERALIZED BOND OBLIGATIONS Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of bonds, which may include junk bonds. CBOs are similar in concept to collateralized mortgage obligations (CMOs), but differ in that CBOs represent different degrees of credit quality rather than different maturities. (See also Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and diversified pool of high-risk, high-yield junk bonds, which is then separated into "tiers." Typically, the first tier represents the higher quality collateral and pays the lowest interest rate; the second tier is backed by riskier bonds and pays a higher rate; the third tier represents the lowest credit quality and instead of receiving a fixed interest rate receives the residual interest payments -- money that is left over after the higher tiers have been paid. CBOs, like CMOs, are substantially overcollateralized and this, plus the diversification of the pool backing them, may earn certain of the tiers investment-grade bond ratings. Holders of third-tier CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield Debt Securities (Junk Bonds).) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and Prepayment and Extension Risk. COMMERCIAL PAPER Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk and Liquidity Risk. COMMON STOCK Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Statement of Additional Information - Dec. 30, 2008 Page 18 Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Market Risk, and Small and Mid-Sized Company Risk. CONVERTIBLE SECURITIES Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common, preferred or other securities of the same or a different issuer within a particular period of time at a specified price. Some convertible securities, such as preferred equity-redemption cumulative stock (PERCs), have mandatory conversion features. Others are voluntary. A convertible security entitles the holder to receive interest normally paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted, or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment Risk. CORPORATE BONDS Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEBT OBLIGATIONS Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a fixed, variable or floating rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High- Yield Debt Securities (Junk Bonds).) Statement of Additional Information - Dec. 30, 2008 Page 19 Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings. All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by a fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating agency or its rating system, a fund will attempt to use comparable ratings as standards for selecting investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEPOSITARY RECEIPTS Some foreign securities are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally, depositary receipts in registered form are designed for use in the U.S. and depositary receipts in bearer form are designed for use in securities markets outside the U.S. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary receipts involve the risks of other investments in foreign securities. In addition, ADR holders may not have all the legal rights of shareholders and may experience difficulty in receiving shareholder communications. (See also Common Stock and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, and Market Risk. DERIVATIVE INSTRUMENTS Derivative instruments are commonly defined to include securities or contracts whose values depend, in whole or in part, on (or "derive" from) the value of one or more other assets, such as securities, currencies, or commodities. A derivative instrument generally consists of, is based upon, or exhibits characteristics similar to options or forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment. Their value changes daily based on a security, a currency, a group of securities or currencies, or an index. A small change in the value of the underlying security, currency, or index can cause a sizable percentage gain or loss in the price of the derivative instrument. Options and forward contracts are considered to be the basic "building blocks" of derivatives. For example, forward- based derivatives include forward contracts, swap contracts, and exchange-traded futures. Forward-based derivatives are sometimes referred to generically as "futures contracts." Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options on futures) and exchange- traded options on futures. Diverse types of derivatives may be created by combining options or futures in different ways, and by applying these structures to a wide range of underlying assets. Options. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees for the length of the contract to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option during the length of the contract, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash or securities of equivalent value (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition to the premium, the buyer generally pays a broker a commission. The writer receives a premium, less another commission, at the time the option is written. The premium received by the writer is retained whether or not the option is exercised. A writer of a call option may have to sell the Statement of Additional Information - Dec. 30, 2008 Page 20 security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions. One of the risks an investor assumes when it buys an option is the loss of the premium. To be beneficial to the investor, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then, the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Options on many securities are listed on options exchanges. If a fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, Chicago Board Options Exchange, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices. Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised. Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges. Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by an investor taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market. Futures contracts may be based on various securities, securities indexes (such as the S&P 500 Index), foreign currencies and other financial instruments and indexes. A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC. Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. Statement of Additional Information - Dec. 30, 2008 Page 21 Options on Indexes. Options on indexes are securities traded on national securities exchanges. An option on an index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Options may also be traded with respect to other types of indexes, such as options on indexes of commodities futures. Currency Options. Options on currencies are contracts that give the buyer the right, but not the obligation, to buy (call options) or sell (put options) a specified amount of a currency at a predetermined price (strike rate) on or before the option matures (expiry date). Conversely, the seller has the obligation to buy or sell a currency option upon exercise of the option by the purchaser. Currency options are traded either on a national securities exchange or over-the-counter. Tax and Accounting Treatment. As permitted under federal income tax laws and to the extent a fund is allowed to invest in futures contracts, a fund would intend to identify futures contracts as part of a mixed straddle and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If a fund is using short futures contracts for hedging purposes, the fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Any losses incurred on securities that are part of a straddle may be deferred to the extent there is unrealized appreciation on the offsetting position until the offsetting position is sold. Federal income tax treatment of gains or losses from transactions in options, options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, a fund would either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. The Internal Revenue Service (IRS) has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (a fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last- quoted sales price on their primary exchange. Other Risks of Derivatives. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange- traded derivatives since they often can only be closed out with the other party to the transaction. Statement of Additional Information - Dec. 30, 2008 Page 22 Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Derivatives Risk and Liquidity Risk. EXCHANGE-TRADED FUNDS Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit investment trusts or depositary receipts. ETFs hold portfolios of securities that are designed to replicate, as closely as possible before expenses, the price and yield of a specified market index. The performance results of ETFs will not replicate exactly the performance of the pertinent index due to transaction and other expenses, including fees to service providers, borne by ETFs. ETF shares are sold and redeemed at net asset value only in large blocks called creation units and redemption units, respectively. ETF shares also may be purchased and sold in secondary market trading on national securities exchanges, which allows investors to purchase and sell ETF shares at their market price throughout the day. Although one or more of the other risks described in this SAI may apply, investments in ETFs involve the same risks associated with a direct investment in the types of securities included in the indices the ETFs are designed to replicate, including Market Risk. Shares of an ETF may trade at a market price that is less than their net asset value and an active trading market in such shares may not develop or continue. Finally, there can be no assurance that the portfolio of securities purchased by an ETF to replicate a particular index will replicate such index. FLOATING RATE LOANS Most floating rate loans are acquired directly from the agent bank or from another holder of the loan by assignment. Most such loans are secured, and most impose restrictive covenants which must be met by the borrower. These loans are typically made by a syndicate of banks and institutional investors, represented by an agent bank which has negotiated and structured the loan and which is responsible generally for collecting interest, principal, and other amounts from the borrower on its own behalf and on behalf of the other lending institutions in the syndicate, and for enforcing its and their other rights against the borrower. Each of the lending institutions, including the agent bank, lends to the borrower a portion of the total amount of the loan, and retains the corresponding interest in the loan. Floating rate loans may include delayed draw term loans and prefunded or synthetic letters of credit. A fund's ability to receive payments of principal and interest and other amounts in connection with loans held by it will depend primarily on the financial condition of the borrower. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund's net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or purchasing an assignment in a loan. In selecting the loans in which the fund will invest, however, the investment manager will not rely on that credit analysis of the agent bank, but will perform its own investment analysis of the borrowers. The investment manager's analysis may include consideration of the borrower's financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. The majority of loans the fund will invest in will be rated by one or more of the nationally recognized rating agencies. Investments in loans may be of any quality, including "distressed" loans, and will be subject to the fund's credit quality policy. Loans may be structured in different forms, including assignments and participations. In an assignment, a fund purchases an assignment of a portion of a lender's interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank's rights in the loan. The borrower of a loan may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that a fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan. Corporate loans in which a fund may purchase a loan assignment are made generally to finance internal growth, mergers, acquisitions, recapitalizations, stock repurchases, leveraged buy-outs, dividend payments to sponsors and other corporate activities. Under current market conditions, most of the corporate loans purchased by the fund will represent loans made to highly leveraged corporate borrowers. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that the investment manager believes are attractive arise. Statement of Additional Information - Dec. 30, 2008 Page 23 Certain of the loans acquired by a fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan assignment. To the extent that the fund is committed to make additional loans under such an assignment, it will at all times designate cash or securities in an amount sufficient to meet such commitments. Notwithstanding its intention in certain situations to not receive material, non-public information with respect to its management of investments in floating rate loans, the investment manager may from time to time come into possession of material, non-public information about the issuers of loans that may be held in a fund's portfolio. Possession of such information may in some instances occur despite the investment manager's efforts to avoid such possession, but in other instances the investment manager may choose to receive such information (for example, in connection with participation in a creditors' committee with respect to a financially distressed issuer). As, and to the extent, required by applicable law, the investment manager's ability to trade in these loans for the account of the fund could potentially be limited by its possession of such information. Such limitations on the investment manager's ability to trade could have an adverse effect on the fund by, for example, preventing the fund from selling a loan that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of time. In some instances, other accounts managed by the investment manager may hold other securities issued by borrowers whose floating rate loans may be held in a fund's portfolio. These other securities may include, for example, debt securities that are subordinate to the floating rate loans held in the fund's portfolio, convertible debt or common or preferred equity securities. In certain circumstances, such as if the credit quality of the issuer deteriorates, the interests of holders of these other securities may conflict with the interests of the holders of the issuer's floating rate loans. In such cases, the investment manager may owe conflicting fiduciary duties to the fund and other client accounts. The investment manager will endeavor to carry out its obligations to all of its clients to the fullest extent possible, recognizing that in some cases certain clients may achieve a lower economic return, as a result of these conflicting client interests, than if the investment manager's client accounts collectively held only a single category of the issuer's securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with floating rate loans include: Credit Risk and Prepayment and Extension Risk. FOREIGN CURRENCY TRANSACTIONS Investments in foreign countries usually involve currencies of foreign countries. In addition, a fund may hold cash and cash equivalent investments in foreign currencies. As a result, the value of a fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, a fund may incur costs in connection with conversions between various currencies. Currency exchange rates may fluctuate significantly over short periods of time causing a fund's NAV (Net Asset Value) to fluctuate. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets, actual or anticipated changes in interest rates, and other complex factors. Currency exchange rates also can be affected by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments. Spot Rates and Derivative Instruments. A fund may conduct its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts). (See also Derivative Instruments.) These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, a fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots. A fund may enter into forward contracts for a variety of reasons, but primarily it will enter into such contracts for risk management (hedging) or for investment purposes. A fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment, usually in U.S. dollars, although it could desire to lock in the price of the security in another currency. By entering into a forward contract, a fund would be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. A fund may enter into forward contracts when management of the fund believes the currency of a particular foreign country may decline in value relative to another currency. When selling currencies forward in this fashion, a fund may seek to hedge Statement of Additional Information - Dec. 30, 2008 Page 24 the value of foreign securities it holds against an adverse move in exchange rates. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. Unless specifically permitted, a fund would not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate it to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency. This method of protecting the value of the fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. A fund may also enter into forward contracts when its management believes the currency of a particular country will increase in value relative to another currency. A fund may buy currencies forward to gain exposure to a currency without incurring the additional costs of purchasing securities denominated in that currency. Absolute Return Currency and Income Fund is designed to invest in a combination of forward currency contracts and U.S. dollar-denominated market instruments in an attempt to obtain an investment result that is substantially the same as a direct investment in a foreign currency-denominated instrument. For example, the combination of U.S. dollar-denominated instruments with long forward currency exchange contracts creates a position economically equivalent to a position in the foreign currency, in anticipation of an increase in the value of the foreign currency against the U.S. dollar. Conversely, the combination of U.S. dollar- denominated instruments with short forward currency exchange contracts is economically equivalent to borrowing the foreign currency for delivery at a specified date in the future, in anticipation of a decrease in the value of the foreign currency against the U.S. dollar. This strategy may also be employed by other funds. Unanticipated changes in the currency exchange results could result in poorer performance for funds that enter into these types of transactions. A fund may designate cash or securities in an amount equal to the value of the fund's total assets committed to consummating forward contracts entered into under the circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the fund's commitments on such contracts. At maturity of a forward contract, a fund may either deliver (if a contract to sell) or take delivery of (if a contract to buy) the foreign currency or terminate its contractual obligation by entering into an offsetting contract with the same currency trader, the same maturity date, and covering the same amount of foreign currency. If a fund engages in an offsetting transaction, it would incur a gain or loss to the extent there has been movement in forward contract prices. If a fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to buy or sell the foreign currency. Although a fund values its assets each business day in terms of U.S. dollars, it may not intend to convert its foreign currencies into U.S. dollars on a daily basis. It would do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should a fund desire to resell that currency to the dealer. For Absolute Return Currency and Income Fund, it is possible, under certain circumstances, including entering into forward currency contracts for investment purposes, that the fund may have to limit or restructure its forward contract currency transactions to qualify as a "regulated investment company" under the Internal Revenue Code. Options on Foreign Currencies. A fund may buy put and call options and write covered call and cash-secured put options on foreign currencies for hedging purposes and to gain exposure to foreign currencies. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against the diminutions in the value of securities, a fund may buy put options on the foreign currency. If the value of the currency does decline, a fund would have the right to sell the currency for a fixed amount in dollars and would offset, in whole or in part, the adverse effect on its portfolio that otherwise would have resulted. Conversely, where a change in the dollar value of a currency would increase the cost of securities a fund plans to buy, or where a fund would benefit from increased exposure to the currency, a fund may buy call options on the foreign currency. The purchase of the options could offset, at least partially, the changes in exchange rates. Statement of Additional Information - Dec. 30, 2008 Page 25 As in the case of other types of options, however, the benefit to a fund derived from purchases of foreign currency options would be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in rates. A fund may write options on foreign currencies for the same types of purposes. For example, when a fund anticipates a decline in the dollar value of foreign- denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option would most likely not be exercised and the diminution in value of securities would be fully or partially offset by the amount of the premium received. Similarly, instead of purchasing a call option when a foreign currency is expected to appreciate, a fund could write a put option on the relevant currency. If rates move in the manner projected, the put option would expire unexercised and allow the fund to hedge increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if a fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the- counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. A fund may use currency futures for the same purposes as currency forward contracts, subject to CFTC limitations. Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the fund's investments. A currency hedge, for example, should protect a Yen- denominated bond against a decline in the Yen, but will not protect a fund against price decline if the issuer's creditworthiness deteriorates. Because the value of a fund's investments denominated in foreign currency will change in Statement of Additional Information - Dec. 30, 2008 Page 26 response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of a fund's investments denominated in that currency over time. A fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The fund would not enter into an option or futures position that exposes the fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Derivatives Risk, Interest Rate Risk, and Liquidity Risk. FOREIGN SECURITIES Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. The introduction of a single currency, the euro, on Jan. 1, 1999 for participating European nations in the Economic and Monetary Union (EU) presents unique uncertainties, including the legal treatment of certain outstanding financial contracts after Jan. 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the admission of other countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk and Issuer Risk. FUNDING AGREEMENTS A fund may invest in funding agreements issued by domestic insurance companies. Funding agreements are short-term, privately placed, debt obligations of insurance companies that offer a fixed- or floating-rate of interest. These investments are not readily marketable and therefore are considered to be illiquid securities. (See also Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with funding agreements include: Credit Risk and Liquidity Risk. Statement of Additional Information - Dec. 30, 2008 Page 27 HIGH-YIELD DEBT SECURITIES (JUNK BONDS) High yield (high-risk) debt securities are sometimes referred to as junk bonds. They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) All fixed rate interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher- rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than a default by issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality. An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher- rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers. Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield debt securities include: Credit Risk, Interest Rate Risk, and Prepayment and Extension Risk. ILLIQUID AND RESTRICTED SECURITIES Illiquid securities are securities that are not readily marketable. These securities may include, but are not limited to, certain securities that are subject to legal or contractual restrictions on resale, certain repurchase agreements, and derivative instruments. To the extent a fund invests in illiquid or restricted securities, it may encounter difficulty in determining a market value for the securities. Disposing of illiquid or restricted securities may involve time- consuming negotiations and legal expense, and it may be difficult or impossible for a fund to sell the investment promptly and at an acceptable price. In determining the liquidity of all securities and derivatives, such as Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities the investment manager, under guidelines established by the Board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with illiquid and restricted securities include: Liquidity Risk. INDEXED SECURITIES The value of indexed securities is linked to currencies, interest rates, commodities, indexes, or other financial indicators. Most indexed securities are short- to intermediate-term fixed income securities whose values at maturity or interest rates rise Statement of Additional Information - Dec. 30, 2008 Page 28 or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk and Market Risk. INFLATION PROTECTED SECURITIES Inflation is a general rise in prices of goods and services. Inflation erodes the purchasing power of an investor's assets. For example, if an investment provides a total return of 7% in a given year and inflation is 3% during that period, the inflation-adjusted, or real, return is 4%. Inflation-protected securities are debt securities whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. One type of inflation-protected debt security is issued by the U.S. Treasury. The principal of these securities is adjusted for inflation as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest is paid on the adjusted amount. The CPI is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. If the CPI falls, the principal value of inflation-protected securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Conversely, if the CPI rises, the principal value of inflation-protected securities will be adjusted upward, and consequently the interest payable on these securities will be increased. Repayment of the original bond principal upon maturity is guaranteed in the case of U.S. Treasury inflation-protected securities, even during a period of deflation. However, the current market value of the inflation-protected securities is not guaranteed and will fluctuate. Other inflation-indexed securities include inflation-related bonds, which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. Other issuers of inflation-protected debt securities include other U.S. government agencies or instrumentalities, corporations and foreign governments. There can be no assurance that the CPI or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by IRS regulations to be taxable income in the year it occurs. For direct holders of an inflation-protected security, this means that taxes must be paid on principal adjustments even though these amounts are not received until the bond matures. By contrast, a fund holding these securities distributes both interest income and the income attributable to principal adjustments in the form of cash or reinvested shares, which are taxable to shareholders. Although one or more of the other risks described in this SAI may apply, the largest risks associated with inflation- protected securities include: Interest Rate Risk and Market Risk. INITIAL PUBLIC OFFERINGS (IPOS) Companies issuing IPOs generally have limited operating histories, and their prospects for future profitability are uncertain. These companies often are engaged in new and evolving businesses and are particularly vulnerable to competition and to changes in technology, markets and economic conditions. They may be dependent on certain key managers and third parties, need more personnel and other resources to manage growth and require significant additional capital. They may also be dependent on limited product lines and uncertain property rights and need regulatory approvals. Funds that invest in IPOs can be affected by sales of additional shares and by concentration of control in existing management and principal shareholders. Stock prices of IPOs can also be highly unstable, due to the absence of a prior public market, the small number of shares available for trading and limited investor information. Most IPOs involve a high degree of risk not normally associated with offerings of more seasoned companies. Although one or more risks described in this SAI may apply, the largest risks associated with IPOs include: Small and Mid-Sized Company Risk and Initial Public Offering (IPO) Risk. INVERSE FLOATERS Inverse floaters or inverse floating rate securities are a type of derivative long-term fixed income obligation with a floating or variable interest rate that moves in the opposite direction of short-term interest rates. As short-term interest rates go down, the holders of the inverse floaters receive more income and, as short-term interest rates go up, the holders of the inverse floaters receive less income. As with all long-term fixed income securities, the price of the inverse floater moves inversely Statement of Additional Information - Dec. 30, 2008 Page 29 with long-term interest rates; as long-term interest rates go down, the price of the inverse floater moves up and, when long-term interest rates go up, the price of the inverse floater moves down. While inverse floater securities tend to provide more income than similar term and credit quality fixed-rate bonds, they also exhibit greater volatility in price movement (both up and down). In the municipal market an inverse floater is typically created when the owner of a municipal fixed rate bond transfers that bond to a trust in exchange for cash and a residual interest in the trust's assets and cash flows (inverse floater certificates). The trust funds the purchase of the bond by issuing two classes of certificates: short-term floating rate notes (typically sold to third parties) and the inverse floaters (also known as residual certificates). No additional income beyond that provided by the trust's underlying bond is created; rather, that income is merely divided-up between the two classes of certificates. The holder of the inverse floating rate securities typically has the right to (1) cause the holders of the short-term floating rate notes to tender their notes at par ($100) and (2) to return the inverse floaters and withdraw the underlying bonds, thereby collapsing the trust. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with transactions in inverse floaters include: Interest Rate Risk, Credit Risk, Liquidity Risk and Market Risk. INVESTMENT COMPANIES Investing in securities issued by registered and unregistered investment companies may involve the duplication of advisory fees and certain other expenses. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the securities of other investment companies include: Market Risk. LENDING OF PORTFOLIO SECURITIES A fund may lend certain of its portfolio securities. The current policy of the Board is to make these loans, either long- or short-term, to broker-dealers. Loans will be structured in a manner that will enable a fund to call the loan in order to vote in a proxy solicitation if the fund has knowledge of a material event to be voted on that would affect the fund's investment in the loaned security. In making loans, the lender receives the market price in cash, U.S. government securities, letters of credit, or such other collateral as may be permitted by regulatory agencies and approved by the Board. If the market price of the loaned securities goes up, the lender will get additional collateral on a daily basis. If the market price of the loaned securities goes down, the borrower may request that some collateral be returned. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the lender receives cash payments equivalent to all interest or other distributions paid on the loaned securities. The lender may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The lender will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest, or other distributions on the securities loaned. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the lending of portfolio securities include: Credit Risk. LOAN PARTICIPATIONS Loans, loan participations, and interests in securitized loan pools are interests in amounts owed by a corporate, governmental, or other borrower to a lender or consortium of lenders (typically banks, insurance companies, investment banks, government agencies, or international agencies). Loans involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to an investor in the event of fraud or misrepresentation. Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk. MORTGAGE- AND ASSET-BACKED SECURITIES Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations (CMOs). These securities may be issued or guaranteed by U.S. government agencies or instrumentalities (see also Agency and Government Securities), or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental Statement of Additional Information - Dec. 30, 2008 Page 30 credit enhancement. Commercial mortgage-backed securities (CMBS) are a specific type of mortgage-backed security collateralized by a pool of mortgages on commercial real estate. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage- backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage- backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset- backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage and asset-backed securities include: Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension Risk. MORTGAGE DOLLAR ROLLS Mortgage dollar rolls are investments in which an investor sells mortgage-backed securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date. While an investor foregoes principal and interest paid on the mortgage-backed securities during the roll period, the investor is compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The investor also could be compensated through the receipt of fee income equivalent to a lower forward price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk and Interest Rate Risk. MUNICIPAL OBLIGATIONS Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States (including the District of Columbia and Puerto Rico). The interest on these obligations is generally exempt from federal income tax. Municipal obligations are generally classified as either "general obligations" or "revenue obligations." General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax Statement of Additional Information - Dec. 30, 2008 Page 31 and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes, and similar instruments. Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) Taxable Municipal Obligations. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non- qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan. Although one or more of the other risks described in this SAI may apply, the largest risks associated with municipal obligations include: Credit Risk, Inflation Risk, Interest Rate Risk, and Market Risk. PREFERRED STOCK Preferred stock is a type of stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. The price of a preferred stock is generally determined by earnings, type of products or services, projected growth rates, experience of management, liquidity, and general market conditions of the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with preferred stock include: Issuer Risk and Market Risk. REAL ESTATE INVESTMENT TRUSTS Real estate investment trusts (REITs) are pooled investment vehicles that manage a portfolio of real estate or real estate related loans to earn profits for their shareholders. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property, such as shopping centers, nursing homes, office buildings, apartment complexes, and hotels, and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs can be subject to extreme volatility due to fluctuations in the demand for real estate, changes in interest rates, and adverse economic conditions. Similar to investment companies, REITs are not taxed on income distributed to shareholders provided they comply with certain requirements under the tax law. The failure of a REIT to continue to qualify as a REIT for tax purposes can materially affect its value. A fund will indirectly bear its proportionate share of any expenses paid by a REIT in which it invests. REITs often do not provide complete tax information until after the calendar year-end. Consequently, because of the delay, it may be necessary for a fund investing in REITs to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31. In the alternative, amended Forms 1099-DIV may be sent. Although one or more of the other risks described in this SAI may apply, the largest risks associated with REITs include: Interest Rate Risk, Issuer Risk and Market Risk. Statement of Additional Information - Dec. 30, 2008 Page 32 REPURCHASE AGREEMENTS Repurchase agreements may be entered into with certain banks or non-bank dealers. In a repurchase agreement, the purchaser buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the purchaser's ability to dispose of the underlying securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with repurchase agreements include: Credit Risk. REVERSE REPURCHASE AGREEMENTS In a reverse repurchase agreement, an investor sells a security and enters into an agreement to repurchase the security at a specified future date and price. The investor generally retains the right to interest and principal payments on the security. Since the investor receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Credit Risk and Interest Rate Risk. SHORT SALES In short selling transactions, a fund sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, a fund must borrow the security to make delivery to the buyer. A fund is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by a fund, which may result in a loss or gain, respectively. Unlike taking a long position in a security by purchasing the security, where potential losses are limited to the purchase price, short sales have no cap on maximum losses, and gains are limited to the price of the security at the time of the short sale. Short sales of forward commitments and derivatives do not involve borrowing a security. These types of short sales may include futures, options, contracts for differences, forward contracts on financial instruments and options such as contracts, credit linked instruments, and swap contracts. A fund may not always be able to borrow a security it wants to sell short. A fund also may be unable to close out an established short position at an acceptable price and may have to sell long positions at disadvantageous times to cover its short positions. The value of your investment in a fund will fluctuate in response to the movements in the market. Fund performance also will depend on the effectiveness of the investment manager's research and the management team's investment decisions. Short sales also involve other costs. A fund must repay to the lender an amount equal to any dividends or interest that accrues while the loan is outstanding. To borrow the security, a fund may be required to pay a premium. A fund also will incur truncation costs in effecting short sales. The amount of any ultimate gain for a fund resulting from a short sale will be decreased and the amount of any ultimate loss will be increased, by the amount of premiums, interest or expenses a fund may be required to pay in connection with the short sale. Until a fund closes the short position, it will earmark and reserve fund assets, in cash or liquid securities to offset a portion of the leverage risk. Realized gains from short sales are typically treated as short-term gains/losses. Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Market Risk and Short Sales Risk. SOVEREIGN DEBT A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by a variety of factors, including its cash flow situation, the extent of its reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward international lenders, and the political constraints to which a sovereign debtor may be subject. (See also Foreign Securities.) With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis that led to defaults and the restructuring of certain indebtedness. Statement of Additional Information - Dec. 30, 2008 Page 33 Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk and Foreign/Emerging Markets Risk. STRUCTURED INVESTMENTS A structured investment is a security whose return is tied to an underlying index or to some other security or pool of assets. Structured investments generally are individually negotiated agreements and may be traded over-the- counter. Structured investments are created and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments, such as commercial bank loans, and the issuance by that entity of one or more classes of debt obligations ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities, and interest rate provisions. The extent of the payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Structured securities are often offered in different classes. As a result a given class of a structured security may be either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and at any given time there may be no active trading market for a particular structured security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured investments include: Credit Risk and Liquidity Risk. SWAP AGREEMENTS Swap agreements are typically individually negotiated agreements that obligate two parties to exchange payments based on a reference to a specified asset, reference rate or index. Swap agreements will tend to shift a party's investment exposure from one type of investment to another. A swap agreement can increase or decrease the volatility of a fund's investments and its net asset value. Swap agreements are traded in the over-the-counter market and may be considered to be illiquid. Swap agreements entail the risk that a party will default on its payment obligations. A fund will enter into a swap agreement only if the claims- paying ability of the other party or its guarantor is considered to be investment grade by the investment manager. Generally, the unsecured senior debt or the claims-paying ability of the other party or its guarantor must be rated in one of the three highest rating categories of at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of entering into the transaction. If there is a default by the other party to such a transaction, a fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. In certain circumstances, a fund may seek to minimize counterparty risk by requiring the counterparty to post collateral. Swap agreements are usually entered into without an upfront payment because the value of each party's position is the same. The market values of the underlying commitments will change over time resulting in one of the commitments being worth more than the other and the net market value creating a risk exposure for one counterparty or the other. Interest Rate Swaps. Interest rate swap agreements are often used to obtain or preserve a desired return or spread at a lower cost than through a direct investment in an instrument that yields the desired return or spread. They are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. In a standard interest rate swap transaction, two parties agree to exchange their respective commitments to pay fixed or floating rates on a predetermined specified (notional) amount. The swap agreement notional amount is the predetermined basis for calculating the obligations that the swap counterparties have agreed to exchange. Under most swap agreements, the obligations of the parties are exchanged on a net basis. The two payment streams are netted out, with each party receiving or paying, as the case may be, only the net amount of the two payments. Interest rate swaps can be based on various measures of interest rates, including LIBOR, swap rates, treasury rates and other foreign interest rates. Cross Currency Swaps. Cross currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the Statement of Additional Information - Dec. 30, 2008 Page 34 beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and termination of the agreements, both sides will also have to pay in full periodically based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps. Total Return Swaps. Total return swaps are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. For example, CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage- backed securities. In a typical total return equity swap, payments made by the fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement. Swaption Transaction. A swaption is an option on a swap agreement and a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms, in return for payment of the purchase price (the "premium") of the option. The fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. The writer of the contract receives the premium and bears the risk of unfavorable changes in the market value on the underlying swap agreement. Swaptions can be bundled and sold as a package. These are commonly called interest rate caps, floors and collars. In interest rate cap transactions, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap. Interest rate floor transactions require one party, in exchange for a premium to agree to make payments to the other to the extent that interest rates fall below a specified level, or floor. In interest rate collar transactions, one party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels or collar amounts. Credit Default Swaps. Credit default swaps are contracts in which third party credit risk is transferred from one party to another party by one party, the protection buyer, making payments to the other party, the protection seller, in return for the ability of the protection buyer to deliver a reference obligation, or portfolio of reference obligations, to the protection seller upon the occurrence of certain credit events relating to the issuer of the reference obligation and receive the notional amount of the reference obligation from the protection seller. A fund may use credit default swaps for various purposes including to increase or decrease its credit exposure to various issuers. For example, as a seller in a transaction, a fund could use credit default swaps as a way of increasing investment exposure to a particular issuer's bonds in lieu of purchasing such bonds directly. Similarly, as a buyer in a transaction, a fund may use credit default swaps to hedge its exposure on bonds that it owns or in lieu of selling such bonds. A credit default swap agreement may have as reference obligations one or more securities that are not currently held by the fund. The fund may be either the buyer or seller in the transaction. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a seller, the fund generally receives an up front payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the seller must pay the buyer the full face amount of deliverable obligations of the reference obligations that may have little or no value. If the fund is a buyer and no credit event occurs, the fund recovers nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference obligation that may have little or no value. Credit default swap agreements can involve greater risks than if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. A fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. A fund's obligations under a credit default swap agreement will be accrued daily (offset against any amounts owing to the fund). In connection with credit default swaps in which a fund is the buyer, the fund will segregate or "earmark" cash or other liquid assets, or enter into certain Statement of Additional Information - Dec. 30, 2008 Page 35 offsetting positions, with a value at least equal to the fund's exposure (any accrued but unpaid net amounts owed by the fund to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a fund is the seller, the fund will segregate or "earmark" cash or other liquid assets, or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the fund). Such segregation or "earmarking" will ensure that the fund has assets available to satisfy its obligations with respect to the transaction. Such segregation or "earmarking" will not limit the fund's exposure to loss. The use of swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment. Although one or more of the other risks described in this SAI may apply, the largest risks associated with swaps include: Credit Risk, Liquidity Risk and Market Risk. VARIABLE- OR FLOATING-RATE SECURITIES Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. Variable- or floating-rate securities frequently include a demand feature enabling the holder to sell the securities to the issuer at par. In many cases, the demand feature can be exercised at any time. Some securities that do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. Variable-rate demand notes include master demand notes that are obligations that permit the investor to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the investor as lender, and the borrower. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded. There generally is not an established secondary market for these obligations. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the lender's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and may involve heightened risk of default by the issuer. Although one or more of the other risks described in this SAI may apply, the largest risks associated with variable- or floating-rate securities include: Credit Risk. WARRANTS Warrants are securities giving the holder the right, but not the obligation, to buy the stock of an issuer at a given price (generally higher than the value of the stock at the time of issuance) during a specified period or perpetually. Warrants may be acquired separately or in connection with the acquisition of securities. Warrants do not carry with them the right to dividends or voting rights and they do not represent any rights in the assets of the issuer. Warrants may be considered to have more speculative characteristics than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to its expiration date. Although one or more of the other risks described in this SAI may apply, the largest risks associated with warrants include: Market Risk. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS When-issued securities and forward commitments involve a commitment to purchase or sell specific securities at a predetermined price or yield in which payment and delivery take place after the customary settlement period for that type of security. Normally, the settlement date occurs within 45 days of the purchase although in some cases settlement may take longer. The investor does not pay for the securities or receive dividends or interest on them until the contractual settlement date. Such instruments involve the risk of loss if the value of the security to be purchased declines prior to the settlement date and the risk that the security will not be issued as anticipated. If the security is not issued as anticipated, a fund may lose the opportunity to obtain a price and yield considered to be advantageous. Statement of Additional Information - Dec. 30, 2008 Page 36 Although one or more of the other risks described in this SAI may apply, the largest risks associated with when-issued securities and forward commitments include: Credit Risk. ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES These securities are debt obligations that do not make regular cash interest payments (see also Debt Obligations). Zero-coupon and step-coupon securities are sold at a deep discount to their face value because they do not pay interest until maturity. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, the price of these securities can be extremely volatile when interest rates fluctuate. See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with zero- coupon, step-coupon, and pay-in-kind securities include: Credit Risk and Interest Rate Risk. A fund cannot issue senior securities but this does not prohibit certain investment activities for which assets of the fund are set aside, or margin, collateral or escrow arrangements are established, to cover the related obligations. Examples of those activities include borrowing money, delayed- delivery and when-issued securities transactions, and contracts to buy or sell options, derivatives, and hedging instruments. SECURITIES TRANSACTIONS Except as otherwise noted, the description of policies and procedures in this section also applies to any fund subadviser. Subject to policies set by the Board, as well as the terms of the investment management agreements, the investment manager or subadviser is authorized to determine, consistent with a fund's investment objective and policies, which securities will be purchased, held, or sold. In determining where the buy and sell orders are to be placed, the investment manager has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the Board. Each fund, the investment manager, any subadviser and RiverSource Distributors, Inc. (principal underwriter and distributor of the Funds) has a strict Code of Ethics that prohibits affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for the fund. A fund's securities may be traded on an agency basis with brokers or dealers or on a principal basis with dealers. In an agency trade, the broker-dealer generally is paid a commission. In a principal trade, the investment manager will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. The investment manager may pay the dealer a commission or instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. BROKER-DEALER SELECTION In selecting broker-dealers to execute transactions, the investment manager and each subadviser will consider from among such factors as the ability to minimize trading costs, trading expertise, infrastructure, ability to provide information or services, financial condition, confidentiality, competitiveness of commission rates, evaluations of execution quality, promptness of execution, past history, ability to prospect for and find liquidity, difficulty of trade, security's trading characteristics, size of order, liquidity of market, block trading capabilities, quality of settlement, specialized expertise, overall responsiveness, willingness to commit capital and research services provided. The Board has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the funds as a factor in the selection of broker-dealers through which to execute securities transactions. On a periodic basis, the investment manager makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions, including review by an independent third-party evaluator. The review evaluates execution, operational efficiency, and research services. COMMISSION DOLLARS Broker-dealers typically provide a bundle of services including research and execution of transactions. The research provided can be either proprietary (created and provided by the broker-dealer) or third party (created by a third party but provided by the broker-dealer). Consistent with the interests of the fund, the investment manager and each subadviser may use broker-dealers who provide both types of research products and services in exchange for commissions, known as "soft dollars," generated by transactions in fund accounts. Statement of Additional Information - Dec. 30, 2008 Page 37 The receipt of research and brokerage products and services is used by the investment manager, and by each subadviser, to the extent it engages in such transactions, to supplement its own research and analysis activities, by receiving the views and information of individuals and research staffs of other securities firms, and by gaining access to specialized expertise on individual companies, industries, areas of the economy and market factors. Research and brokerage products and services may include reports on the economy, industries, sectors and individual companies or issuers; statistical information; accounting and tax law interpretations; political analyses; reports on legal developments affecting portfolio securities; information on technical market actions; credit analyses; on-line quotation systems; risk measurement; analyses of corporate responsibility issues; on-line news services; and financial and market database services. Research services may be used by the investment manager in providing advice to multiple RiverSource accounts, including the funds (or by any subadviser to any other client of the subadviser) even though it is not possible to relate the benefits to any particular account or fund. On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The Board has adopted a policy authorizing the investment manager to do so, to the extent authorized by law, if the investment manager or subadviser determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or the investment manager's or subadviser's overall responsibilities with respect to a fund and the other funds or accounts for which it acts as investment manager (or by any subadviser to any other client of that subadviser). As a result of these arrangements, some portfolio transactions may not be effected at the lowest commission, but overall execution may be better. The investment manager and each subadviser have represented that under its procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services and research products and services provided. The investment manager or a subadviser may use step-out transactions. A "step- out" is an arrangement in which the investment manager or subadviser executes a trade through one broker-dealer but instructs that broker-dealer to step-out all or a part of the trade to another broker-dealer. The second broker-dealer will clear and settle, and receive commissions for, the stepped-out portion. The investment manager or subadviser may receive research products and services in connection with step-out transactions. Use of fund commissions may create potential conflicts of interest between the investment manager or subadviser and a fund. However, the investment manager and each subadviser has policies and procedures in place intended to mitigate these conflicts and ensure that the use of fund commissions falls within the "safe harbor" of Section 28(e) of the Securities Exchange Act of 1934. Some products and services may be used for both investment decision-making and non-investment decision-making purposes ("mixed use" items). The investment manager and each subadviser, to the extent it has mixed use items, has procedures in place to assure that fund commissions pay only for the investment decision-making portion of a mixed-use item. TRADE AGGREGATION AND ALLOCATION Generally, orders are processed and executed in the order received. When a fund buys or sells the same security as another portfolio, fund, or account, the investment manager or subadviser carries out the purchase or sale pursuant to policies and procedures designed in such a way believed to be fair to the fund. Purchase and sale orders may be combined or aggregated for more than one account if it is believed it would be consistent with best execution. Aggregation may reduce commission costs or market impact on a per-share and per-dollar basis, although aggregation may have the opposite effect. There may be times when not enough securities are received to fill an aggregated order, including in an initial public offering, involving multiple accounts. In that event, the investment manager and each subadviser has policies and procedures designed in such a way believed to result in a fair allocation among accounts, including the fund. From time to time, different portfolio managers with the investment manager may make differing investment decisions related to the same security. However, with certain exceptions for funds managed using strictly quantitative methods, a portfolio manager or portfolio management team may not sell a security short if the security is owned in another portfolio managed by that portfolio manager or portfolio management team. On occasion, a fund may purchase and sell a security simultaneously in order to profit from short-term price disparities. The investment manager has portfolio management teams in its Minneapolis and Los Angeles offices that may share research information regarding leveraged loans. The investment manager operates separate and independent trading desks in these locations for the purpose of purchasing and selling leveraged loans. As a result, the investment manager does not aggregate orders in leveraged loans across portfolio management teams. For example, funds and other client accounts being managed by these portfolio management teams may purchase and sell the same leveraged loan in the secondary market on the same day at different times and at different prices. There is also the potential for a particular account or group of accounts, including a fund, to forego an opportunity or to receive a different allocation (either larger or smaller) than might otherwise Statement of Additional Information - Dec. 30, 2008 Page 38 be obtained if the investment manager were to aggregate trades in leveraged loans across the portfolio management teams. Although the investment manager does not aggregate orders in leveraged loans across its portfolio management teams in Minneapolis and Los Angeles, it operates in this structure subject to its duty to seek best execution. The following table shows total brokerage commissions paid in the last three fiscal periods. Substantially all firms through whom transactions were executed provide research services. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 4. TOTAL BROKERAGE COMMISSIONS
TOTAL BROKERAGE COMMISSIONS ------------------------------------------------------------------------------------------------------ FUND 2008 2007 2006 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ------------------------------------------------------------------------------------------------------ Income Builder Basic Income $ 0(a)$ 0 $ 0(b) ------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 0(a) 0 0(b) ------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 0(a) 0 0(b) ------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 0 0 0 ------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 0 0 0 ------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 0 0 0 ------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 0 0 0 ------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 0 0 0 ------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 0 0 0 ------------------------------------------------------------------------------------------------------ S&P 500 Index 40,706 21,050 22,575 ------------------------------------------------------------------------------------------------------ Small Company Index 108,360 56,843 78,951 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ------------------------------------------------------------------------------------------------------ Equity Value 591,525 773,828 721,284 ------------------------------------------------------------------------------------------------------ Partners Small Cap Growth 581,945 850,077 1,410,791 ------------------------------------------------------------------------------------------------------ Precious Metals and Mining 960,159 494,184 801,550 ------------------------------------------------------------------------------------------------------ Small Cap Advantage 2,546,419 3,585,711 3,379,812 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 38,557(c) N/A N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2010 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2015 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2020 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2025 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2030 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2035 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2040 0 0(d) N/A ------------------------------------------------------------------------------------------------------ Retirement Plus 2045 0 0(d) N/A ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ------------------------------------------------------------------------------------------------------ High Yield Bond 0 0 0 ------------------------------------------------------------------------------------------------------ Partners Aggressive Growth 859,002 1,160,632 556,410 ------------------------------------------------------------------------------------------------------ Partners Fundamental Value 292,900 217,139 346,840 ------------------------------------------------------------------------------------------------------ Partners Select Value 838,472 1,757,678 445,429 ------------------------------------------------------------------------------------------------------ Partners Small Cap Equity 519,535 455,170 459,451 ------------------------------------------------------------------------------------------------------ Partners Small Cap Value 1,179,158 1,422,160 2,624,255 ------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 43,210 42,504 24,483 ------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 17,640 10,386 6,379 ------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 39
TOTAL BROKERAGE COMMISSIONS ------------------------------------------------------------------------------------------------------ FUND 2008 2007 2006 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ------------------------------------------------------------------------------------------------------ Dividend Opportunity $ 412,022 $ 576,524 $ 456,446 ------------------------------------------------------------------------------------------------------ Real Estate 173,705 187,309 152,782 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ------------------------------------------------------------------------------------------------------ Cash Management 0 0 0 ------------------------------------------------------------------------------------------------------ Disciplined Equity 1,951,255 1,577,337 987,624 ------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 124,754 156,759 8,916(e) ------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 75,041 64,928 33,110(f) ------------------------------------------------------------------------------------------------------ Floating Rate 861 0 0(f) ------------------------------------------------------------------------------------------------------ Growth 10,366,547 12,096,184 10,375,981 ------------------------------------------------------------------------------------------------------ Income Opportunities 0 0 0 ------------------------------------------------------------------------------------------------------ Inflation Protected Securities 11,586 0 0 ------------------------------------------------------------------------------------------------------ Large Cap Equity 10,502,917 15,040,354 9,944,390 ------------------------------------------------------------------------------------------------------ Large Cap Value 61,073 88,935 138,363 ------------------------------------------------------------------------------------------------------ Limited Duration Bond 4,138 5,172 4,006 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ------------------------------------------------------------------------------------------------------ California Tax-Exempt 1,938 4,143 666(g) ------------------------------------------------------------------------------------------------------ Diversified Bond 111,876 91,815 108,055 ------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt 3,418 7,293 1,254(g) ------------------------------------------------------------------------------------------------------ New York Tax-Exempt 724 1,524 255(g) ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ------------------------------------------------------------------------------------------------------ Balanced 493,156 567,773 420,523 ------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 150,374 45,978(h) N/A ------------------------------------------------------------------------------------------------------ Disciplined Large Cap Value 6,631(i) N/A N/A ------------------------------------------------------------------------------------------------------ Diversified Equity Income 4,085,552 3,790,954 2,923,490 ------------------------------------------------------------------------------------------------------ Mid Cap Value 1,672,775 1,219,474 1,354,225 ------------------------------------------------------------------------------------------------------ Strategic Allocation 1,049,954 1,425,483 638,067 ------------------------------------------------------------------------------------------------------ Strategic Income Allocation 17,707 6,639(h) N/A ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 0 0 0(j) ------------------------------------------------------------------------------------------------------ Disciplined International Equity 514,960 547,910 60,738(k) ------------------------------------------------------------------------------------------------------ Emerging Markets Bond 0 0 0(l) ------------------------------------------------------------------------------------------------------ Global Bond 18,925 17,268 9,664 ------------------------------------------------------------------------------------------------------ Global Technology 471,967 1,027,281 1,237,181 ------------------------------------------------------------------------------------------------------ Partners International Select Growth 1,690,066 1,932,330 1,265,256 ------------------------------------------------------------------------------------------------------ Partners International Select Value 1,558,333 1,426,926 1,533,794 ------------------------------------------------------------------------------------------------------ Partners International Small Cap 270,663 353,096 366,091 ------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets 3,346,690 3,361,865 3,017,380 ------------------------------------------------------------------------------------------------------ Threadneedle European Equity 396,474 282,104 160,239 ------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 1,185,084 1,474,583 1,249,847 ------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Income 5,030(m) N/A N/A ------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Alpha 6,647(m) N/A N/A ------------------------------------------------------------------------------------------------------ Threadneedle International Opportunity 1,020,584 1,150,182 989,118 ------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 40
TOTAL BROKERAGE COMMISSIONS ------------------------------------------------------------------------------------------------------ FUND 2007 2006 2005 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt $ 2,175 $ 438 $ 0 ------------------------------------------------------------------------------------------------------ Mid Cap Growth 2,813,784 1,867,241 1,764,250 ------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 19,450 4,257 0 ------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 74,062 17,679 0 ------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 0 ------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - Dec. 30, 2008 Page 41 For the last fiscal period, transactions were specifically directed to firms in exchange for research services as shown in the following table. The table also shows portfolio turnover rates for the last two fiscal periods. Higher turnover rates may result in higher brokerage expenses and taxes. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 5. BROKERAGE DIRECTED FOR RESEARCH AND TURNOVER RATES
---------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2008 2007 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ---------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) $ 0(b) $ 0(b) 19% 27% ---------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) 0(b) 0(b) 24 27 ---------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) 0(b) 0(b) 19 29 ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0(b) 0(b) 40 40 ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0(b) 0(b) 29 54 ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0(b) 0(b) 27 24 ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0(b) 0(b) 33 29 ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0(b) 0(b) 31 24 ---------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0(b) 0(b) 31 27 ---------------------------------------------------------------------------------------------------------------------- S&P 500 Index 0 0 4 20 ---------------------------------------------------------------------------------------------------------------------- Small Company Index 0 0 14 11 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ---------------------------------------------------------------------------------------------------------------------- Equity Value 62,307,537 72,239 25 37 ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 84,593,491 36,661 122 119 ---------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 50,317,759 38,416 241(c) 114 ---------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 113,545,867 207,170 179 158 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ---------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 86,825(d) 53 23(d) N/A ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 0 0 92 80(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 0 0 47 48(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 0 0 50 40(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 0 0 41 37(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 0 0 50 32(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 0 0 44 38(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 0 0 52 33(b),(e) ---------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 0 0 50 57(b),(e) ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ---------------------------------------------------------------------------------------------------------------------- High Yield Bond 0 0 64 95 ---------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 74,286,129 54,797 141 163 ---------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 0 0 14 12 ---------------------------------------------------------------------------------------------------------------------- Partners Select Value 111,988,669 113,732 88 159(f) ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 5,029,719 7,350 106 70 ---------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 474,998,456 70,029 45 58 ---------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 0 0 209 168 ---------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 354(g) 306(g) ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 42
---------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2008 2007 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ---------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $ 15,749,145 $ 54,405 20% 17% ---------------------------------------------------------------------------------------------------------------------- Real Estate 1,084,912 605 52 38 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ---------------------------------------------------------------------------------------------------------------------- Cash Management 0 0 N/A N/A ---------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 0 58 62 ---------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 0 56 84 ---------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 0 87 127 ---------------------------------------------------------------------------------------------------------------------- Floating Rate 0 0 43 91 ---------------------------------------------------------------------------------------------------------------------- Growth 1,339,656,389 1,904,948 112 98 ---------------------------------------------------------------------------------------------------------------------- Income Opportunities 0 0 75 122 ---------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 59 76 ---------------------------------------------------------------------------------------------------------------------- Large Cap Equity 1,378,682,998 1,744,468 68 66 ---------------------------------------------------------------------------------------------------------------------- Large Cap Value 9,016,509 10,770 24 35 ---------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 218(h) 263 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ---------------------------------------------------------------------------------------------------------------------- California Tax-Exempt(i) 0 0 49 62 ---------------------------------------------------------------------------------------------------------------------- Diversified Bond 0 0 226 295 ---------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt(i) 0 0 23 26 ---------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt(i) 0 0 31 28 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ---------------------------------------------------------------------------------------------------------------------- Balanced 67,135,127 86,479 105 124 ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 70 21(j) ---------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0(k) 0(k) 6(k) N/A ---------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 557,479,269 554,662 31 31 ---------------------------------------------------------------------------------------------------------------------- Mid Cap Value 200,044,593 196,118 34 24 ---------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 0 123 123 ---------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0 0 137 70 ---------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ---------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 39 36 ---------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 0 61 47 ---------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 82 41 ---------------------------------------------------------------------------------------------------------------------- Global Bond 0 0 75 77 ---------------------------------------------------------------------------------------------------------------------- Global Technology 20,896,126 37,913 81 167 ---------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 97,589,551 156,876 85 104 ---------------------------------------------------------------------------------------------------------------------- Partners International Select Value 559,869,117 309,044 40 28 ---------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 87 96 ---------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 133 125 ---------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 180 114 ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 97 100 ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 0(l) 0(l) 10(l) N/A ---------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0(l) 0(l) 36(l) N/A ---------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 78 84 ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 43
----------------------------------------------------------------------------------------------------------------------- BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS ------------------------------------- FUND TRANSACTIONS IMPUTED OR PAID 2007 2006 ----------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ----------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 0 $ 0 53% 35% ----------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 402,881,968 577,670 87 45 ----------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 0 51 32 ----------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 0 47 30 ----------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ----------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 N/A N/A -----------------------------------------------------------------------------------------------------------------------
* Reported numbers include third party soft dollar commissions and portfolio manager directed commissions directed for research. RiverSource also receives proprietary research from brokers, but these amounts have not been included in the table. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) The underlying funds may have directed transactions to firms in exchange for research services. (c) Higher turnover rates may result in higher brokerage expenses and taxes. The higher turnover rate can be primarily attributed to repositioning the fund to a smaller number of holdings as it worked through risk management and secondarily, market volatility made up the balance of the turnover rate. (d) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (e) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (f) The turnover rate increase from 2006 was the result of a change in subadvisers during the fiscal period. (g) A significant portion of the turnover was the result of "roll" transactions in the liquid derivatives and Treasury securities. In the derivative transactions, positions in expiring contracts are liquidated and simultaneously replaced with positions in new contracts with equivalent characteristics. In the Treasury transactions, existing holdings are sold to purchase newly issued securities with slightly longer maturity dates. Although these transactions affect the turnover rate of the portfolio, they do not change the risk exposure or result in material transaction costs. The remaining turnover resulted from strategic reallocations and relative value trading. After transaction costs, we expect this activity to enhance the returns on the overall fund. (h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 124% for the year ended July 31, 2008. (i) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (j) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (k) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (l) For the period from Aug. 1, 2008 (when the Fund became available) to Oct. 31, 2008. Statement of Additional Information - Dec. 30, 2008 Page 44 As of the end of the most recent fiscal period, the fund held securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 6. SECURITIES OF REGULAR BROKERS OR DEALERS
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 -------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income None N/A -------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income None N/A -------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income None N/A -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive None N/A -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative None N/A -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None N/A -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive None N/A -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative None N/A -------------------------------------------------------------------------------------------------------------------- S&P 500 Index Ameriprise Financial $ 220,963 -------------------------------------------------------------------- Bear Stearns Companies 179,336 -------------------------------------------------------------------- Charles Schwab 359,298 -------------------------------------------------------------------- Citigroup 2,422,094 -------------------------------------------------------------------- E*Trade Financial 39,064 -------------------------------------------------------------------- Franklin Resources 289,238 -------------------------------------------------------------------- Goldman Sachs Group 1,373,469 -------------------------------------------------------------------- JPMorgan Chase & Co. 2,748,913 -------------------------------------------------------------------- Legg Mason 167,760 -------------------------------------------------------------------- Lehman Brothers Holdings* 585,487 -------------------------------------------------------------------- Merrill Lynch & Co. 832,746 -------------------------------------------------------------------- Morgan Stanley 903,630 -------------------------------------------------------------------- PNC Financial Services Group 395,885 -------------------------------------------------------------------------------------------------------------------- Small Company Index Investment Technology Group 2,941,732 -------------------------------------------------------------------- LaBranche & Co. 441,297 -------------------------------------------------------------------- optionsXpress 1,707,068 -------------------------------------------------------------------- Piper Jaffray Companies 1,184,263 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 -------------------------------------------------------------------------------------------------------------------- Equity Value Citigroup 7,790,004 -------------------------------------------------------------------- JPMorgan Chase & Co. 7,116,343 -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Investment Technology Group 1,107,259 -------------------------------------------------------------------- optionsXpress Holdings 531,170 -------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining None N/A -------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Investment Technology Group 507,980 -------------------------------------------------------------------- optionsXpress Holdings 890,530 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 -------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Citigroup 757,493 -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None N/A --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 45
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 -------------------------------------------------------------------------------------------------------------------- High Yield Bond None N/A -------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth None N/A -------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Citigroup $ 4,183,179 -------------------------------------------------------------------- E*TRADE Financial 234,643 -------------------------------------------------------------------- JPMorgan Chase & Co. 33,857,771 -------------------------------------------------------------------- Merrill Lynch & Co. 4,984,920 -------------------------------------------------------------------- Morgan Stanley 3,640,571 -------------------------------------------------------------------------------------------------------------------- Partners Select Value None N/A -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Eaton Vance 1,570,095 -------------------------------------------------------------------- Knight Capital Group Cl A 65,220 -------------------------------------------------------------------- optionsXpress Holdings 1,281,324 -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Knight Capital Group Cl A 1,312,597 -------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Morgan Stanley Mortgage Loan Trust 3,369,665 -------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage ChaseFlex Trust 505,036 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 2,982,060 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 2,944,373 -------------------------------------------------------------------- GS Mortgage Securities II 883,204 -------------------------------------------------------------------- JPMorgan Mortgage Trust 820,077 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 883,637 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 -------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Citigroup 23,201,974 -------------------------------------------------------------------- Goldman Sachs Group 32,663,485 -------------------------------------------------------------------- JPMorgan Chase & Co. 22,009,110 -------------------------------------------------------------------- PNC Financial Services Group 3,911,464 -------------------------------------------------------------------------------------------------------------------- Real Estate None N/A -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 -------------------------------------------------------------------------------------------------------------------- Cash Management Bear Stearns Companies 25,000,000 -------------------------------------------------------------------- Citigroup Funding 196,618,680 -------------------------------------------------------------------- Credit Suisse NY 146,620,740 -------------------------------------------------------------------- Goldman Sachs Group 25,000,000 -------------------------------------------------------------------- JPMorgan Chase & Co. 136,841,050 -------------------------------------------------------------------- Lehman Brothers 80,100,000 -------------------------------------------------------------------- Merrill Lynch & Co. 152,998,540 -------------------------------------------------------------------- Morgan Stanley 20,720,382 -------------------------------------------------------------------------------------------------------------------- Disciplined Equity Charles Schwab 4,016,005 -------------------------------------------------------------------- Citigroup 89,269,962 -------------------------------------------------------------------- E*TRADE 773,132 -------------------------------------------------------------------- Goldman Sachs Group 4,770,869 -------------------------------------------------------------------- JPMorgan Chase & Co. 41,756,101 -------------------------------------------------------------------- Lehman Brothers Holdings 7,515,746 -------------------------------------------------------------------- Merrill Lynch & Co. 19,815,362 -------------------------------------------------------------------- Morgan Stanley 39,406,764 -------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Knight Capital Group Cl A 145,822 -------------------------------------------------------------------- Piper Jaffray Companies 63,829 -------------------------------------------------------------------- Westwood Holdings Group 134,188 -------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Knight Capital Group Cl A 72,493 --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 46
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD -------------------------------------------------------------------------------------------------------------------- Floating Rate Ameritrade Holding Corp. $ 745,332 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 943,533 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 1,952,180 -------------------------------------------------------------------- CS First Boston Mtge Securities 855,783 -------------------------------------------------------------------- Lehman Brothers Holdings 963,838 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 1,153,729 -------------------------------------------------------------------- Nuveen Investments 1,658,970 -------------------------------------------------------------------------------------------------------------------- Growth Lehman Brothers Holdings 6,021,142 -------------------------------------------------------------------------------------------------------------------- Income Opportunities None N/A -------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities None N/A -------------------------------------------------------------------------------------------------------------------- Large Cap Equity Citigroup 26,071,447 -------------------------------------------------------------------- Goldman Sachs Group 22,551,709 -------------------------------------------------------------------- JPMorgan Chase & Co. 47,861,246 -------------------------------------------------------------------- Legg Mason 4,714,454 -------------------------------------------------------------------- Lehman Brothers Holdings 19,819,100 -------------------------------------------------------------------- Merrill Lynch & Co. 4,367,136 -------------------------------------------------------------------- Morgan Stanley 17,105,697 -------------------------------------------------------------------- PNC Financial Services Group 7,082,875 -------------------------------------------------------------------------------------------------------------------- Large Cap Value Citigroup 878,430 -------------------------------------------------------------------- Goldman Sachs Group 326,303 -------------------------------------------------------------------- JPMorgan Chase & Co. 1,210,083 -------------------------------------------------------------------- Legg Mason 111,487 -------------------------------------------------------------------- Lehman Brothers Holdings 366,723 -------------------------------------------------------------------- Merrill Lynch & Co. 173,678 -------------------------------------------------------------------- Morgan Stanley 465,824 -------------------------------------------------------------------- PNC Financial Services Group 288,083 -------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Bear Stearns Adjustable Rate Mortgage Trust 872,823 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 641,299 -------------------------------------------------------------------- ChaseFlex Trust 248,077 -------------------------------------------------------------------- Citigroup 1,259,000 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 696,777 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 170,687 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 278,727 -------------------------------------------------------------------- Credit Suisse NY 226,272 -------------------------------------------------------------------- CS First Boston Mtge Securities 676,454 -------------------------------------------------------------------- GS Mortgage Securities II 799,079 -------------------------------------------------------------------- JPMorgan Chase & Co. 991,462 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 3,563,196 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 1,587,416 -------------------------------------------------------------------- Lehman Brothers Holdings 544,494 -------------------------------------------------------------------- Merrill Lynch & Co. 706,410 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 122,321 -------------------------------------------------------------------- Morgan Stanley 944,154 -------------------------------------------------------------------- Morgan Stanley Capital 1 692,480 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 840,855 --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 47
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 -------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None N/A -------------------------------------------------------------------------------------------------------------------- Diversified Bond Bear Stearns Adjustable Rate Mortgage Trust $ 17,436,578 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 21,099,342 -------------------------------------------------------------------- ChaseFlex Trust 1,571,241 -------------------------------------------------------------------- Citigroup 28,310,330 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 14,460,744 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 3,136,137 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 5,831,624 -------------------------------------------------------------------- Credit Suisse NY 4,591,057 -------------------------------------------------------------------- CS First Boston Mtge Securities 14,248,373 -------------------------------------------------------------------- GS Mortgage Securities II 13,047,600 -------------------------------------------------------------------- JPMorgan Chase Bank 8,319,926 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 69,173,902 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,062,237 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 30,843,436 -------------------------------------------------------------------- Lehman Brothers Holdings 12,531,597 -------------------------------------------------------------------- Merrill Lynch & Co. 13,901,778 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 3,496,976 -------------------------------------------------------------------- Morgan Stanley 16,923,975 -------------------------------------------------------------------- Morgan Stanley Capital 1 16,818,388 -------------------------------------------------------------------- Morgan Stanley Mtge Loan Trust 14,352,406 -------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None N/A -------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None N/A -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 -------------------------------------------------------------------------------------------------------------------- Balanced Bear Stearns Adjustable Rate Mortgage Trust 2,056,495 -------------------------------------------------------------------- Bear Stearns Commercial Mtg Securities 2,433,377 -------------------------------------------------------------------- ChaseFlex Trust 950,665 -------------------------------------------------------------------- Citigroup 11,143,567 -------------------------------------------------------------------- Citigroup Commercial Mtge Trust 1,597,731 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mtge Trust 352,251 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 641,835 -------------------------------------------------------------------- Credit Suisse NY 336,023 -------------------------------------------------------------------- CS First Boston Mtge Securities 618,807 -------------------------------------------------------------------- Goldman Sachs Group 2,224,256 -------------------------------------------------------------------- GS Mortgage Securities II 1,093,832 -------------------------------------------------------------------- JPMorgan Chase & Co. 13,228,624 -------------------------------------------------------------------- JPMorgan Chase Bank 485,791 -------------------------------------------------------------------- JPMorgan Chase Commercial Mtge Securities 5,788,325 -------------------------------------------------------------------- LB-UBS Commercial Mtge Trust 3,548,011 -------------------------------------------------------------------- Legg Mason 378,164 -------------------------------------------------------------------- Lehman Brothers Holdings 93,125 -------------------------------------------------------------------- Merrill Lynch & Co. 2,155,227 -------------------------------------------------------------------- Merrill Lynch Mtge Trust 222,584 -------------------------------------------------------------------- Morgan Stanley 1,939,572 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,954,402 -------------------------------------------------------------------- PNC Financial Services Group 2,794,751 -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Goldman Sachs Group 2,407,041 -------------------------------------------------------------------- Merrill Lynch & Co. 1,031,582 -------------------------------------------------------------------- Morgan Stanley 2,026,438 --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 48
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value Citigroup $ 465,556 -------------------------------------------------------------------- Lehman Brothers Holdings 587 -------------------------------------------------------------------- Merrill Lynch & Co. 131,307 -------------------------------------------------------------------- Morgan Stanley 89,056 -------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Citigroup 40,913,779 -------------------------------------------------------------------- JPMorgan Chase & Co. 49,760,204 -------------------------------------------------------------------------------------------------------------------- Mid Cap Value None N/A -------------------------------------------------------------------------------------------------------------------- Strategic Allocation Bear Stearns Commercial Mortgage Securities 3,562,336 -------------------------------------------------------------------- Charles Schwab 1,763,164 -------------------------------------------------------------------- Citigroup 30,594,415 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 1,642,261 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 2,042,743 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 641,835 -------------------------------------------------------------------- CS First Boston Mortgage Securities 4,882,828 -------------------------------------------------------------------- Goldman Sachs Group 994,048 -------------------------------------------------------------------- GS Mortgage Securities II 1,523,546 -------------------------------------------------------------------- JPMorgan Chase & Co. 16,986,581 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,446,223 -------------------------------------------------------------------- Knight Capital Group Cl A 73,899 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,304,264 -------------------------------------------------------------------- Lehman Brothers Holdings 29,688 -------------------------------------------------------------------- Merrill Lynch & Co. 6,168,171 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 927,435 -------------------------------------------------------------------- Morgan Stanley 7,342,576 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,337,566 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 1,512,553 -------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Ameritrade Holding Corp. - subsidiary 594,322 -------------------------------------------------------------------- Bear Stearns Adjustable Rate Mortgage Trust 203,614 -------------------------------------------------------------------- Bear Stearns Commercial Mortgage Securities 909,594 -------------------------------------------------------------------- Charles Schwab 25,090 -------------------------------------------------------------------- Citigroup 720,374 -------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust 939,180 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,639,456 -------------------------------------------------------------------- Goldman Sachs Group 34,304 -------------------------------------------------------------------- JPMorgan Chase & Co. 217,669 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 1,875,303 -------------------------------------------------------------------- Lehman Brothers Holdings 11,788 -------------------------------------------------------------------- Merrill Lynch & Co. 158,624 -------------------------------------------------------------------- Merrill Lynch Mortgage Trust 366,194 -------------------------------------------------------------------- Morgan Stanley 555,840 -------------------------------------------------------------------- Morgan Stanley Capital 1 119,467 -------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 756,276 -------------------------------------------------------------------- Nuveen Investments 105,610 --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 49
VALUE OF SECURITIES OWNED AT FUND ISSUER END OF FISCAL PERIOD -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 -------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Bear Stearns Companies $ 745,926 -------------------------------------------------------------------- Citigroup 619,416 -------------------------------------------------------------------- Credit Suisse First Boston USA 636,727 -------------------------------------------------------------------- GS Mortgage Securities II 2,521,127 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 849,854 -------------------------------------------------------------------- Lehman Brothers Holdings 75,200 -------------------------------------------------------------------- Morgan Stanley 633,832 -------------------------------------------------------------------- Morgan Stanley, Dean Witter Capital 1 1,167,921 -------------------------------------------------------------------------------------------------------------------- Disciplined International Equity None N/A -------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Morgan Stanley 1,258,573 -------------------------------------------------------------------------------------------------------------------- Global Bond Bear Stearns Commercial Mortgage Securities 1,106,194 -------------------------------------------------------------------- Citigroup 709,276 -------------------------------------------------------------------- Citigroup Commercial Mortgage Trust 1,294,437 -------------------------------------------------------------------- Credit Suisse Mortgage Capital Ctfs 715,932 -------------------------------------------------------------------- Credit Suisse NY 452,945 -------------------------------------------------------------------- CS First Boston Mortgage Securities 1,407,343 -------------------------------------------------------------------- GS Mortgage Securities II 1,260,948 -------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities 6,275,448 -------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 4,531,712 -------------------------------------------------------------------- Lehman Brothers Holdings 171,600 -------------------------------------------------------------------- Merrill Lynch & Co. 588,461 -------------------------------------------------------------------- Morgan Stanley Capital 1 1,458,809 -------------------------------------------------------------------------------------------------------------------- Global Technology None N/A -------------------------------------------------------------------------------------------------------------------- Partners International Select Growth None N/A -------------------------------------------------------------------------------------------------------------------- Partners International Select Value Credit Suisse Group 13,198,329 -------------------------------------------------------------------------------------------------------------------- Partners International Small Cap None N/A -------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets None N/A -------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Credit Suisse Group 791,189 -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Goldman Sachs Group 1,322,195 -------------------------------------------------------------------- JPMorgan Chase & Co. 8,071,264 -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income JPMorgan Chase & Co. 138,146 -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha None N/A -------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity Credit Suisse Group 3,541,191 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 -------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None N/A -------------------------------------------------------------------------------------------------------------------- Mid Cap Growth TD AmeriTrade Holding 19,426,498 -------------------------------------------------------------------- Legg Mason 5,533,620 -------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None N/A -------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None N/A -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 -------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None N/A --------------------------------------------------------------------------------------------------------------------
* Subsequent to Aug. 31, 2008. Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. Statement of Additional Information - Dec. 30, 2008 Page 50 BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER Affiliates of the investment manager may engage in brokerage and other securities transactions on behalf of a fund according to procedures adopted by the Board and to the extent consistent with applicable provisions of the federal securities laws. Subject to approval by the Board, the same conditions apply to transactions with broker-dealer affiliates of any subadviser. The investment manager will use an affiliate only if (i) the investment manager determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. Information about any brokerage commissions paid by a fund in the last three fiscal periods to brokers affiliated with the fund's investment manager is contained in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 7. BROKERAGE COMMISSIONS PAID TO INVESTMENT MANAGER OR AFFILIATES
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- $ 0 $ 0(b) Basic Income(a) -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0 0(b) Enhanced Income(a) -------------------------------------------------------------------------------------------------------------------------- Income Builder None -- -- -- -- 0 0(b) Moderate Income(a) -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None -- -- -- -- 0 0 Aggressive -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None -- -- -- -- 0 0 Conservative -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 Aggressive -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None -- -- -- -- 0 0 Conservative -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total None -- -- -- -- 0 0 Equity -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Small Company Index None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 -------------------------------------------------------------------------------------------------------------------------- Equity Value None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth UBS 1 $3,919 0.67% 1.57% 0 0 Securities -------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage None -- -- -- -- 0 0 --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 51
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity None(c) -- -- -- -- N/A N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 None -- -- -- -- 0(d) N/A -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 -------------------------------------------------------------------------------------------------------------------------- High Yield Bond None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth JPMorgan 2 $3,532 0.41% 0.26% $ 23 $ 57* Securities, Inc. -------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners Select Value Gabelli & 3 0 -- -- 7,352 14,216 Co. -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity JPMorgan 2 0 -- -- 568 0 Securities, Inc. -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Goldman 4 0 -- -- 0 1,821 Sachs & Co. -------------------------------------------------------------------------------------------------------------------------- Short Duration None -- -- -- -- 0 0 U.S. Government -------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity -- -- -- -- 0 0 None -------------------------------------------------------------------------------------------------------------------------- Real Estate None -- -- -- -- 0 0 --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 52
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 -------------------------------------------------------------------------------------------------------------------------- Cash Management None -- -- -- -- $ 0 $ 0 -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity None 0 0 -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and None -- -- -- -- 0 0(e) Mid Cap Equity -------------------------------------------------------------------------------------------------------------------------- Disciplined Small None -- -- -- -- 0 0(f) Cap Value -------------------------------------------------------------------------------------------------------------------------- Floating Rate None -- -- -- -- 0 0(f) -------------------------------------------------------------------------------------------------------------------------- Growth None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Income Opportunities None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Inflation Protected None -- -- -- -- 0 0 Securities -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Large Cap Value None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None -- -- -- -- 0 0(g) -------------------------------------------------------------------------------------------------------------------------- Diversified Bond None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None -- -- -- -- 0 0(g) -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None -- -- -- -- 0 0(g) -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 -------------------------------------------------------------------------------------------------------------------------- Balanced None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None -- -- -- -- 0(h) N/A Growth -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap None(i) -- -- -- -- N/A N/A Value -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Strategic Income None -- -- -- -- 0(h) N/A Allocation -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency None -- -- -- -- 0 0(j) and Income -------------------------------------------------------------------------------------------------------------------------- Disciplined International None -- -- -- -- 0 0(k) Equity -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond None -- -- -- -- 0 0(l) -------------------------------------------------------------------------------------------------------------------------- Global Bond None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Global Technology None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners International JPMorgan 2 0 -- -- 0 8,149 Select Growth Securities, Inc. -------------------------------------------------------------------------------------------------------------------------- Partners International Sanford 5 1,677 0.11% 0.04% N/A N/A Select Value Bernstein --------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 53
PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER FUND ---------------------------------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------------------------------------------------------------- Partners International None -- -- -- -- $ 0 $ 0 Small Cap -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging None -- -- -- -- 0 0 Markets -------------------------------------------------------------------------------------------------------------------------- Threadneedle European None -- -- -- -- 0 0 Equity -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity None(m) -- -- -- -- N/A N/A Income -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global None(m) -- -- -- -- N/A N/A Extended Alpha -------------------------------------------------------------------------------------------------------------------------- Threadneedle International None -- -- -- -- 0 0 Opportunity -------------------------------------------------------------------------------------------------------------------------- 2007 2006 2005 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth -- -- -- -- 0 0 None -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None -- -- -- -- 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None -- -- -- -- 0 0 --------------------------------------------------------------------------------------------------------------------------
* Represents brokerage clearing fees. (1) Affiliate of UBS Global Asset Management, a subadviser. (2) Affiliate of American Century, a subadviser. (3) Affiliate of GAMCO Investors, Inc. a former subadviser, terminated Sept. 29, 2006. (4) Affiliate of Goldman Sachs Asset Management, L.P., a subadviser. (5) Affiliate of AllianceBernstein, a subadviser. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - Dec. 30, 2008 Page 54 VALUING FUND SHARES As of the end of the most recent fiscal period, the computation of net asset value was based on net assets divided by shares outstanding as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 8. VALUING FUND SHARES
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ----------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Class A $ 260,429,297 25,367,943 $10.27 Class B 42,117,652 4,110,203 10.25 Class C 11,684,994 1,139,130 10.26 Class R4 33,711 3,280 10.28 ----------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Class A 289,093,384 28,752,778 10.05 Class B 36,666,708 3,651,072 10.04 Class C 13,056,618 1,299,870 10.04 Class R4 55,237 5,493 10.06 ----------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Class A 545,269,841 53,399,353 10.21 Class B 73,301,557 7,195,090 10.19 Class C 21,218,944 2,080,819 10.20 Class R4 21,460 2,099 10.22 ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Class A 428,863,881 40,981,066 10.46 Class B 94,959,883 9,151,829 10.38 Class C 15,158,381 1,467,345 10.33 Class R4 109,641 10,459 10.48 ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Class A 111,050,506 10,944,200 10.15 Class B 40,525,206 4,007,079 10.11 Class C 7,615,936 752,365 10.12 Class R4 24,165 2,404 10.05 ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Class A 746,273,942 71,375,697 10.46 Class B 198,087,358 19,035,309 10.41 Class C 35,786,145 3,436,396 10.41 Class R4 105,073 10,056 10.45 ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Class A 880,751,474 84,013,338 10.48 Class B 199,150,000 19,086,670 10.43 Class C 33,117,113 3,176,161 10.43 Class R4 805,861 76,784 10.50 ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Class A 259,699,591 25,258,910 10.28 Class B 76,117,681 7,428,267 10.25 Class C 16,243,377 1,584,479 10.25 Class R4 43,228 4,223 10.24 ----------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Class A 384,378,038 36,516,756 10.53 Class B 84,629,230 8,106,594 10.44 Class C 13,707,051 1,319,026 10.39 Class R4 163,576 15,480 10.57 ----------------------------------------------------------------------------------------------------------------- S&P 500 Index Class D 48,008,764 9,795,616 4.90 Class E 165,140,821 33,546,373 4.92 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 55
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Small Company Index Class A $ 586,659,489 94,820,115 $ 6.19 Class B 127,171,036 24,046,223 5.29 Class R4 7,807,582 1,227,239 6.36 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ----------------------------------------------------------------------------------------------------------------- Equity Value Class A 862,727,060 72,058,965 11.97 Class B 120,949,564 10,071,167 12.01 Class C 5,338,784 448,976 11.89 Class I 12,824 1,070 11.99 Class R2 4,482 374 11.98 Class R3 138,368 11,549 11.98 Class R4 12,091,559 1,009,050 11.98 Class R5 4,482 374 11.98 Class W 4,551 380 11.98 ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Class A 85,394,093 21,986,547 3.88 Class B 29,411,794 8,128,195 3.62 Class C 3,421,880 945,054 3.62 Class I 51,476,161 12,858,908 4.00 Class R2 3,727 951 3.92 Class R3 3,743 951 3.94 Class R4 99,565 25,269 3.94 Class R5 3,757 951 3.95 ----------------------------------------------------------------------------------------------------------------- Precious Metals and Mining Class A 114,874,726 9,640,748 11.92 Class B 18,946,175 1,733,817 10.93 Class C 2,372,836 220,757 10.75 Class I 11,952 989 12.08 Class R4 126,163 10,436 12.09 ----------------------------------------------------------------------------------------------------------------- Small Cap Advantage Class A 230,690,809 57,253,295 4.03 Class B 56,041,681 15,694,536 3.57 Class C 4,766,747 1,332,984 3.58 Class I 6,231 1,484 4.20 Class R2 2,791 679 4.11 Class R3 2,800 679 4.12 Class R4 78,656 18,896 4.16 Class R5 2,814 679 4.14 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ----------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Class A 36,243,211 2,101,033 17.25 Class B 2,370,747 137,839 17.20 Class C 735,615 42,785 17.19 Class I 8,604,172 498,000 17.28 Class R5 8,637 500 17.27 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Class A 3,817,259 401,351 9.51 Class R2 4,456 468 9.52 Class R3 4,457 468 9.52 Class R4 4,457 468 9.52 Class R5 4,456 468 9.52 Class Y 12,474,568 1,310,311 9.52 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 56
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Class A $ 6,249,844 643,613 $ 9.71 Class R2 4,522 465 9.72 Class R3 4,526 465 9.73 Class R4 4,531 465 9.74 Class R5 4,528 465 9.74 Class Y 23,422,088 2,406,288 9.73 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Class A 3,300,828 343,364 9.61 Class R2 4,475 464 9.64 Class R3 4,479 464 9.65 Class R4 4,484 464 9.66 Class R5 4,483 464 9.66 Class Y 28,545,670 2,958,924 9.65 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Class A 2,654,172 275,106 9.65 Class R2 4,509 466 9.68 Class R3 4,509 466 9.68 Class R4 4,508 465 9.69 Class R5 4,508 465 9.69 Class Y 32,457,897 3,352,142 9.68 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Class A 3,045,696 313,665 9.71 Class R2 4,515 464 9.73 Class R3 4,525 464 9.75 Class R4 4,523 464 9.75 Class R5 4,522 464 9.75 Class Y 29,048,235 2,981,594 9.74 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Class A 1,525,615 158,788 9.61 Class R2 4,496 467 9.63 Class R3 4,500 467 9.64 Class R4 4,505 467 9.65 Class R5 4,501 467 9.64 Class Y 19,849,186 2,059,793 9.64 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Class A 1,439,574 151,317 9.51 Class R2 4,428 464 9.54 Class R3 4,433 464 9.55 Class R4 4,438 464 9.56 Class R5 4,433 464 9.55 Class Y 11,851,951 1,241,451 9.55 ----------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Class A 1,255,728 130,258 9.64 Class R2 4,500 466 9.66 Class R3 4,503 466 9.66 Class R4 4,507 466 9.67 Class R5 4,505 466 9.67 Class Y 9,024,069 933,476 9.67 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 57
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ----------------------------------------------------------------------------------------------------------------- High Yield Bond Class A $1,133,624,554 414,428,945 $ 2.74 Class B 173,554,717 63,456,498 2.74 Class C 18,643,745 6,860,137 2.72 Class I 72,462,449 26,516,567 2.73 Class R2 8,713 3,175 2.74 Class R3 4,652 1,695 2.74 Class R4 919,275 336,077 2.74 Class R5 4,640 1,695 2.74 Class W 22,509,875 8,291,217 2.71 ----------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth Class A 397,989,258 37,586,201 10.59 Class B 80,526,824 7,903,728 10.19 Class C 3,063,824 300,672 10.19 Class I 142,475,018 13,230,406 10.77 Class R2 98,864 9,311 10.62 Class R3 6,106 572 10.67 Class R4 194,176 18,142 10.70 Class R5 6,131 572 10.72 ----------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Class A 648,273,411 107,013,817 6.06 Class B 161,959,464 27,725,640 5.84 Class C 15,456,453 2,634,236 5.87 Class I 158,842,048 25,935,802 6.12 Class R4 756,584 123,925 6.11 ----------------------------------------------------------------------------------------------------------------- Partners Select Value Class A 322,819,045 66,170,721 4.88 Class B 76,607,986 16,502,135 4.64 Class C 6,664,913 1,436,484 4.64 Class I 20,062,162 4,037,490 4.97 Class R4 79,781 16,172 4.93 ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity Class A 196,047,618 36,467,629 5.38 Class B 25,634,234 5,074,867 5.05 Class C 2,237,185 443,555 5.04 Class I 9,369 1,724 5.43 Class R4 3,201,957 586,546 5.46 ----------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Class A 365,495,630 77,217,068 4.73 Class B 128,472,761 28,915,951 4.44 Class C 10,463,204 2,349,002 4.45 Class I 15,384,753 3,159,844 4.87 Class R2 234,161 49,214 4.76 Class R3 5,675 1,183 4.80 Class R4 248,829 51,701 4.81 Class R5 9,191,753 1,907,742 4.82 ----------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Class A 539,251,179 113,827,935 4.74 Class B 158,544,398 33,462,620 4.74 Class C 9,625,747 2,031,863 4.74 Class I 92,658,581 19,540,682 4.74 Class R4 4,755,371 1,003,265 4.74 Class W 4,986 1,053 4.74 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 58
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Class A $ 95,365,293 19,102,220 $ 4.99 Class B 33,665,806 6,741,320 4.99 Class C 4,185,697 838,003 4.99 Class I 221,547,618 44,419,486 4.99 Class R4 42,429,496 8,505,084 4.99 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ----------------------------------------------------------------------------------------------------------------- Dividend Opportunity Class A 1,166,836,238 151,153,162 7.72 Class B 171,162,689 22,320,646 7.67 Class C 21,336,365 2,787,614 7.65 Class I 196,677,710 25,428,411 7.73 Class R2 N/A N/A N/A Class R3 N/A N/A N/A Class R4 884,486 114,314 7.74 Class R5 N/A N/A N/A Class W 4,393 568 7.73 ----------------------------------------------------------------------------------------------------------------- Real Estate Class A 86,019,287 7,529,295 11.42 Class B 14,247,297 1,256,751 11.34 Class C 1,419,450 125,279 11.33 Class I 113,290,977 9,895,570 11.45 Class R4 109,251 9,603 11.38 Class W 3,128 275 11.37 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ----------------------------------------------------------------------------------------------------------------- Cash Management Class A 4,728,063,840 4,735,985,483 1.00 Class B 85,972,944 86,123,177 1.00 Class C 7,698,464 7,709,484 1.00 Class I 86,515,821 86,572,983 1.00 Class R5 4,990 5,000 1.00 Class W 38,283,118 38,307,096 1.00 Class Y 33,285,660 33,299,232 1.00 ----------------------------------------------------------------------------------------------------------------- Disciplined Equity Class A 1,067,408,739 181,520,585 5.88 Class B 35,383,368 6,102,723 5.80 Class C 2,787,743 482,134 5.78 Class I 391,424,906 66,059,325 5.93 Class R2 3,886 661 5.88 Class R3 3,892 661 5.89 Class R4 126,215,819 21,367,300 5.91 Class R5 3,897 661 5.90 Class W 1,355,143,677 231,124,956 5.86 ----------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Class A 16,737,687 1,995,771 8.39 Class B 1,001,638 121,121 8.27 Class C 162,845 19,685 8.27 Class I 15,280,626 1,816,335 8.41 Class R4 10,136 1,204 8.42 Class W 6,835,033 817,433 8.36 ----------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Class A 12,703,109 1,450,722 8.76 Class B 347,557 40,165 8.65 Class C 54,959 6,351 8.65 Class I 22,825,612 2,600,072 8.78 Class R2 3,982 455 8.75 Class R3 3,987 455 8.76 Class R4 8,777 1,000 8.78 Class R5 3,989 455 8.77 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 59
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Floating Rate Class A $ 261,075,201 29,120,778 $ 8.97 Class B 23,136,657 2,580,594 8.97 Class C 19,695,527 2,196,860 8.97 Class I 184,939,822 20,637,515 8.96 Class R4 183,544 20,426 8.99 Class R5 4,995 556 8.98 Class W 4,456 497 8.97 ----------------------------------------------------------------------------------------------------------------- Growth Class A 1,590,672,418 58,435,801 27.22 Class B 189,224,073 7,631,999 24.79 Class C 13,114,426 530,243 24.73 Class I 326,363,923 11,697,509 27.90 Class R2 4,280 155 27.61 Class R3 4,286 155 27.65 Class R4 55,923,087 2,013,270 27.78 Class R5 4,290 155 27.68 Class W 4,336 157 27.62 ----------------------------------------------------------------------------------------------------------------- Income Opportunities Class A 138,240,324 14,797,904 9.34 Class B 25,890,499 2,772,741 9.34 Class C 3,872,515 414,776 9.34 Class I 68,474,383 7,321,389 9.35 Class R4 142,584 15,216 9.37 ----------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Class A 222,999,226 21,714,361 10.27 Class B 36,023,542 3,509,539 10.26 Class C 10,682,613 1,040,718 10.26 Class I 402,165,599 39,165,376 10.27 Class R4 43,246 4,214 10.26 Class W 253,836,343 24,718,020 10.27 ----------------------------------------------------------------------------------------------------------------- Large Cap Equity Class A 3,388,815,212 750,529,476 4.52 Class B 432,695,950 98,119,285 4.41 Class C 20,752,067 4,701,508 4.41 Class I 38,943,788 8,562,931 4.55 Class R2 3,743 822 4.55 Class R3 3,749 822 4.56 Class R4 179,264,616 39,104,432 4.58 Class R5 3,789 822 4.61 ----------------------------------------------------------------------------------------------------------------- Large Cap Value Class A 35,085,132 8,397,421 4.18 Class B 7,328,116 1,765,846 4.15 Class C 659,182 159,562 4.13 Class I 11,230,530 2,671,840 4.20 Class R2 3,187 763 4.18 Class R3 3,192 763 4.18 Class R4 21,573 5,115 4.22 Class R5 3,253 763 4.26 ----------------------------------------------------------------------------------------------------------------- Limited Duration Bond Class A 62,676,888 6,707,418 9.34 Class B 7,350,615 786,840 9.34 Class C 1,600,298 171,367 9.34 Class I 105,609,598 11,296,909 9.35 Class R4 9,369 1,000 9.37 Class W 4,793 512 9.36
Statement of Additional Information - Dec. 30, 2008 Page 60
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ----------------------------------------------------------------------------------------------------------------- California Tax-Exempt Class A $ 172,038,905 35,097,770 $ 4.90 Class B 4,711,779 961,893 4.90 Class C 2,843,385 579,342 4.91 ----------------------------------------------------------------------------------------------------------------- Diversified Bond Class A 1,920,027,558 413,143,778 4.65 Class B 254,464,345 54,765,337 4.65 Class C 31,688,522 6,817,452 4.65 Class I 693,189,044 148,965,143 4.65 Class R2 9,610 2,067 4.65 Class R3 9,610 2,067 4.65 Class R4 75,478,505 16,261,328 4.64 Class R5 9,588 2,067 4.64 Class W 655,311,873 140,970,151 4.65 ----------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Class A 289,301,362 56,564,455 5.11 Class B 13,968,961 2,730,369 5.12 Class C 8,460,353 1,653,947 5.12 ----------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Class A 52,571,799 10,842,089 4.85 Class B 3,503,352 722,515 4.85 Class C 717,930 148,072 4.85 FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ----------------------------------------------------------------------------------------------------------------- Balanced Class A 634,072,106 69,966,655 9.06 Class B 26,100,296 2,897,118 9.01 Class C 3,748,762 416,783 8.99 Class R4 47,215,934 5,209,145 9.06 ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Class A 25,775,970 3,371,206 7.65 Class B 2,911,541 384,045 7.58 Class C 1,725,877 227,595 7.58 Class I 161,645,963 21,034,723 7.68 Class R2 7,654 1,000 7.65 Class R3 7,669 1,000 7.67 Class R4 22,347 2,910 7.68 Class R5 7,680 1,000 7.68 Class W 4,387 573 7.66 ----------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value Class A 394,708 43,191 9.14 Class B 19,345 2,120 9.13 Class C 9,124 1,000 9.12 Class I 8,359,169 914,414 9.14 Class R2 9,129 1,000 9.13 Class R3 9,134 1,000 9.13 Class R4 9,138 1,000 9.14 Class R5 9,142 1,000 9.14 Class W 9,135 1,000 9.14 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 61
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Diversified Equity Income Class A $4,504,417,578 483,974,117 $ 9.31 Class B 633,359,809 67,927,974 9.32 Class C 93,320,596 10,037,632 9.30 Class I 189,996,681 20,429,835 9.30 Class R2 7,727,583 832,912 9.28 Class R3 108,542,942 11,676,683 9.30 Class R4 182,738,003 19,618,165 9.31 Class R5 45,588,984 4,896,103 9.31 Class W 3,363 361 9.32 ----------------------------------------------------------------------------------------------------------------- Mid Cap Value Class A 1,745,361,398 244,325,635 7.14 Class B 164,379,864 23,826,489 6.90 Class C 54,137,367 7,844,791 6.90 Class I 15,525,593 2,138,378 7.26 Class R2 10,456,777 1,468,157 7.12 Class R3 30,952,140 4,330,118 7.15 Class R4 270,774,444 37,623,411 7.20 Class R5 65,029,360 9,020,432 7.21 Class W 3,638 506 7.19 ----------------------------------------------------------------------------------------------------------------- Strategic Allocation Class A 1,437,164,150 157,978,918 9.10 Class B 169,089,504 18,763,641 9.01 Class C 59,278,791 6,608,282 8.97 Class I 3,946 434 9.09 Class R2 3,946 434 9.09 Class R3 3,946 434 9.09 Class R4 6,812,658 748,545 9.10 Class R5 3,946 434 9.09 ----------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Class A 148,194,341 16,594,182 8.93 Class B 18,190,751 2,036,698 8.93 Class C 5,807,175 650,672 8.92 Class R2 4,797 537 8.93 Class R3 4,797 537 8.93 Class R4 4,797 537 8.93 Class R5 4,797 537 8.93 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ----------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Class A 175,659,037 17,625,597 9.97 Class B 3,268,605 328,166 9.96 Class C 9,463,358 951,266 9.95 Class I 202,106,353 20,252,851 9.98 Class R4 21,219 2,128 9.97 Class R5 9,399 942 9.98 Class W 303,933,095 30,493,927 9.97 ----------------------------------------------------------------------------------------------------------------- Disciplined International Equity Class A 56,469,388 9,374,248 6.02 Class B 9,774,655 1,653,855 5.91 Class C 1,125,907 190,230 5.92 Class I 103,041,181 16,963,698 6.07 Class R2 3,062 509 6.02 Class R3 3,064 509 6.02 Class R4 60,625 9,985 6.07 Class R5 3,068 509 6.03 Class W 249,098,785 41,391,645 6.02 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 62
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Class A $ 9,670,545 1,370,967 $ 7.05 Class B 1,178,353 167,178 7.05 Class C 190,923 27,123 7.04 Class I 65,282,310 9,254,282 7.05 Class R4 14,966 2,122 7.05 Class W 104,386,031 14,813,074 7.05 ----------------------------------------------------------------------------------------------------------------- Global Bond Class A 248,748,168 40,394,613 6.16 Class B 42,399,524 6,810,424 6.23 Class C 4,294,941 695,288 6.18 Class I 205,797,902 33,497,669 6.14 Class R4 118,425 19,229 6.16 Class W 135,156,943 21,988,540 6.15 ----------------------------------------------------------------------------------------------------------------- Global Technology Class A 68,868,177 41,145,420 1.67 Class B 15,072,741 10,575,597 1.43 Class C 1,965,181 1,374,828 1.43 Class I 4,802 2,785 1.72 Class R4 80,257 47,182 1.70 ----------------------------------------------------------------------------------------------------------------- Partners International Select Growth Class A 190,233,626 40,703,983 4.67 Class B 29,647,619 6,606,389 4.49 Class C 3,212,928 717,874 4.48 Class I 155,259,864 32,753,046 4.74 Class R4 549,030 116,504 4.71 ----------------------------------------------------------------------------------------------------------------- Partners International Select Value Class A 659,380,574 131,334,112 5.02 Class B 112,548,353 23,561,229 4.78 Class C 12,609,706 2,647,530 4.76 Class I 95,735,708 18,694,350 5.12 Class R4 557,748 109,344 5.10 ----------------------------------------------------------------------------------------------------------------- Partners International Small Cap Class A 27,160,173 7,106,419 3.82 Class B 4,963,699 1,344,161 3.69 Class C 450,022 122,028 3.69 Class I 14,279,407 3,686,270 3.87 Class R4 1,481,699 383,999 3.86 ----------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Class A 250,088,197 50,453,378 4.96 Class B 28,179,486 6,354,512 4.43 Class C 3,162,935 711,847 4.44 Class I 7,972 1,558 5.12 Class R4 782,170 152,215 5.14 Class R5 2,746 535 5.13 ----------------------------------------------------------------------------------------------------------------- Threadneedle European Equity Class A 57,915,534 14,934,494 3.88 Class B 10,080,353 2,636,641 3.82 Class C 954,195 250,456 3.81 Class I 5,191 1,336 3.89 Class R4 13,097 3,360 3.90 -----------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 63
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Class A $ 380,429,958 73,040,390 $ 5.21 Class B 42,166,196 8,654,662 4.87 Class C 4,754,813 985,451 4.83 Class I 3,498 666 5.25 Class R2 3,314 634 5.23 Class R3 3,322 634 5.24 Class R4 5,067,319 963,574 5.26 Class R5 3,329 634 5.25 Class W 3,342 639 5.23 ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income Class A 5,428,904 749,581 7.24 Class B 648,517 89,630 7.24 Class C 57,726 7,976 7.24 Class I 3,573,485 493,000 7.25 Class R2 7,248 1,000 7.25 Class R3 7,250 1,000 7.25 Class R4 8,696 1,199 7.25 Class R5 7,248 1,000 7.25 ----------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha Class A 2,207,567 158,009 13.97 Class B 238,583 17,116 13.94 Class C 93,733 6,724 13.94 Class I 3,445,776 246,500 13.98 Class R2 6,979 500 13.96 Class R3 6,984 500 13.97 Class R4 23,241 1,663 13.98 Class R5 6,988 500 13.98 Threadneedle International Opportunity Class A 248,481,494 38,086,295 6.52 Class B 26,534,037 4,183,815 6.34 Class C 1,937,373 308,820 6.27 Class I 72,732,880 11,020,753 6.60 Class R2 3,285 496 6.62 Class R3 3,293 496 6.64 Class R4 167,848 25,145 6.68 Class R5 3,299 496 6.65 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ----------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Class A $ 64,505,264 12,354,119 $ 5.22 Class B 6,781,519 1,299,956 5.22 Class C 2,813,599 539,303 5.22 ----------------------------------------------------------------------------------------------------------------- Mid Cap Growth Class A 851,757,317 69,144,794 12.32 Class B 136,717,100 12,727,934 10.74 Class C 6,698,934 623,776 10.74 Class I 53,521,078 4,198,962 12.75 Class R4 7,258,132 577,163 12.58 ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Class A 682,528,518 180,120,461 3.79 Class B 26,464,663 6,984,267 3.79 Class C 4,745,241 1,251,775 3.79
Statement of Additional Information - Dec. 30, 2008 Page 64
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE ----------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Class A $2,581,740,475 599,871,661 $ 4.30 Class B 79,940,264 18,578,815 4.30 Class C 13,358,573 3,102,677 4.31 ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ----------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 142,410,486 142,465,323 1.00 -----------------------------------------------------------------------------------------------------------------
FOR FUNDS OTHER THAN MONEY MARKET FUNDS. In determining net assets before shareholder transactions, a fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): - Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. - Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market. - Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. - Securities included in the NASDAQ National Market System for which a last- quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices. - Futures and options traded on major exchanges are valued at the last- quoted sales price on their primary exchange. - Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars utilizing spot exchange rates at the close of regular trading on the NYSE. - Occasionally, events affecting the value of securities occur between the time the primary market on which the securities are traded closes and the close of the Exchange. If events materially affect the value of securities, the securities will be valued at their fair value according to procedures decided upon in good faith by the Board. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is likely to be different from the quoted or published price. - Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. - Securities without a readily available market price and securities for which the price quotations or valuations received from other sources are deemed unreliable or not reflective of market value are valued at fair value as determined in good faith by the Board. The Board is responsible for selecting methods it believes provide fair value. - When possible, bonds are valued by a pricing service independent from the funds. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. The assets of funds-of-funds consist primarily of shares of the underlying funds, which are valued at their NAVs. Other securities held by funds-of-funds are valued as described above. FOR MONEY MARKET FUNDS. In accordance with Rule 2a-7 of the 1940 Act, all of the securities in the fund's portfolio are valued at amortized cost. The amortized cost method of valuation is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. Amortized cost does not take into consideration unrealized capital gains or losses. The Board has established procedures designed to stabilize the fund's price per share for purposes of sales and redemptions at $1, to the extent that it is reasonably possible to do so. These procedures include review of the fund's securities by the Board, at intervals deemed appropriate by it, to determine whether the fund's net asset value per share computed by using Statement of Additional Information - Dec. 30, 2008 Page 65 available market quotations deviates from a share value of $1 as computed using the amortized cost method. The Board must consider any deviation that appears and, if it exceeds 0.5%, it must determine what action, if any, needs to be taken. If the Board determines a deviation exists that may result in a material dilution of the holdings of current shareholders or investors, or in any other unfair consequences for shareholders, it must undertake remedial action that it deems necessary and appropriate. Such action may include withholding dividends, calculating net asset value per share for purposes of sales and redemptions using available market quotations, making redemptions in kind, and selling securities before maturity in order to realize capital gains or losses or to shorten average portfolio maturity. While the amortized cost method provides certainty and consistency in portfolio valuation, it may result in valuations of securities that are either somewhat higher or lower than the prices at which the securities could be sold. This means that during times of declining interest rates the yield on the fund's shares may be higher than if valuations of securities were made based on actual market prices and estimates of market prices. Accordingly, if using the amortized cost method were to result in a lower portfolio value, a prospective investor in the fund would be able to obtain a somewhat higher yield than the investor would get if portfolio valuations were based on actual market values. Existing shareholders, on the other hand, would receive a somewhat lower yield than they would otherwise receive. The opposite would happen during a period of rising interest rates. PORTFOLIO HOLDINGS DISCLOSURE Each fund's Board and the investment manager believe that the investment ideas of the investment manager with respect to management of a fund should benefit the fund and its shareholders, and do not want to afford speculators an opportunity to profit by anticipating fund trading strategies or by using fund portfolio holdings information for stock picking. However, each fund's Board also believes that knowledge of the fund's portfolio holdings can assist shareholders in monitoring their investments, making asset allocation decisions, and evaluating portfolio management techniques. Each fund's Board has therefore adopted the investment manager's policies and approved the investment manager's procedures, including the investment manager's oversight of subadviser practices, relating to disclosure of the fund's portfolio securities. These policies and procedures are intended to protect the confidentiality of fund portfolio holdings information and generally prohibit the release of such information until such information is made public, unless such persons have been authorized to receive such information on a selective basis, as described below. It is the policy of the fund not to provide or permit others to provide holdings information on a selective basis, and the investment manager does not intend to selectively disclose holdings information or expect that such holdings information will be selectively disclosed, except where necessary for the fund's operation or where there are legitimate business purposes for doing so and, in any case, where conditions are met that are designed to protect the interests of the fund and its shareholders. Although the investment manager seeks to limit the selective disclosure of portfolio holdings information and such selective disclosure is monitored under the fund's compliance program for conformity with the policies and procedures, there can be no assurance that these policies will protect the fund from the potential misuse of holdings information by individuals or firms in possession of that information. Under no circumstances may the investment manager, its affiliates or any employee thereof receive any consideration or compensation for disclosing such holdings information. A complete schedule of each fund's portfolio holdings is available semi-annually and annually in shareholder reports filed on Form N-CSR and, after the first and third fiscal quarters, in regulatory filings on Form N-Q. These shareholder reports and regulatory filings are filed with the SEC in accordance with federal securities laws and are generally available within sixty (60) days of the end of a fund's fiscal quarter, on the SEC's website. In addition, the investment manager makes publicly available information regarding a fund's top ten holdings (including name and percentage of a fund's assets invested in each such holding) and the percentage breakdown of a fund's investments by country, sector and industry, as applicable. This holdings information is generally made available through the website, marketing communications (including printed advertisements and sales literature), and/or telephone customer service centers that support the fund. This holdings information is generally as of a month-end and is not released until it is at least fifteen (15) days old. From time to time, the investment manager may make partial or complete fund holdings information that is not publicly available on the website or otherwise available in advance of the time restrictions noted above (1) to its affiliated and unaffiliated service providers that require the information in the normal course of business in order to provide services to the fund (including, without limitation entities identified by name in the fund's prospectus or this SAI, such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc., Vestek, Data Communique, Inc.), pricing services (including Reuters Pricing Service, FT Interactive Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting services (Institutional Shareholder Services), and companies that deliver or support systems that provide analytical or statistical information (including Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or rating of the fund by Statement of Additional Information - Dec. 30, 2008 Page 66 ratings and rankings agencies (including Morningstar, Inc., Thomson Financial and Lipper Inc.), (3) entities that provide trading, research or other investment related services (including Citigroup, Lehman Brothers Holdings, Merrill Lynch & Co., and Morgan Stanley), and (4) fund intermediaries that include the funds in discretionary wrap or other investment programs that request such information in order to support the services provided to investors in the programs. In such situations, the information is released subject to confidentiality agreements, duties imposed under applicable policies and procedures (for example, applicable codes of ethics) designed to prevent the misuse of confidential information, general duties under applicable laws and regulations, or other such duties of confidentiality. In addition, the fund discloses holdings information as required by federal, state or international securities laws, and may disclose holdings information in response to requests by governmental authorities, or in connection with litigation or potential litigation, a restructuring of a holding, where such disclosure is necessary to participate or explore participation in a restructuring of the holding (e.g., as part of a bondholder group), or to the issuer of a holding, pursuant to a request of the issuer or any other party who is duly authorized by the issuer. Each fund's Board has adopted the policies of the investment manager and approved the procedures Ameriprise Financial has established to ensure that the fund's holdings information is only disclosed in accordance with these policies. Before any selective disclosure of holdings information is permitted, the person seeking to disclose such holdings information must submit a written request to the Portfolio Holdings Committee ("PHC"). The PHC is comprised of members from the investment manager's General Counsel's Office, Compliance, and Communications. The PHC has been authorized by the fund's Board to perform an initial review of requests for disclosure of holdings information to evaluate whether there is a legitimate business purpose for selective disclosure, whether selective disclosure is in the best interests of a fund and its shareholders, to consider any potential conflicts of interest between the fund, the investment manager, and its affiliates, and to safeguard against improper use of holdings information. Factors considered in this analysis are whether the recipient has agreed to or has a duty to keep the holdings information confidential and whether risks have been mitigated such that the recipient has agreed or has a duty to use the holdings information only as necessary to effectuate the purpose for which selective disclosure was authorized, including a duty not to trade on such information. Before portfolio holdings may be selectively disclosed, requests approved by the PHC must also be authorized by a fund's Chief Compliance Officer or the fund's General Counsel. On at least an annual basis the PHC reviews the approved recipients of selective disclosure and, where appropriate, requires a resubmission of the request, in order to re-authorize any ongoing arrangements. These procedures are intended to be reasonably designed to protect the confidentiality of fund holdings information and to prohibit their release to individual investors, institutional investors, intermediaries that distribute the fund's shares, and other parties, until such holdings information is made public or unless such persons have been authorized to receive such holdings information on a selective basis, as set forth above. Although the investment manager has set up these procedures to monitor and control selective disclosure of holdings information, there can be no assurance that these procedures will protect a fund from the potential misuse of holdings information by individuals or firms in possession of that information. PROXY VOTING GENERAL GUIDELINES, POLICIES AND PROCEDURES The funds uphold a long tradition of supporting sound and principled corporate governance. For over 30 years, the Board, which consists of a majority of independent Board members, has determined policies and voted proxies. The funds' investment manager, RiverSource Investments, and the funds' administrator, Ameriprise Financial, provide support to the Board in connection with the proxy voting process. GENERAL GUIDELINES CORPORATE GOVERNANCE MATTERS -- The Board supports proxy proposals that it believes are tied to the interests of shareholders and votes against proxy proposals that appear to entrench management. For example: - The Board generally votes in favor of proposals for an independent chairman or, if the chairman is not independent, in favor of a lead independent director. - The Board supports annual election of all directors and proposals to eliminate classes of directors. - In a routine election of directors, the Board will generally vote with management's recommendations because the Board believes that management and nominating committees of independent directors are in the best position to know what qualifications are required of directors to form an effective board. However, the Board will generally vote against a nominee who has been assigned to the audit, compensation, or nominating committee if the nominee is not Statement of Additional Information - Dec. 30, 2008 Page 67 independent of management based on established criteria. The Board will also withhold support for any director who fails to attend 75% of meetings or has other activities that appear to interfere with his or her ability to commit sufficient attention to the company and, in general, will vote against nominees who are determined to have been involved in options backdating. - The Board generally supports proposals requiring director nominees to receive a majority of affirmative votes cast in order to be elected to the board, and opposes cumulative voting based on the view that each director elected should represent the interests of all shareholders. - Votes in a contested election of directors are evaluated on a case-by-case basis. In general, the Board believes that incumbent management and nominating committees, with access to more and better information, are in the best position to make strategic business decisions. However, the Board will consider an opposing slate if it makes a compelling business case for leading the company in a new direction. SHAREHOLDER RIGHTS PLANS -- The Board generally supports shareholder rights plans based on a belief that such plans force uninvited bidders to negotiate with a company's board. The Board believes these negotiations allow time for the company to maximize value for shareholders by forcing a higher premium from a bidder, attracting a better bid from a competing bidder or allowing the company to pursue its own strategy for enhancing shareholder value. The Board supports proposals to submit shareholder rights plans to shareholders and supports limiting the vote required for approval of such plans to a majority of the votes cast. AUDITORS -- The Board values the independence of auditors based on established criteria. The Board supports a reasonable review of matters that may raise concerns regarding an auditor's service that may cause the Board to vote against a management recommendation, including, for example, auditor involvement in significant financial restatements, options backdating, material weaknesses in control, attempts to limit auditor liability or situations where independence has been compromised. STOCK OPTION PLANS AND OTHER MANAGEMENT COMPENSATION ISSUES -- The Board expects company management to give thoughtful consideration to providing competitive long-term employee incentives directly tied to the interest of shareholders. The Board votes against proxy proposals that it believes dilute shareholder value excessively. The Board believes that equity compensation awards can be a useful tool, when not abused, for retaining employees and giving them incentives to engage in conduct that will improve the performance of the company. In this regard, the Board generally favors minimum holding periods of stock obtained by senior management pursuant to an option plan and will vote against compensation plans for executives that it deems excessive. SOCIAL AND CORPORATE POLICY ISSUES -- The Board believes proxy proposals should address the business interests of the corporation. Shareholder proposals sometime seek to have the company disclose or amend certain business practices based purely on social or environmental issues rather than compelling business arguments. In general, the Board recognizes our fund shareholders are likely to have differing views of social and environmental issues and believes that these matters are primarily the responsibility of a company's management and its board of directors. POLICIES AND PROCEDURES The policy of the Board is to vote all proxies of the companies in which a fund holds investments. Because of the volume and complexity of the proxy voting process, including inherent inefficiencies in the process that are outside the control of the Board or the Proxy Team (below), not all proxies may be voted. The Board has implemented policies and procedures that have been reasonably designed to vote proxies and to ensure that there are no conflicts between interests of a fund's shareholders and those of the funds' principal underwriters, RiverSource Investments, or other affiliated persons. In exercising its proxy voting responsibilities, the Board may rely upon the research or recommendations of one or more third party service providers. The administration of the proxy voting process is handled by the RiverSource Proxy Administration Team ("Proxy Team"). In exercising its responsibilities, the Proxy Team may rely upon one or more third party service providers. The Proxy Team assists the Board in identifying situations where its guidelines do not clearly require a vote in a particular manner and assists in researching matters and making voting recommendations. RiverSource Investments may recommend that a proxy be voted in a manner contrary to the Board's guidelines. In making recommendations to the Board about voting on a proposal, the investment manager relies on its own investment personnel (or the investment personnel of a fund's subadviser(s)) and information obtained from an independent research firm. The investment manager makes the recommendation in writing. The process requires that Board members who are independent from the investment manager consider the recommendation and decide how to vote the proxy proposal or establish a protocol for voting the proposal. Statement of Additional Information - Dec. 30, 2008 Page 68 On an annual basis, or more frequently as determined necessary, the Board reviews recommendations to revise the existing guidelines or add new guidelines. Recommendations are based on, among other things, industry trends and the frequency that similar proposals appear on company ballots. The Board considers management's recommendations as set out in the company's proxy statement. In each instance in which a fund votes against management's recommendation (except when withholding votes from a nominated director), the Board sends a letter to senior management of the company explaining the basis for its vote. This permits both the company's management and the Board to have an opportunity to gain better insight into issues presented by the proxy proposal(s). VOTING IN COUNTRIES OUTSIDE THE UNITED STATES (NON-U.S. COUNTRIES) -- Voting proxies for companies not domiciled in the United States may involve greater effort and cost due to the variety of regulatory schemes and corporate practices. For example, certain non-U.S. countries require securities to be blocked prior to a vote, which means that the securities to be voted may not be traded within a specified number of days before the shareholder meeting. The Board typically will not vote securities in non-U.S. countries that require securities to be blocked as the need for liquidity of the securities in the funds will typically outweigh the benefit of voting. There may be additional costs associated with voting in non-U.S. countries such that the Board may determine that the cost of voting outweighs the potential benefit. SECURITIES ON LOAN -- The Board will generally refrain from recalling securities on loan based upon its determination that the costs and lost revenue to the funds, combined with the administrative effects of recalling the securities, generally outweigh the benefit of voting the proxy. While neither the Board nor the funds' administrator assesses the economic impact and benefits of voting loaned securities on a case-by-case basis, situations may arise where the Board requests that loaned securities be recalled in order to vote a proxy. In this regard, if a proxy relates to matters that may impact the nature of a company, such as a proposed merger or acquisition, and the funds' ownership position is more significant, the Board has established a guideline to direct the funds' administrator to use its best efforts to recall such securities based upon its determination that, in these situations, the benefits of voting such proxies generally outweigh the costs or lost revenue to the funds, or any potential adverse administrative effects to the funds, of not recalling such securities. INVESTMENT IN AFFILIATED FUNDS -- Certain RiverSource funds may invest in shares of other RiverSource funds (referred to in this context as "underlying funds") and may own substantial portions of these underlying funds. The proxy policy of the funds is to ensure that direct public shareholders of underlying funds control the outcome of any shareholder vote. To help manage this potential conflict of interest, recognizing that the direct public shareholders of these underlying funds may represent only a minority interest, the policy of the funds is to vote proxies of the underlying funds in the same proportion as the vote of the direct public shareholders. If there are no direct public shareholders of an underlying fund, the policy is to cast votes in accordance with instructions from the independent members of the Board. OBTAIN A PROXY VOTING RECORD Each year the RiverSource funds file their proxy voting records with the SEC and make them available by August 31 for the 12-month period ending June 30 of that year. The records can be obtained without charge through riversource.com/funds or searching the website of the SEC at www.sec.gov. Statement of Additional Information - Dec. 30, 2008 Page 69 INVESTING IN A FUND SALES CHARGE FOR FUNDS OTHER THAN MONEY MARKET FUNDS: Investors should understand that the purpose and function of the initial sales charge and distribution fee for Class A shares is the same as the purpose and function of the contingent deferred sales charge ("CDSC") and distribution fee for Class B and Class C shares. The sales charges and distribution fees applicable to each class pay for the distribution of shares of a fund. Shares of a fund are sold at the public offering price. The public offering price is the NAV of one share adjusted for the sales charge for Class A. For Class B, Class C, Class D, Class E, Class I, Class R2, Class R3, Class R4, Class R5, Class W and Class Y there is no initial sales charge so the public offering price is the same as the NAV. CLASS A - CALCULATION OF THE SALES CHARGE Sales charges are determined as shown in the following tables. The first table is organized by investment category. You can find your fund's investment category in Table 1. TABLE 9. CLASS A SALES CHARGE For all funds EXCEPT Absolute Return Currency and Income, Floating Rate, Inflation Protected Securities, Intermediate Tax-Exempt, Limited Duration Bond and Short Duration U.S. Government:
--------------------------------------------------------------------------------- FUND-OF-FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME, TAXABLE FIXED BALANCED, EQUITY, FUND-OF- INCOME, TAX-EXEMPT FIXED FUNDS - EQUITY INCOME ---------------------------------------------------------- FUND CATEGORY SALES CHARGE* AS A PERCENTAGE OF: --------------------------------------------------------------------------------- PUBLIC PUBLIC OFFERING NET AMOUNT OFFERING NET AMOUNT TOTAL MARKET VALUE PRICE** INVESTED PRICE** INVESTED --------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 4.75% 4.99% --------------------------------------------------------------------------------- $50,000 - $99,999 4.75% 4.99% 4.25% 4.44% --------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.63% 3.50% 3.63% --------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% 2.50% 2.56% --------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% 2.00% 2.04% --------------------------------------------------------------------------------- $1,000,000 or more*** 0.00% 0.00% 0.00% 0.00% ---------------------------------------------------------------------------------
For Absolute Return Currency and Income, Floating Rate, Inflation Protected Securities, Intermediate Tax-Exempt, Limited Duration Bond and Short Duration U.S. Government:
----------------------------------------------------------------------------------------- SALES CHARGE* AS A PERCENTAGE OF SALES CHARGE* AS A PUBLIC OFFERING PERCENTAGE OF TOTAL MARKET VALUE PRICE** NET AMOUNT INVESTED ----------------------------------------------------------------------------------------- Up to $49,999 3.00% 3.09% ----------------------------------------------------------------------------------------- $50,000 - $99,999 3.00% 3.09% ----------------------------------------------------------------------------------------- $100,000 - $249,999 2.50% 2.56% ----------------------------------------------------------------------------------------- $250,000 - $499,999 2.00% 2.04% ----------------------------------------------------------------------------------------- $500,000 - $999,999 1.50% 1.52% ----------------------------------------------------------------------------------------- $1,000,000 or more*** 0.00% 0.00% -----------------------------------------------------------------------------------------
* Because of rounding in the calculation of purchase price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. ** Purchase price includes the sales charge. *** Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial institution the following: a sales commission of up to 1.00% for a sale with a total market value of $1,000,000 to $2,999,999; a sales commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a sales commission up to 0.25% for a sale of $10,000,000 or more. Using the sales charge schedule in the table above, for Class A, the public offering price for an investment of less than $50,000, made on the last day of the most recent fiscal period, was determined as shown in the following table. The sales charge is paid to the distributor by the person buying the shares. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Dec. 30, 2008 Page 70 TABLE 10. PUBLIC OFFERING PRICE
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ---------------------------------------------------------------------------------------------- Income Builder Basic Income $10.27 0.9525 $10.78 ---------------------------------------------------------------------------------------------- Income Builder Enhanced Income 10.05 0.9525 10.55 ---------------------------------------------------------------------------------------------- Income Builder Moderate Income 10.21 0.9525 10.72 ---------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 10.46 0.9425 11.10 ---------------------------------------------------------------------------------------------- Portfolio Builder Conservative 10.15 0.9525 10.66 ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate 10.46 0.9425 11.10 ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 10.48 0.9425 11.12 ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 10.28 0.9525 10.79 ---------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 10.53 0.9425 11.17 ---------------------------------------------------------------------------------------------- S&P 500 Index (for Class D) 4.90 No sales charge 4.90 ---------------------------------------------------------------------------------------------- Small Company Index 6.19 0.9425 6.57 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ---------------------------------------------------------------------------------------------- Equity Value 11.97 0.9425 12.70 ---------------------------------------------------------------------------------------------- Partners Small Cap Growth 3.88 0.9425 4.12 ---------------------------------------------------------------------------------------------- Precious Metals and Mining 11.92 0.9425 12.65 ---------------------------------------------------------------------------------------------- Small Cap Advantage 4.03 0.9425 4.28 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ---------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 17.25 0.9425 18.30 ---------------------------------------------------------------------------------------------- Retirement Plus 2010 9.51 0.9425 10.09 ---------------------------------------------------------------------------------------------- Retirement Plus 2015 9.71 0.9425 10.30 ---------------------------------------------------------------------------------------------- Retirement Plus 2020 9.61 0.9425 10.20 ---------------------------------------------------------------------------------------------- Retirement Plus 2025 9.65 0.9425 10.24 ---------------------------------------------------------------------------------------------- Retirement Plus 2030 9.71 0.9425 10.30 ---------------------------------------------------------------------------------------------- Retirement Plus 2035 9.61 0.9425 10.20 ---------------------------------------------------------------------------------------------- Retirement Plus 2040 9.51 0.9425 10.09 ---------------------------------------------------------------------------------------------- Retirement Plus 2045 9.64 0.9425 10.23 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ---------------------------------------------------------------------------------------------- High Yield Bond 2.74 0.9525 2.88 ---------------------------------------------------------------------------------------------- Partners Aggressive Growth 10.59 0.9425 11.24 ---------------------------------------------------------------------------------------------- Partners Fundamental Value 6.06 0.9425 6.43 ---------------------------------------------------------------------------------------------- Partners Select Value 4.88 0.9425 5.18 ---------------------------------------------------------------------------------------------- Partners Small Cap Equity 5.38 0.9425 5.71 ---------------------------------------------------------------------------------------------- Partners Small Cap Value 4.73 0.9425 5.02 ---------------------------------------------------------------------------------------------- Short Duration U.S. Government 4.74 0.9700 4.89 ---------------------------------------------------------------------------------------------- U.S. Government Mortgage 4.99 0.9525 5.24 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ---------------------------------------------------------------------------------------------- Dividend Opportunity 7.72 0.9425 8.19 ---------------------------------------------------------------------------------------------- Real Estate 11.42 0.9425 12.12 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ---------------------------------------------------------------------------------------------- Cash Management 1.00 No sales charge 1.00 ---------------------------------------------------------------------------------------------- Disciplined Equity 5.88 0.9425 6.24 ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 8.39 0.9425 8.90 ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value 8.76 0.9425 9.29 ---------------------------------------------------------------------------------------------- Floating Rate 8.97 0.9700 9.25 ----------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 71
PUBLIC NET ASSET 1.0 MINUS MAXIMUM OFFERING FUND VALUE SALES CHARGE PRICE ---------------------------------------------------------------------------------------------- Growth $27.22 0.9425 $28.88 ---------------------------------------------------------------------------------------------- Income Opportunities 9.34 0.9525 9.81 ---------------------------------------------------------------------------------------------- Inflation Protected Securities 10.27 0.9700 10.59 ---------------------------------------------------------------------------------------------- Large Cap Equity 4.52 0.9425 4.80 ---------------------------------------------------------------------------------------------- Large Cap Value 4.18 0.9425 4.44 ---------------------------------------------------------------------------------------------- Limited Duration Bond 9.34 0.9700 9.63 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ---------------------------------------------------------------------------------------------- California Tax-Exempt 4.90 0.9525 5.14 ---------------------------------------------------------------------------------------------- Diversified Bond 4.65 0.9525 4.88 ---------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 5.11 0.9525 5.36 ---------------------------------------------------------------------------------------------- New York Tax-Exempt 4.85 0.9525 5.09 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ---------------------------------------------------------------------------------------------- Balanced 9.06 0.9425 9.61 ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 7.65 0.9425 8.12 ---------------------------------------------------------------------------------------------- Disciplined Large Cap Value 9.14 0.9425 9.70 ---------------------------------------------------------------------------------------------- Diversified Equity Income 9.31 0.9425 9.88 ---------------------------------------------------------------------------------------------- Mid Cap Value 7.14 0.9425 7.58 ---------------------------------------------------------------------------------------------- Strategic Allocation 9.10 0.9425 9.66 ---------------------------------------------------------------------------------------------- Strategic Income Allocation 8.93 0.9525 9.38 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ---------------------------------------------------------------------------------------------- Absolute Return Currency and Income 9.97 0.9700 10.28 ---------------------------------------------------------------------------------------------- Disciplined International Equity 6.02 0.9425 6.39 ---------------------------------------------------------------------------------------------- Emerging Markets Bond 7.05 0.9525 7.40 ---------------------------------------------------------------------------------------------- Global Bond 6.16 0.9525 6.47 ---------------------------------------------------------------------------------------------- Global Technology 1.67 0.9425 1.77 ---------------------------------------------------------------------------------------------- Partners International Select Growth 4.67 0.9425 4.95 ---------------------------------------------------------------------------------------------- Partners International Select Value 5.02 0.9425 5.33 ---------------------------------------------------------------------------------------------- Partners International Small Cap 3.82 0.9425 4.05 ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 4.96 0.9425 5.26 ---------------------------------------------------------------------------------------------- Threadneedle European Equity 3.88 0.9425 4.12 ---------------------------------------------------------------------------------------------- Threadneedle Global Equity 5.21 0.9425 5.53 ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 7.24 0.9425 7.68 ---------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 13.97 0.9425 14.82 ---------------------------------------------------------------------------------------------- Threadneedle International Opportunity 6.52 0.9425 6.92 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ---------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 5.22 0.9525 5.48 ---------------------------------------------------------------------------------------------- Mid Cap Growth 12.32 0.9425 13.07 ---------------------------------------------------------------------------------------------- Tax-Exempt Bond 3.79 0.9525 3.98 ---------------------------------------------------------------------------------------------- Tax-Exempt High Income 4.30 0.9525 4.51 ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ---------------------------------------------------------------------------------------------- Tax-Exempt Money Market 1.00 No sales charge 1.00 ----------------------------------------------------------------------------------------------
CLASS A - LETTER OF INTENT (LOI) If you intend to invest $50,000 or more over a period of time, you may be able to reduce the sales charge for investments in Class A by completing a LOI form and committing to invest a certain amount. The LOI must be filed with and accepted in good order by the distributor. The LOI can start at any time and you will have up to 13 months to fulfill your commitment. Existing Rights of Accumulation (ROA) can be included in your LOI. For example, a shareholder currently has $60,000 ROA in RiverSource funds. Shareholder completes an LOI to invest $100,000 in RiverSource funds (ROA eligible Statement of Additional Information - Dec. 30, 2008 Page 72 accounts). Shareholder only needs to invest an additional $40,000 in RiverSource funds' Class A shares in order to fulfill the LOI commitment and receive reduced front-end sales charge(s) over the next 13 months. Your investments will be charged the sales charge that applies to the amount you have committed to invest under the LOI. Five percent of the commitment amount will be placed in escrow. The LOI will remain in effect for the entire 13 months, even if you reach your commitment amount. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. Once the LOI has ended, future sales charges will be determined by ROA or the total value of the new investment combined with the market value of the existing RiverSource fund investments as described in the prospectus. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. The commitment amount does not include purchases in any class of RiverSource funds other than Class A; does not include any new reinvested dividends and directed dividends earned in any RiverSource funds during the 13- month period; purchases in RiverSource funds held within a wrap product; and purchases of RiverSource Cash Management Fund and RiverSource Tax-Exempt Money Market Fund unless they are subsequently exchanged to Class A shares of a RiverSource fund within the 13 month period. A LOI is not an option (absolute right) to buy shares. If you purchase shares through different channels, for example, in a brokerage account or through a third party, you must inform your financial institution in writing about the LOI when placing any purchase orders during the period of the LOI. If you do not complete and file the LOI form, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. CLASS B SHARES Class B shares have a CDSC for six years. For Class B shares purchased prior to May 21, 2005, those shares will convert to Class A shares in the ninth calendar year of ownership. For Class B shares purchased beginning May 21, 2005, those shares will convert to Class A shares one month after the eighth year of ownership. CLASS C SHARES Class C shares are available to all investors. Class C shares are sold without a front-end sales charge. For Class C shares, a 1% CDSC may apply if shares are sold within one year after purchase. Class C shares are subject to a distribution fee. CLASS D SHARES Class D shares are offered through wrap fee programs or other investment products. Class D shares are sold without a front-end sales charge or CDSC. Class D shares are subject to a distribution fee. CLASS E SHARES Class E shares are offered to qualifying institutional investors and brokerage accounts. Class E shares are sold without a front-end sales charge or CDSC. Class E shares are subject to a plan administration fee. CLASS I SHARES Class I shares are offered to qualifying institutional investors. Class I shares are sold without a front-end sales charge or CDSC. CLASS R SHARES Class R2, Class R3, Class R4 and Class R5 shares are offered to certain institutional investors. Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or a CDSC. Class R2 and Class R3 shares are subject to a distribution fee. Class R2, Class R3 and R4 shares are subject to a plan administration fee. The following investors are eligible to purchase Class R2, Class R3, Class R4 and Class R5 shares: - Qualified employee benefit plans; - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code; - Nonqualified deferred compensation plans; - State sponsored college savings plans established under Section 529 of the Internal Revenue Code; - Health Savings Accounts (HSAs) created pursuant to public law 108-173. Additionally, the following eligible investors may purchase Class R5 shares: - Institutional or corporate accounts above a threshold established by the distributor (currently $1 million per fund or $10 million in all RiverSource funds); and - Bank Trusts. Statement of Additional Information - Dec. 30, 2008 Page 73 CLASS W SHARES Class W shares are offered to qualifying discretionary accounts. Class W shares are sold without a front-end sales charge or CDSC. Class W shares are subject to a distribution fee. CLASS Y SHARES Class Y shares are offered to certain institutional investors. Class Y shares are sold without a front-end sales charge or a CDSC. Class Y shares are subject to a plan administration fee. The following investors are eligible to purchase Class Y shares: - Qualified employee benefit plans; - Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code; - Nonqualified deferred compensation plans; and - State sponsored college savings plans established under Section 529 of the Internal Revenue Code. In addition, for Class I, Class R and Class W shares, the distributor, in its sole discretion, may accept investments from other purchasers not listed above. REJECTION OF BUSINESS Each fund and RiverSource Distributors, Inc. reserve the right to reject any business, in its sole discretion. SELLING SHARES You have a right to sell your shares at any time. For an explanation of sales procedures, please see the applicable prospectus. During an emergency, the Board can suspend the computation of NAV, stop accepting payments for purchase of shares, or suspend the duty of a fund to redeem shares for more than seven days. Such emergency situations would occur if: - The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or - Disposal of a fund's securities is not reasonably practicable or it is not reasonably practicable for the fund to determine the fair value of its net assets, or, - The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should a fund stop selling shares, the Board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute these costs fairly among all shareholders. Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the fund as determined by the Board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should a fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. PAY-OUT PLANS You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem shares, you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties, and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of a fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. Statement of Additional Information - Dec. 30, 2008 Page 74 To start any of these plans, please consult your financial institution. Your authorization must be received at least five days before the date you want your payments to begin. Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual basis. Your choice is effective until you change or cancel it. CAPITAL LOSS CARRYOVER For federal income tax purposes, certain funds had total capital loss carryovers at the end of the most recent fiscal period that, if not offset by subsequent capital gains, will expire as follows. Because the measurement periods for a regulated investment company's income are different for excise tax purposes verses income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the funds are permitted to treat net capital losses realized between November 1 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. The total capital loss carryovers below include post- October losses, if applicable. It is unlikely that the Board will authorize a distribution of any net realized capital gains until the available capital loss carryover has been offset or has expired except as required by Internal Revenue Service rules. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 11. CAPITAL LOSS CARRYOVER
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 -------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income $ 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 870,491 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- S&P 500 Index(a) 1,885,594 -- -- 1,885,594 -- -- -------------------------------------------------------------------------------------------------------------------------- Small Company Index 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 -------------------------------------------------------------------------------------------------------------------------- Equity Value 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 6,394,289 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 4,849,573 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 37,352,005 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 --------------------------------------------------------------------------------------------------------- Income Builder Basic Income -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income -- -- -- -- 870,491 --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity -- -- -- -- -- --------------------------------------------------------------------------------------------------------- S&P 500 Index(a) -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Small Company Index -- -- -- -- -- --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 --------------------------------------------------------------------------------------------------------- Equity Value -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Partners Small Cap Growth -- -- -- -- 6,394,289 --------------------------------------------------------------------------------------------------------- Precious Metals and Mining -- -- -- -- 4,849,573 --------------------------------------------------------------------------------------------------------- Small Cap Advantage -- -- -- -- 37,352,005 ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 75
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 -------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 1,239,657 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 103,637 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 -------------------------------------------------------------------------------------------------------------------------- High Yield Bond $1,376,549,063 0 226,001,198 517,121,802 552,664,309 0 -------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 1,129,815,010 0 763,613,904 315,348,051 23,741,111 27,111,944 -------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Partners Select Value 15,718,808 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 20,350,484 0 0 14,147,440 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 5,425,972 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 183,673,285 0 117,356,906 0 0 0 -------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 210,465 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 -------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 343,927,468 0 0 0 343,927,468 0 -------------------------------------------------------------------------------------------------------------------------- Real Estate 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 -------------------------------------------------------------------------------------------------------------------------- Cash Management 8,101,462 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 17,293,096 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 3,831,834 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Floating Rate 17,326,421 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Growth 202,027,584 0 0 0 178,158,939 0 -------------------------------------------------------------------------------------------------------------------------- Income Opportunities 12,433,543 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 235,009,471 0 60,717,128 20,982,455 9,473,267 0 -------------------------------------------------------------------------------------------------------------------------- Large Cap Value 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 2,491,213 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 --------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 0 0 0 0 1,239,657 --------------------------------------------------------------------------------------------------------- Retirement Plus 2010 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Retirement Plus 2015 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Retirement Plus 2020 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Retirement Plus 2025 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Retirement Plus 2030 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Retirement Plus 2035 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Retirement Plus 2040 0 0 0 0 103,637 --------------------------------------------------------------------------------------------------------- Retirement Plus 2045 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 --------------------------------------------------------------------------------------------------------- High Yield Bond 0 19,078,058 0 6,050,907 55,632,789 --------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 0 0 0 0 0 --------------------------------------------------------------------------------------------------------- Partners Fundamental Value -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Partners Select Value 0 0 0 0 15,718,808 --------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 0 0 0 0 6,203,044 --------------------------------------------------------------------------------------------------------- Partners Small Cap Value 0 0 0 0 5,425,972 --------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 36,267,962 20,469,230 9,579,187 0 0 --------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 0 0 210,465 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 --------------------------------------------------------------------------------------------------------- Dividend Opportunity 0 0 0 0 0 --------------------------------------------------------------------------------------------------------- Real Estate -- -- -- -- -- --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 --------------------------------------------------------------------------------------------------------- Cash Management 0 0 0 6,554 8,094,908 --------------------------------------------------------------------------------------------------------- Disciplined Equity -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 0 93,125 21,904 2,186,828 14,991,239 --------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 0 0 0 554,680 3,277,154 --------------------------------------------------------------------------------------------------------- Floating Rate 0 0 33,562 3,488,601 13,804,258 --------------------------------------------------------------------------------------------------------- Growth 0 0 0 0 23,868,645 --------------------------------------------------------------------------------------------------------- Income Opportunities 0 0 0 1,946,556 10,486,987 --------------------------------------------------------------------------------------------------------- Inflation Protected Securities -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Large Cap Equity 0 0 0 0 143,836,621 --------------------------------------------------------------------------------------------------------- Large Cap Value -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 2,205,797 0 285,416 ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 76
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 1,415,210 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Diversified Bond 125,823,517 0 56,247,571 49,658,521 0 5,227,159 -------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 2,765,793 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 102,852 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 -------------------------------------------------------------------------------------------------------------------------- Balanced 718,823,723 0 0 294,910,142 368,676,980 24,886,878 -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 5,736,409 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 24,253 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 11,089 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 -------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income $ 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 23,521,188 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 2,399,388 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Global Bond 6,492,562 0 0 3,665,053 0 0 -------------------------------------------------------------------------------------------------------------------------- Global Technology 348,953,680 0 250,345,326 81,299,227 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 57,544,459 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Partners International Select Value 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 16,740,416 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 8,838,403 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 45,298,067 0 19,489,378 16,514,518 5,021,215 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 404,243,287 0 170,490,067 143,634,885 30,509,951 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 182,867 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 577,229 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 246,866,293 0 137,301,860 59,231,998 38,262,972 0 -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 --------------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 0 $359,905 $1,055,305 --------------------------------------------------------------------------------------------------------- Diversified Bond 2,996,287 9,840,520 0 0 1,853,459 --------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 1,199,755 913,006 3,601 0 649,431 --------------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 0 0 3,668 99,184 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 --------------------------------------------------------------------------------------------------------- Balanced 0 0 0 0 30,349,723 --------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 0 0 0 0 5,736,409 --------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0 0 0 24,253 0 --------------------------------------------------------------------------------------------------------- Diversified Equity Income -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Mid Cap Value -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Strategic Allocation -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Strategic Income Allocation 0 0 0 0 11,089 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 --------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Disciplined International Equity 0 0 0 23,521,188 0 --------------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 0 2,399,388 0 --------------------------------------------------------------------------------------------------------- Global Bond 0 498,771 0 2,328,738 0 --------------------------------------------------------------------------------------------------------- Global Technology 0 0 0 17,309,127 0 --------------------------------------------------------------------------------------------------------- Partners International Select Growth 0 0 0 57,544,459 0 --------------------------------------------------------------------------------------------------------- Partners International Select Value -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 0 16,740,416 0 --------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 0 8,838,403 0 --------------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 0 0 4,272,956 0 --------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 0 0 0 59,608,384 0 --------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 0 0 0 182,867 0 --------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0 0 0 577,229 0 --------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 0 0 12,069,463 0 ---------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 77
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012 -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 177,579 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 729,269 0 0 0 0 0 -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 22,784 166 0 18,332 0 0 -------------------------------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017 --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 --------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0 177,579 0 0 0 --------------------------------------------------------------------------------------------------------- Mid Cap Growth -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 729,269 0 0 0 --------------------------------------------------------------------------------------------------------- Tax-Exempt High Income -- -- -- -- -- --------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 --------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 4,286 0 0 0 0 ---------------------------------------------------------------------------------------------------------
(a) The fund also had recognized built-in losses of $3,602,230 at Jan. 31, 2008, that if not offset by capital gains, will expire as follows: $41,050 in 2012, $3,259,225 in 2013, $235,890 in 2014 and $66,065 in 2015. TAXES SUBCHAPTER M COMPLIANCE Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code as a regulated investment company. Each fund intends to maintain its qualification as a regulated investment company by meeting certain requirements relating to distributions, source of income, and asset diversification. Distribution requirements include distributing at least 90% of the fund's investment company taxable income and tax-exempt ordinary income to fund shareholders each taxable year. The source of income rules require that at least 90% of the fund's gross income be derived from dividends, interest, certain payments with respect to securities loans, gain from the sale or other disposition of stock, securities or foreign currencies (subject to certain limitations), and certain other income derived with respect to its business of investing in stock, securities or currencies, and net income from certain interests in qualified publicly traded partnerships. Asset diversification requirements are met when the Fund owns, at the end of each quarter of its taxable year, a portfolio, 50% of which includes cash and cash items, U.S. government securities, securities of other regulated investment companies and, securities of other issuers in which the fund has not invested more than 5% of the value of the fund's assets (or 10% of the value of the outstanding voting securities of any one issuer). Also, no more than 25% of the fund's assets may be invested in the securities of any one issuer or two or more issuers which the fund controls and which are engaged in the same or similar trades or businesses (excepting U.S. government securities and securities of other regulated investment companies) or the securities of one or more qualified publicly traded partnerships. This is a simplified description of the relevant laws. If the fund fails to qualify as a regulated investment company under Subchapter M, the fund would be taxed as a corporation on the entire amount of its taxable income without a dividends paid deduction. Also, "all of" a shareholder's distributions would become ordinary dividends (or could be treated as a return of capital, if there weren't sufficient earnings and profits). Under federal tax law, by the end of a calendar year a fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. The fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. Each fund intends to comply with federal tax law and avoid any excise tax. For purposes of the excise tax distributions, section 988 ordinary gains and losses are distributable based on an Oct. 31 year end. This is an exception to the general rule that ordinary income is paid based on a calendar year end. The fund intends to distribute sufficient dividends within each calendar year, as well as on a fiscal year basis, to avoid income and excise taxes. A fund may be subject to U.S. taxes resulting from holdings in passive foreign investment companies (PFIC). To avoid unfavorable tax consequences, a fund may make an election to mark to market its PFIC investments. A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or 50% or more of the average value of its assets consists of assets that produce or could produce passive income. Income earned by a fund may have had foreign taxes imposed and withheld on it in foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of a fund's total assets at the close of its fiscal year consists of securities of foreign corporations, the fund will be eligible to file an election with the Internal Revenue Service (IRS) under which shareholders of the fund would be required to include their pro rata portions of foreign taxes withheld by foreign countries as gross income in their federal income tax returns. These pro rata portions of foreign taxes withheld may be taken as a credit or deduction in computing the shareholders' federal income taxes. If the Statement of Additional Information - Dec. 30, 2008 Page 78 election is filed, the fund will report to its shareholders the per share amount of such foreign taxes withheld and the amount of foreign tax credit or deduction available for federal income tax purposes. A fund may use equalization payments to satisfy its requirement to make distributions of net investment income and capital gain net income. Equalization payments occur when a fund allocates a portion of its net investment income and realized capital gain net income to redemptions of fund shares. These payments reduce the amount of taxable distributions paid to shareholders. The IRS has not issued any guidance concerning the methods used to allocate investment income and capital gain to redemptions of shares. If the IRS determines that a fund is using an improper method of allocation for these purposes, the fund may be liable for additional federal income tax. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state, and local income tax laws to fund distributions. See Appendix B for more information regarding state tax-exempt funds. EXCHANGES For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. If you sell shares for less than their cost, the difference is a capital loss. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held more than one year). A capital loss on a sale or redemption of a security in a nonqualified account may be disallowed for tax purposes if the same or a substantially identical security is purchased or acquired within 30 days before or after the date of the loss transaction. This is called a wash sale. When a wash sale occurs, the loss is disallowed to the extent of shares repurchased, and the cost basis on the security acquired is increased by the amount of the loss that is disallowed. The loss is disallowed in a nonqualified account whether the purchase is in a nonqualified account or in an IRA or Roth IRA, however, an individual's cost basis in an IRA or Roth IRA is not increased due to the wash sale rules. The wash sale rules apply only to capital losses. Sales of securities that result in capital gains are generally recognized when incurred. If you buy Class A shares and within 91 days exchange into another fund, you may not include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. FOR EXAMPLE You purchase 100 shares of an equity fund having a public offering price of $10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of $9.425 per share, the value of your investment is $942.50. Within 91 days of purchasing that fund, you decide to exchange out of that fund, now at a NAV of $11.00 per share, up from the original NAV of $9.425, and purchase a second fund, at a NAV of $15.00 per share. The value of your investment is now $1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load when calculating your tax gain or loss in the sale of the first fund shares. So instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50 gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the calculation of your tax gain or loss when you sell shares in the second fund. The following paragraphs provide information based on a fund's investment category. You can find your fund's investment category in Table 1. FOR STATE TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT FIXED INCOME FUNDS, all distributions of net investment income during the fund's fiscal year will have the same percentage designated as tax-exempt. This percentage is expected to be substantially the same as the percentage of tax-exempt income actually earned during any particular distribution period. FOR BALANCED, EQUITY, FUNDS-OF-FUNDS, TAXABLE MONEY MARKET AND TAXABLE FIXED INCOME FUNDS, if you have a nonqualified investment in a fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the fund, you can do so without paying a sales charge. However, this type of exchange is considered a redemption of shares and may result in a gain or loss for tax purposes. See wash sale discussion above. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged exceeds annual contribution limitations. You should consult your tax advisor for further details about this complex subject. DISTRIBUTIONS DIVIDENDS Net investment income dividends received should be treated as dividend income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of a fund's dividend that is attributable to dividends the fund received from domestic (U.S.) securities. If there is debt-financed portfolio stock, that is, bank financing Statement of Additional Information - Dec. 30, 2008 Page 79 is used to purchase long securities, the 70% dividends received deduction would be reduced by the average amount of portfolio indebtedness divided by the average adjusted basis in the stock. This does not impact the qualified dividend income available to individual shareholders. For the most recent fiscal period, net investment income dividends qualified for the corporate deduction as shown in the following table. Only certain qualified dividend income (QDI) will be subject to the 15% and 0% (for lower-bracket taxpayers) tax rates for 2008-2010. QDI is dividends earned from domestic corporations and qualified foreign corporations. Qualified foreign corporations are corporations incorporated in a U.S. possession, corporations whose stock is readily tradable on an established U.S. securities market (ADRs), and certain other corporations eligible for relief under an income tax treaty with the U.S. that includes an exchange of information agreement. PFICs are excluded from this treatment. Holding periods for shares must also be met to be eligible for QDI treatment (more than 60 days for common stock and more than 90 days for certain preferred's dividends). The QDI for individuals for the most recent fiscal period is shown in the table below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 12. CORPORATE DEDUCTION AND QUALIFIED DIVIDEND INCOME
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 -------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) 13.76% 16.17% -------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) 12.60 16.13 -------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) 16.31 19.46 -------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 26.29 37.78 -------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 6.13 8.87 -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 13.84 20.15 -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 20.05 29.14 -------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 10.92% 15.29% -------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 36.08 52.38 -------------------------------------------------------------------------------------------------- S&P 500 Index 100.00 100.00 -------------------------------------------------------------------------------------------------- Small Company Index 100.00 100.00 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 -------------------------------------------------------------------------------------------------- Equity Value 100.00 100.00 -------------------------------------------------------------------------------------------------- Partners Small Cap Growth 7.42 7.52 -------------------------------------------------------------------------------------------------- Precious Metals and Mining 1.58 7.77 -------------------------------------------------------------------------------------------------- Small Cap Advantage 21.98 23.84 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 -------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 0 0 -------------------------------------------------------------------------------------------------- Retirement Plus 2010 23.79 26.60 -------------------------------------------------------------------------------------------------- Retirement Plus 2015 29.19 33.29 -------------------------------------------------------------------------------------------------- Retirement Plus 2020 31.05 36.77 -------------------------------------------------------------------------------------------------- Retirement Plus 2025 35.39 42.66 -------------------------------------------------------------------------------------------------- Retirement Plus 2030 38.20 46.35 -------------------------------------------------------------------------------------------------- Retirement Plus 2035 37.21 44.99 -------------------------------------------------------------------------------------------------- Retirement Plus 2040 36.10 43.63 -------------------------------------------------------------------------------------------------- Retirement Plus 2045 33.06 39.67 --------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 80
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 -------------------------------------------------------------------------------------------------- High Yield Bond 0 0 -------------------------------------------------------------------------------------------------- Partners Aggressive Growth 0 0 -------------------------------------------------------------------------------------------------- Partners Fundamental Value 100.00 100.00 -------------------------------------------------------------------------------------------------- Partners Select Value 28.75 30.44 -------------------------------------------------------------------------------------------------- Partners Small Cap Equity 0 0 -------------------------------------------------------------------------------------------------- Partners Small Cap Value 53.50 83.57 -------------------------------------------------------------------------------------------------- Short Duration U.S. Government 0 0 -------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 -------------------------------------------------------------------------------------------------- Dividend Opportunity 100.00 100.00 -------------------------------------------------------------------------------------------------- Real Estate 1.69 15.81 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 -------------------------------------------------------------------------------------------------- Cash Management 0% 0% -------------------------------------------------------------------------------------------------- Disciplined Equity 100.00 100.00 -------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 100.00 100.00 -------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 100.00 100.00 -------------------------------------------------------------------------------------------------- Floating Rate 0 0 -------------------------------------------------------------------------------------------------- Growth 100.00 100.00 -------------------------------------------------------------------------------------------------- Income Opportunities 0 0 -------------------------------------------------------------------------------------------------- Inflation Protected Securities 0 0 -------------------------------------------------------------------------------------------------- Large Cap Equity 100.00 100.00 -------------------------------------------------------------------------------------------------- Large Cap Value 100.00 100.00 -------------------------------------------------------------------------------------------------- Limited Duration Bond 0 0 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 -------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 -------------------------------------------------------------------------------------------------- Diversified Bond 0 0 -------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 0 0 -------------------------------------------------------------------------------------------------- New York Tax-Exempt 0 0 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 -------------------------------------------------------------------------------------------------- Balanced 60.12 64.58 -------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 100.00 100.00 -------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0 0 -------------------------------------------------------------------------------------------------- Diversified Equity Income 100.00 100.00 -------------------------------------------------------------------------------------------------- Mid Cap Value 100.00 100.00 -------------------------------------------------------------------------------------------------- Strategic Allocation 52.43 76.74 -------------------------------------------------------------------------------------------------- Strategic Income Allocation 4.53 3.90 --------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 81
PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 -------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 0 0 -------------------------------------------------------------------------------------------------- Disciplined International Equity 0.54 100.00 -------------------------------------------------------------------------------------------------- Emerging Markets Bond 0 0 -------------------------------------------------------------------------------------------------- Global Bond 0 0 -------------------------------------------------------------------------------------------------- Global Technology 0 0 -------------------------------------------------------------------------------------------------- Partners International Select Growth 6.48 100.00 -------------------------------------------------------------------------------------------------- Partners International Select Value 0 0 -------------------------------------------------------------------------------------------------- Partners International Small Cap 0 0 -------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 0 0 -------------------------------------------------------------------------------------------------- Threadneedle European Equity 0 100.00 -------------------------------------------------------------------------------------------------- Threadneedle Global Equity 100.00 100.00 -------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 100.00 100.00 -------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 0 0 -------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 0 100.00 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 -------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 0% 0% -------------------------------------------------------------------------------------------------- Mid Cap Growth 0 0 -------------------------------------------------------------------------------------------------- Tax-Exempt Bond 0 0 -------------------------------------------------------------------------------------------------- Tax-Exempt High Income 0 0 -------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 -------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 --------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. The information shown is for the period from June 1, 2007 through Jan. 31, 2008. CAPITAL GAINS DISTRIBUTIONS Capital gain distributions, if any, received by shareholders should be treated as long-term capital gains regardless of how long shareholders owned their shares. Short-term capital gains earned by a fund are paid to shareholders as part of their ordinary income dividend and are taxable as ordinary income. Special rates on capital gains may apply to sales of precious metals, if any, owned directly by a fund and to investments in REITs. Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable to fluctuations in exchange rates that occur between the time a fund accrues interest or other receivables, or accrues expenses or other liabilities denominated in a foreign currency and the time the fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition may be treated as ordinary or capital gains or losses. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of a fund's investment company taxable income to be distributed to its shareholders as ordinary income. RETURN OF CAPITAL If a mutual fund is the holder of record of any share of stock on the record date for any dividend payable with respect to the stock, the dividend will be included in gross income by the fund as of the later of (1) the date the share became ex-dividend or (2) the date the fund acquired the share. Because the dividends on some foreign equity investments may be received some time after the stock goes ex-dividend, and in certain rare cases may never be received by the fund, this rule may cause a fund to pay income to its shareholders that it has not actually received. To the extent that the dividend is never received, the fund will take a loss at the time that a determination is made that the dividend will not be received. If a fund's distributions exceed its current and accumulated earnings and profits, that portion of the fund's distributions will be treated as a return of capital to its shareholders. A return of capital will generally not be taxable, however, any amounts Statement of Additional Information - Dec. 30, 2008 Page 82 received in excess of a shareholder's tax basis are treated as capital gain. Forms 1099 will be sent to shareholders to report any return of capital. SERVICE PROVIDERS INVESTMENT MANAGEMENT SERVICES RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreements, the investment manager, subject to the policies set by the Board, provides investment management services. For its services, the investment manager is paid a monthly fee based on the following schedule. Each class of a fund pays its proportionate share of the fee. The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. TABLE 13. INVESTMENT MANAGEMENT SERVICES AGREEMENT FEE SCHEDULE
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity First $0.25 0.950% 0.950% Next 0.25 0.930 Next 0.50 0.910 Over 1.0 0.890 ------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income First 1.0 0.890 0.890 Next 1.0 0.865 Next 1.0 0.840 Next 3.0 0.815 Next 1.5 0.790 Next 1.5 0.775 Next 1.0 0.770 Next 5.0 0.760 Next 5.0 0.750 Next 4.0 0.740 Next 26.0 0.720 Over 50.0 0.700 ------------------------------------------------------------------------------------------------------------------------------ Balanced First 1.0 0.530 0.530 Next 1.0 0.505 Next 1.0 0.480 Next 3.0 0.455 Next 1.5 0.430 Next 2.5 0.410 Next 5.0 0.390 Next 9.0 0.370 Over 24.0 0.350 ------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt First 0.25 0.410 California - 0.410 Minnesota Tax-Exempt Next 0.25 0.385 Minnesota - 0.405 New York Tax-Exempt Next 0.25 0.360 New York - 0.410 Next 0.25 0.345 Next 6.5 0.320 Next 2.5 0.310 Next 5.0 0.300 Next 9.0 0.290 Next 26.0 0.270 Over 50.0 0.250 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 83
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Cash Management First $1.0 0.330% 0.285% Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 ------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity First 1.0 0.600 Disciplined Equity - 0.575 Disciplined Large Cap Growth Next 1.0 0.575 Disciplined Large Cap Growth - 0.600 Disciplined Large Cap Value Next 1.0 0.550 Disciplined Large Cap Value - 0.600 Diversified Equity Income Next 3.0 0.525 Diversified Equity Income - 0.551 Growth Next 1.5 0.500 Growth - 0.584 Large Cap Equity Next 2.5 0.485 Large Cap Equity - 0.562 Large Cap Value Next 5.0 0.470 Large Cap Value - 0.600 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 ------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity First 0.25 0.800 Disciplined International Equity - 0.790 Threadneedle European Equity Next 0.25 0.775 Threadneedle European Equity - 0.800 Threadneedle Global Equity Next 0.25 0.750 Threadneedle Global Equity - 0.789 Threadneedle Global Equity Income Next 0.25 0.725 Threadneedle Global Equity Income - 0.800 Threadneedle International Opportunity Next 1.0 0.700 Threadneedle International Opportunity - 0.793 Next 5.5 0.675 Next 2.5 0.660 Next 5.0 0.645 Next 5.0 0.635 Next 4.0 0.610 Next 26.0 0.600 Over 50.0 0.570 ------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity First 1.0 0.700 Disciplined Small and Mid Cap Mid Cap Growth Next 1.0 0.675 Equity - 0.700 Next 1.0 0.650 Mid Cap Growth - 0.699 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 ------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value First 0.25 0.850 0.850 Next 0.25 0.825 Next 0.25 0.800 Next 0.25 0.775 Next 1.0 0.750 Over 2.0 0.725 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 84
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Diversified Bond First $1.0 0.480% Diversified Bond - 0.446% Limited Duration Bond Next 1.0 0.455 Limited Duration Bond - 0.480 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 ------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity First 0.50 0.610 0.584 Next 0.50 0.585 Next 1.0 0.560 Next 1.0 0.535 Next 3.0 0.510 Next 4.0 0.480 Next 5.0 0.470 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 ------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond First 0.25 0.720 Emerging Markets Bond - 0.720 Global Bond Next 0.25 0.695 Global Bond - 0.699 Next 0.25 0.670 Next 0.25 0.645 Next 6.5 0.620 Next 2.5 0.605 Next 5.0 0.590 Next 5.0 0.580 Next 4.0 0.560 Next 26.0 0.540 Over 50.0 0.520 ------------------------------------------------------------------------------------------------------------------------------ Equity Value First 0.50 0.530 0.517 Next 0.50 0.505 Next 1.0 0.480 Next 1.0 0.455 Next 3.0 0.430 Over 6.0 0.400 ------------------------------------------------------------------------------------------------------------------------------ Floating Rate First 1.0 0.610 0.610 Income Opportunities Next 1.0 0.585 Next 1.0 0.560 Next 3.0 0.535 Next 1.5 0.510 Next 1.5 0.495 Next 1.0 0.470 Next 5.0 0.455 Next 5.0 0.445 Next 4.0 0.420 Next 26.0 0.405 Over 50.0 0.380 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 85
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Global Technology First $0.25 0.720% 0.720% Next 0.25 0.695 Next 0.25 0.670 Next 0.25 0.645 Next 1.0 0.620 Over 2.0 0.595 ------------------------------------------------------------------------------------------------------------------------------ High Yield Bond First 1.0 0.590 0.583 Next 1.0 0.565 Next 1.0 0.540 Next 3.0 0.515 Next 1.5 0.490 Next 1.5 0.475 Next 1.0 0.450 Next 5.0 0.435 Next 5.0 0.425 Next 4.0 0.400 Next 26.0 0.385 Over 50.0 0.360 ------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income(a) N/A N/A N/A Income Builder Enhanced Income(a) Income Builder Moderate Income(a) Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 ------------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities First 1.0 0.440 0.440 Next 1.0 0.415 Next 1.0 0.390 Next 3.0 0.365 Next 1.5 0.340 Next 1.5 0.325 Next 1.0 0.320 Next 5.0 0.310 Next 5.0 0.300 Next 4.0 0.290 Next 26.0 0.270 Over 50.0 0.250 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 86
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt First $1.0 0.390% 0.390% Next 1.0 0.365 Next 1.0 0.340 Next 3.0 0.315 Next 1.5 0.290 Next 2.5 0.280 Next 5.0 0.270 Next 35.0 0.260 Over 50.0 0.250 ------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value First 1.0 0.700 0.682 Next 1.0 0.675 Next 1.0 0.650 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 ------------------------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth First 0.50 0.890 0.885 Next 0.50 0.865 Next 1.0 0.840 Next 1.0 0.815 Next 3.0 0.790 Over 6.0 0.765 ------------------------------------------------------------------------------------------------------------------------------ Partners Fundamental Value First 0.50 0.730 0.718 Next 0.50 0.705 Next 1.0 0.680 Next 1.0 0.655 Next 3.0 0.630 Over 6.0 0.600 ------------------------------------------------------------------------------------------------------------------------------ Partners International Select Growth First 0.25 1.000 0.992 Next 0.25 0.975 Next 0.25 0.950 Next 0.25 0.925 Next 1.0 0.900 Over 2.0 0.875 ------------------------------------------------------------------------------------------------------------------------------ Partners International Select Value First 0.25 0.900 0.868 Next 0.25 0.875 Next 0.25 0.850 Next 0.25 0.825 Next 1.0 0.800 Over 2.0 0.775 ------------------------------------------------------------------------------------------------------------------------------ Partners International Small Cap First 0.25 1.120 1.120 Next 0.25 1.095 Next 0.25 1.070 Next 0.25 1.045 Next 1.0 1.020 Over 2.0 0.995 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 87
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Partners Select Value First $0.50 0.780% 0.780% Next 0.50 0.755 Next 1.0 0.730 Next 1.0 0.705 Next 3.0 0.680 Over 6.0 0.650 ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity First 0.25 0.970 0.970 Next 0.25 0.945 Next 0.25 0.920 Next 0.25 0.895 Over 1.0 0.870 ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Growth First 0.25 0.920 0.920 Next 0.25 0.895 Next 0.25 0.870 Next 0.25 0.845 Next 1.0 0.820 Over 2.0 0.795 ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Value First 0.25 0.970 0.955 Next 0.25 0.945 Next 0.25 0.920 Next 0.25 0.895 Over 1.0 0.870 ------------------------------------------------------------------------------------------------------------------------------ Precious Metals and Mining First 0.25 0.800 0.800 Next 0.25 0.775 Next 0.25 0.750 Next 0.25 0.725 Next 1.0 0.700 Over 2.0 0.675 ------------------------------------------------------------------------------------------------------------------------------ Real Estate First 1.0 0.840 0.840 Next 1.0 0.815 Next 1.0 0.790 Next 3.0 0.765 Next 6.0 0.740 Next 12.0 0.730 Over 24.0 0.720 ------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index First 1.0 0.220 0.220 Next 1.0 0.210 Next 1.0 0.200 Next 4.5 0.190 Next 2.5 0.180 Next 5.0 0.170 Next 9.0 0.160 Next 26.0 0.140 Over 50.0 0.120 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 88
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government First $1.0 0.480% 0.480% Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.340 Next 5.0 0.325 Next 5.0 0.315 Next 4.0 0.290 Next 26.0 0.275 Over 50.0 0.250 ------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage First 0.25 0.790 0.786 Next 0.25 0.765 Next 0.25 0.740 Next 0.25 0.715 Next 1.0 0.690 Over 2.0 0.665 ------------------------------------------------------------------------------------------------------------------------------ Small Company Index First 0.25 0.360 0.350 Next 0.25 0.350 Next 0.25 0.340 Next 0.25 0.330 Next 6.5 0.320 Next 7.5 0.300 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.240 ------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation First 1.0 0.570 0.560 Next 1.0 0.545 Next 1.0 0.520 Next 3.0 0.495 Next 1.5 0.470 Next 2.5 0.450 Next 5.0 0.430 Next 9.0 0.410 Over 24.0 0.390 ------------------------------------------------------------------------------------------------------------------------------ Strategic Income Allocation First 0.25 0.550 0.550 Next 0.25 0.525 Next 0.25 0.500 Over 0.75 0.475 ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond First 1.0 0.410 0.410 Next 1.0 0.385 Next 1.0 0.360 Next 3.0 0.335 Next 1.5 0.310 Next 2.5 0.300 Next 5.0 0.290 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.250 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 89
DAILY RATE ON ASSETS ANNUAL RATE AT LAST DAY OF MOST FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income First $1.0 0.470% 0.448% Next 1.0 0.445 Next 1.0 0.420 Next 3.0 0.395 Next 1.5 0.370 Next 2.5 0.360 Next 5.0 0.350 Next 9.0 0.340 Next 26.0 0.320 Over 50.0 0.300 ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market First 1.0 0.330 0.330 Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets First 0.25 1.100 1.100 Next 0.25 1.080 Next 0.25 1.060 Next 0.25 1.040 Next 1.0 1.020 Next 5.5 1.000 Next 2.5 0.985 Next 5.0 0.970 Net 5.0 0.960 Next 4.0 0.935 Next 26.0 0.920 Over 50.0 0.900 ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Alpha First 0.25 1.050 1.050 Next 0.25 1.030 Next 0.50 1.010 Next 1.0 0.990 ------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage First 1.0 0.480 0.480 Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 ------------------------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. The information shown is as of Jan. 31, 2008. Statement of Additional Information - Dec. 30, 2008 Page 90 Under the agreement, a fund also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees and charges; fidelity bond premiums; certain legal fees; registration fees for shares; consultants' fees; compensation of Board members, officers and employees not employed by the investment manager or its affiliates; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; interest and fee expense related to a fund's participation in inverse floater structures; and expenses properly payable by a fund, approved by the Board. For Equity and Balanced Funds, except for S&P 500 Index and Small Company Index, before the fee based on the asset charge is paid, it is adjusted for the fund's investment performance relative to a Performance Incentive Adjustment Index (PIA Index) as shown in the table below. The adjustment increased or decreased the fee for the last fiscal period as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 14. PIA INDEXES
FEE INCREASE OR FUND PIA INDEX (DECREASE) ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MARCH 31 ---------------------------------------------------------------------------------------------- Equity Value Lipper Large-Cap Value Funds $ 615,240 ---------------------------------------------------------------------------------------------- Partners Small Cap Growth Lipper Small-Cap Growth Funds 58,432 ---------------------------------------------------------------------------------------------- Precious Metals and Mining Lipper Gold Funds (79,535) ---------------------------------------------------------------------------------------------- Small Cap Advantage Lipper Small-Cap Core Funds (641,110) ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING APRIL 30 ---------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Russell 3000 Index N/A* ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MAY 31 ---------------------------------------------------------------------------------------------- Partners Aggressive Growth Lipper Mid-Cap Growth Funds 491,209 ---------------------------------------------------------------------------------------------- Partners Fundamental Value Lipper Large-Cap Core Funds(a) 219,383 ---------------------------------------------------------------------------------------------- Partners Select Value Lipper Mid-Cap Value Funds(b) 465,782 ---------------------------------------------------------------------------------------------- Partners Small Cap Equity Lipper Small-Cap Core Funds (75,993) ---------------------------------------------------------------------------------------------- Partners Small Cap Value Lipper Small-Cap Value Funds (289,756) ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JUNE 30 ---------------------------------------------------------------------------------------------- Dividend Opportunity Lipper Equity Income Funds 916,530 ---------------------------------------------------------------------------------------------- Real Estate Lipper Real Estate Funds (190,002) ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JULY 31 ---------------------------------------------------------------------------------------------- Disciplined Equity Lipper Large-Cap Core Funds (1,361,345) ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds (79,088) ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value Lipper Small-Cap Value Funds (38,280) ---------------------------------------------------------------------------------------------- Growth Lipper Large-Cap Growth Funds (3,707,468) ---------------------------------------------------------------------------------------------- Large Cap Equity Lipper Large-Cap Core Funds (4,214,418) ---------------------------------------------------------------------------------------------- Large Cap Value Lipper Large-Cap Value Funds (58,120) ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING SEPTEMBER 30 ---------------------------------------------------------------------------------------------- Balanced Lipper Balanced Funds (787,804) ---------------------------------------------------------------------------------------------- Disciplined Large Cap Growth Lipper Large-Cap Growth Funds (106,808) ---------------------------------------------------------------------------------------------- Disciplined Large Cap Value Lipper Large-Cap Value Funds N/A* ---------------------------------------------------------------------------------------------- Diversified Equity Income Lipper Equity Income Funds 4,992,605 ---------------------------------------------------------------------------------------------- Mid Cap Value Lipper Mid-Cap Value Funds 1,681,079 ---------------------------------------------------------------------------------------------- Strategic Allocation Lipper Flexible Portfolio Funds (1,260,515) ----------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 91
FEE INCREASE OR FUND LIPPER INDEX (DECREASE) ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING OCTOBER 31 ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Disciplined International Equity Funds $ (213,635) ---------------------------------------------------------------------------------------------- Lipper Global Science and Technology Global Technology Funds(c) (148,556) ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Partners International Select Growth Growth Funds (387,870) ---------------------------------------------------------------------------------------------- Lipper International Multi-Cap Value Partners International Select Value Funds (2,449,779) ---------------------------------------------------------------------------------------------- Partners International Small Cap Lipper International Small-Cap Funds (51,416) ---------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Lipper Emerging Markets Funds 507,378 ---------------------------------------------------------------------------------------------- Threadneedle European Equity Lipper European Funds 19,559 ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Lipper Global Funds 393,409 ---------------------------------------------------------------------------------------------- Threadneedle Global Equity Income MSCI All Country World Index N/A* ---------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha MSCI All Country World Index N/A* ---------------------------------------------------------------------------------------------- Lipper International Large-Cap Core Threadneedle International Opportunity Funds 119,014 ---------------------------------------------------------------------------------------------- FISCAL YEAR ENDING NOVEMBER 30 ---------------------------------------------------------------------------------------------- Mid Cap Growth Lipper Mid-Cap Growth Funds (1,678,023) ----------------------------------------------------------------------------------------------
* See section titled "Transition Period" below. (a) The index against which the fund's performance was measured prior to Jan. 1, 2008 was the Lipper Large-Cap Value Funds Index. See "Change in Index" below. (b) The index against which the fund's performance was measured prior to Jan. 1, 2008 was the Lipper Multi-Cap Value Funds Index. See "Change in Index" below. (c) The index against which the fund's performance was measured prior to July 1, 2008 was the Lipper Science and Technology Funds Index. See "Change in Index" below. FOR ALL FUNDS NOTED IN TABLE 14 EXCEPT 120/20 CONTRARIAN EQUITY AND THREADNEEDLE GLOBAL EXTENDED ALPHA: The adjustment will be determined monthly by measuring the percentage difference over a rolling 12-month period (subject to earlier determination based on the Transition Period, as set forth below) between the annualized performance of one Class A share of the fund and the annualized performance of the Index ("performance difference"). The performance difference is then used to determine the adjustment rate. The adjustment rate, computed to five decimal places, is determined in accordance with the following table and is applied against average daily net assets for the applicable rolling 12-month period or Transition Period, and divided by 12 to obtain the fee reflecting the performance fee adjustment for that month. The table is organized by fund category. You can find your fund's category in Table 1. Statement of Additional Information - Dec. 30, 2008 Page 92 TABLE 15A. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION
-------------------------------------------------------------------------------------------------------- EQUITY FUNDS BALANCED FUNDS -------------------------------------------------------------------------------------------------------- PERFORMANCE PERFORMANCE DIFFERENCE ADJUSTMENT RATE DIFFERENCE ADJUSTMENT RATE -------------------------------------------------------------------------------------------------------- 0.00% - 0.50% 0 0.00% - 0.50% 0 -------------------------------------------------------------------------------------------------------- 0.50% - 1.00% 6 basis points times the 0.50% - 1.00% 6 basis points times the performance difference over 0.50%, performance difference over 0.50%, times 100 (maximum of 3 basis times 100 (maximum of 3 basis points if a 1% performance points if a 1% performance difference) difference) -------------------------------------------------------------------------------------------------------- 1.00% - 2.00% 3 basis points, plus 3 basis points 1.00% - 2.00% 3 basis points, plus 3 basis points times the performance difference times the performance difference over 1.00%, times 100 (maximum 6 over 1.00%, times 100 (maximum 6 basis points if a 2% performance basis points if a 2% performance difference) difference) -------------------------------------------------------------------------------------------------------- 2.00% - 4.00% 6 basis points, plus 2 basis points 2.00% - 3.00% 6 basis points, plus 2 basis points times the performance difference times the performance difference over 2.00%, times 100 (maximum 10 over 2.00%, times 100 (maximum 8 basis points if a 4% performance basis points if a 3% performance difference) difference) -------------------------------------------------------------------------------------------------------- 4.00% - 6.00% 10 basis points, plus 1 basis point 3.00% or 8 basis points times the performance difference more over 4.00%, times 100 (maximum 12 basis points if a 6% performance difference) -------------------------------------------------------------------------------------------------------- 6.00% or more 12 basis points --------------------------------------------------------------------------------------------------------
For example, if the performance difference for an Equity Fund is 2.38%, the adjustment rate is 0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38% performance difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)). Rounded to five decimal places, the adjustment rate is 0.00068. The maximum adjustment rate for the fund is 0.0012 per year. Where the fund's Class A performance exceeds that of the Index, the fee paid to the investment manager will increase. Where the performance of the Index exceeds the performance of the fund's Class A shares, the fee paid to the investment manager will decrease. The 12-month comparison period rolls over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. TRANSITION PERIOD The performance incentive adjustment will not be calculated for the first 6 months from the inception of the fund. After 6 full calendar months, the performance fee adjustment will be determined using the average assets and performance difference over the first 6 full calendar months, and the adjustment rate will be applied in full. Each successive month an additional calendar month will be added to the performance adjustment computation. After 12 full calendar months, the full rolling 12-month period will take affect. CHANGE IN INDEX If an Index ceases to be published for a period of more than 90 days, changes in any material respect, otherwise becomes impracticable or, at the discretion of the Board, is no longer appropriate to use for purposes of a performance incentive adjustment, for example, if Lipper reclassifies the fund from one peer group to another, the Board may take action it deems appropriate and in the best interests of shareholders, including: (1) discontinuance of the performance incentive adjustment until such time as it approves a substitute index; or (2) adoption of a methodology to transition to a substitute index it has approved. In the case of a change in index, a fund's performance will be compared to a 12 month blended index return that reflects the performance of the current index for the portion of the 12 month performance measurement period beginning the effective date of the current index and the performance of the prior index for the remainder of the measurement period. At the conclusion of the transition period, the performance of the prior index will be eliminated from the performance incentive adjustment calculation, and the calculation will include only the performance of the current index. FOR 120/20 CONTRARIAN EQUITY AND THREADNEEDLE GLOBAL EXTENDED ALPHA: The adjustment will be determined monthly by measuring the percentage difference over a rolling 36-month period (subject to earlier determination based on the Transition Period, as set forth below) between the annualized performance of one Class A share of the fund and the annualized performance of the Index ("performance difference"). The performance difference will then be used to determine the adjustment rate. The adjustment rate, computed to five decimal places, is determined in Statement of Additional Information - Dec. 30, 2008 Page 93 accordance with the following table and is applied against average daily net assets for the applicable rolling 36-month period or Transition Period, and divided by 12 to obtain the fee reflecting the performance fee adjustment for that month. TABLE 15B. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION
----------------------------------------------------------------------------------------- PERFORMANCE DIFFERENCE ADJUSTMENT RATE ----------------------------------------------------------------------------------------- 0.00% - 1.00% 0 ----------------------------------------------------------------------------------------- 1.00% - 6.00% 10 basis points times the performance difference over 1.00%, times 100 (maximum 50 basis points if a 6% performance difference) ----------------------------------------------------------------------------------------- 6.00% or more 50 basis points -----------------------------------------------------------------------------------------
For example, if the Performance Difference is 2.38%, the adjustment rate is 0.00138 [the 1.38% performance difference over 1.00%] x 0.0010 [10 basis points] x 100. Rounded to five decimal places, the adjustment rate is 0.00138. This Adjustment Rate of 0.00138 is then applied against the average daily net assets for the applicable rolling 36-month or Transition Period, and divided by 12, which provides the performance adjustment fee for that month. Where the fund's Class A performance exceeds that of the Index for the applicable rolling 36- month period or Transition Period, the fee paid to the Investment Manager will increase by the adjustment rate. Where the performance of the Index exceeds the performance of the fund's Class A shares for the applicable rolling 36-month period or Transition Period, the fee paid to the Investment Manager will decrease by the adjustment rate. The 36-month comparison period rolls over with each succeeding month, so that it always equals 36 months, ending with the month for which the performance adjustment is being computed. TRANSITION PERIOD The performance incentive adjustment will not be calculated for the first 24 months from the inception of the fund. After 24 full calendar months, the performance fee adjustment will be determined using the average assets and Performance Difference over the first 24 full calendar months, and the Adjustment Rate will be applied in full. Each successive month an additional calendar month will be added to the performance adjustment computation. After 36 full calendar months, the full rolling 36-month period will take affect. CHANGE IN INDEX If an Index ceases to be published for a period of more than 90 days, changes in any material respect, otherwise becomes impracticable or, at the discretion of the Board, is no longer appropriate to use for purposes of a performance incentive adjustment, the Board may take action it deems appropriate and in the best interests of shareholders, including: (1) discontinuance of the performance incentive adjustment until such time as it approves a substitute index, or (2) adoption of a methodology to transition to a substitute index it has approved. In the case of a change in index, a fund's performance will be compared to a 36 month blended index return that reflects the performance of the current index for the portion of the 36 month performance measurement period beginning the effective date of the current index and the performance of the prior index for the remainder of the measurement period. At the conclusion of the transition period, the performance of the prior index will be eliminated from the performance incentive adjustment calculation, and the calculation will include only the performance of the current index. Statement of Additional Information - Dec. 30, 2008 Page 94 The table below shows the total management fees paid by each fund for the last three fiscal periods as well as nonadvisory expenses, net of earnings credits, waivers and expenses reimbursed by the investment manager and its affiliates. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 16. MANAGEMENT FEES AND NONADVISORY EXPENSES
-------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES -------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 -------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) N/A N/A N/A $ 103,636 $ 145,971 $ 3,184(b) -------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income(a) N/A N/A N/A 134,546 153,282 6,657(b) -------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income(a) N/A N/A N/A 129,062 202,410 7,419(b) -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive N/A N/A* $ 204,941 168,942 209,004 154,484 -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A* 71,579 96,147 134,788 117,318 -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A* 342,180 247,980 246,216 251,538 -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive N/A N/A* 418,633 247,472 355,360 269,480 -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative N/A N/A* 137,483 117,533 140,615 144,243 -------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A* 165,740 173,675 188,843 122,935 -------------------------------------------------------------------------------------------------------------------- S&P 500 Index $ 579,548 $ 566,109 706,270 (254,777) (272,996) (357,906) -------------------------------------------------------------------------------------------------------------------- Small Company Index 3,292,392 3,889,499 4,419,815 (1,007,306) (662,392) 471,768 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 -------------------------------------------------------------------------------------------------------------------- Equity Value 6,797,853 6,969,436 7,043,854 413,170 361,720 400,520 -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 1,887,518 2,066,992 1,878,991 99,186 111,014 343,335 -------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 956,280 876,127 579,779 175,405 144,337 207,159 -------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 2,903,208 4,703,119 5,845,601 (383,991) (252,816) 510,707 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 -------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 159,311(c) N/A N/A 21,297(c) N/A N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A 41 4,075(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A 310 3,927(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A 745 6,231(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A 332 4,478(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A 431 2,766(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A 487 878(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A (796) 2,640(d) N/A -------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A (2,131) (2,522)(d) N/A -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 -------------------------------------------------------------------------------------------------------------------- High Yield Bond 9,610,810 11,401,845 12,713,321 665,785 481,606 688,374 -------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 5,729,264 4,627,106 1,950,153 (786,490) (1,047,823) (167,264) -------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 7,668,633 7,530,722 7,971,622 (213,176) (215,041) 501,862 -------------------------------------------------------------------------------------------------------------------- Partners Select Value 4,388,735 4,807,861 5,211,061 (142,897) (162,440) 330,794 -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 2,441,742 2,964,236 2,525,974 (539,268) (464,274) (134,739) -------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 6,511,571 9,159,989 9,285,758 (972,781) (878,605) 735,477 -------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 3,816,196 4,419,003 6,683,201 (771,512) (1,025,939) (1,688,300) -------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 1,958,404 1,348,887 1,327,433 (389,262) (438,473) (549,885) --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 95
-------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES -------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 -------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $12,015,660 $10,678,661 $ 7,688,134 $ 626,341 $ 540,349 $ 480,473 -------------------------------------------------------------------------------------------------------------------- Real Estate 1,667,040 2,299,121 1,398,778 138,649 207,925 153,244 -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 -------------------------------------------------------------------------------------------------------------------- Cash Management 15,026,220 12,713,351 10,801,723 1,290,897 859,062 (1,747,535) -------------------------------------------------------------------------------------------------------------------- Disciplined Equity 17,556,244 14,110,274 5,175,451 726,080 (202,920) (83,131) -------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 365,578 273,481 13,335(e) 125,645 91,799 4,577(e) -------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 286,759 206,071 49,035(f) 33,868 37,535 9,684(f) -------------------------------------------------------------------------------------------------------------------- Floating Rate 3,509,190 3,332,472 412,667(f) 293,676 151,486 19,402(f) -------------------------------------------------------------------------------------------------------------------- Growth 12,541,267 22,705,786 19,922,079 850,735 954,358 1,214,759 -------------------------------------------------------------------------------------------------------------------- Income Opportunities 1,767,885 2,116,555 2,229,460 196,944 187,627 198,512 -------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 2,554,103 1,313,892 1,078,635 (238,396) (126,032) (45,905) -------------------------------------------------------------------------------------------------------------------- Large Cap Equity 25,467,893 39,667,264 20,724,477 (995,206) 1,168,504 682,652 -------------------------------------------------------------------------------------------------------------------- Large Cap Value 401,168 602,406 715,200 205,428 184,710 186,504 -------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 792,200 726,809 990,881 (78,320) (73,339) (96,959) -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 -------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 715,946 717,999 1,008,174(g) 44,499 20,854 (8,449)(g) -------------------------------------------------------------------------------------------------------------------- Diversified Bond 14,772,880 12,770,016 12,388,294 (461,298) (1,129,485) (1,870,049) -------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 1,246,083 1,351,439 1,898,065(g) 506,328 676,782 599,362(g),(h) -------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 242,807 279,438 402,241(g) 75,790 134,099 133,306(g),(h) -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 -------------------------------------------------------------------------------------------------------------------- Balanced 3,977,541 6,315,077 5,690,832 437,940 368,447 563,493 -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 905,956 114,048(i) N/A 195,661 54,709(i) N/A -------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 6,618(j) N/A N/A 2,877(j) N/A N/A -------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 44,177,652 42,530,087 37,321,661 1,905,627 1,561,033 1,761,776 -------------------------------------------------------------------------------------------------------------------- Mid Cap Value 18,813,340 15,908,732 11,459,838 992,201 826,273 728,841 -------------------------------------------------------------------------------------------------------------------- Strategic Allocation 10,108,947 11,025,000 7,064,937 1,047,907 921,198 665,164 -------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 904,660 168,875(i) N/A 294,099 76,656(i) N/A -------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 -------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 4,188,137 887,341 176,149(k) 313,877 103,119 28,907(k) -------------------------------------------------------------------------------------------------------------------- Disciplined International Equity 5,209,129 2,161,563 147,388(l) 512,793 358,005 48,716(l) -------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 1,182,004 706,943 191,237(m) 172,124 120,044 77,772(m) -------------------------------------------------------------------------------------------------------------------- Global Bond 5,074,934 3,438,893 3,734,676 165,694 (17,529) (159,716) -------------------------------------------------------------------------------------------------------------------- Global Technology 857,290 1,412,081 1,327,883 188,087 187,390 249,939 -------------------------------------------------------------------------------------------------------------------- Partners International Select Growth 5,965,413 6,048,963 4,039,162 334,550 672,542 530,707 -------------------------------------------------------------------------------------------------------------------- Partners International Select Value 13,239,202 20,067,871 15,936,398 1,054,830 1,286,758 990,734 -------------------------------------------------------------------------------------------------------------------- Partners International Small Cap 1,057,146 1,270,558 1,050,011 63,912 208,621 246,920 -------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 7,352,591 7,106,815 5,659,680 1,138,897 1,190,259 745,246 -------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 980,629 952,484 821,750 223,792 199,237 182,061 -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 5,825,153 6,075,014 5,791,016 554,139 577,463 517,920 -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 15,723(n) N/A N/A 2,989(n) N/A N/A -------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 16,485(n) N/A N/A 1,122(n) N/A N/A -------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 4,661,800 4,923,040 4,840,788 486,074 545,663 505,513 --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 96
------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES ------------------------------------------------------------------------------------------------------------------- 2007 2006 2005 2007 2006 2005 ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 321,011 $ 435,316 $ 644,499 $ (4,565) $ (25,206) $ 67,781 ------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 6,373,531 9,852,112 10,413,718 241,412 670,574 901,194 ------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 3,157,092 3,345,629 3,066,023 (8,650) 905,255 661,982(o) ------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 13,006,578 15,027,647 17,998,361 (847,490) 8,025,340 7,139,120(o) ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 406,763 390,170 423,253 32,730 118,441 116,613 -------------------------------------------------------------------------------------------------------------------
* Effective Feb. 1, 2006, this fee was eliminated. (a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended June 30. (h) During 2006, the Fund changed the method of accounting for its participation in inverse floater structures. Previously, nonadvisory expenses for fiscal year end 2006 and 2005 were reported as $(68,320) and $161,536 for Minnesota Tax-Exempt Fund and $(21,864) and $54,945 for New York Tax-Exempt Fund, respectively. (i) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (j) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (k) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (l) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (n) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (o) During 2006, the Fund changed the method of accounting for its participation in inverse floater structures. Previously, nonadvisory expenses for fiscal year end 2005 were reported as $136,155 for Tax- Exempt Bond Fund and $308,271 for Tax- Exempt High Income Fund. MANAGER OF MANAGERS EXEMPTION The RiverSource funds have received an order from the SEC that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. For California Tax-Exempt, Cash Management, Diversified Bond, Global Bond, High Yield Bond, Intermediate Tax- Exempt, Massachusetts Tax-Exempt, Michigan Tax- Exempt, Minnesota Tax-Exempt, New York Tax-Exempt, Ohio Tax-Exempt, Short Duration U.S. Government, Tax-Exempt Bond, Tax-Exempt High Income, Tax-Exempt Money Market and U.S. Government Mortgage funds: before the fund may rely on the order, holders of a majority of the fund's outstanding voting securities will need to approve operating the fund in this manner. There is no assurance shareholder approval will be received, and no changes will be made without shareholder approval until that time. SUBADVISORY AGREEMENTS The assets of certain funds are managed by subadvisers that have been selected by the investment manager, subject to the review and approval of the Board. The investment manager has recommended the subadvisers to the Board based upon its assessment of the skills of the subadvisers in managing other assets with objectives and investment strategies substantially similar to those of the applicable fund. Short-term investment performance is not the only factor in selecting or terminating a subadviser, and the investment manager does not expect to make frequent changes of subadvisers. Certain subadvisers, affiliated with the investment manager, have been directly approved by shareholders. These subadvisers are noted in Table 18. The investment manager allocates the assets of a fund with multiple subadvisers among the subadvisers. Each subadviser has discretion, subject to oversight by the Board and the investment manager, to purchase and sell portfolio assets, consistent with the fund's investment objectives, policies, and restrictions. Generally, the services that a subadviser provides to the fund are limited to asset management and related recordkeeping services. The investment manager has entered into an advisory agreement with each subadviser under which the subadviser provides investment advisory assistance and day-to-day management of some or all of the fund's portfolio, as well as investment Statement of Additional Information - Dec. 30, 2008 Page 97 research and statistical information. A subadviser may also serve as a discretionary or non-discretionary investment adviser to management or advisory accounts that are unrelated in any manner to the investment manager or its affiliates. The following table shows the advisory fee schedules for fees paid by the investment manager to subadvisers for funds that have subadvisers. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 17. SUBADVISERS AND SUBADVISORY AGREEMENT FEE SCHEDULES
PARENT FUND SUBADVISER COMPANY FEE SCHEDULE --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Essex Investment Management Company, LLC A 0.70% on the first $20 million, reducing to (effective Sept. 23, 2005) 0.60% as assets increase ------------------------------------------------------------------------------------------------------ Federated MDTA, LLC (MDTA)(a) (effective B 0.60% on the first $75 million, reducing to Sept. 23, 2005) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Turner Investment Partners, Inc. N/A 0.60% on the first $50 million, reducing to (Turner) (effective Aug. 18, 2003) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ UBS Global Asset N/A 0.55% on the first $150 million, reducing to Management (Americas) (UBS) 0.50% as assets increase (effective Aug. 18, 2003) --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 --------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive American Century Investment C 0.50% on the first $100 million, reducing to Growth Management, Inc. (American Century) 0.38% as assets increase (effective April 24, 2003) ------------------------------------------------------------------------------------------------------ Turner N/A 0.55% on the first $100 million, reducing to (effective April 24, 2003) 0.38% as assets increase --------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Davis Selected Advisers, N/A 0.45% on the first $100 million, reducing to Value LP (Davis)(a), (b) 0.25% as assets increase (effective June 18, 2001) --------------------------------------------------------------------------------------------------------------------------------- Partners Select Value Systematic Financial Management, D 0.50% on the first $50 million, L.P. (Systematic)(a) reducing to 0.30% as assets (effective Sept. 29, 2006) increase ------------------------------------------------------------------------------------------------------ WEDGE Capital Management N/A 0.75% on the first $10 million, L.L.P. (WEDGE)(a) reducing to 0.30% as assets (effective Sept. 29, 2006) increase --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity American Century C 0.65% on the first $25 million, reducing to (effective Dec. 12, 2003) 0.55% as assets increase ------------------------------------------------------------------------------------------------------ Jennison Associates LLC (Jennison) E 0.55% on all assets (effective Feb. 22, 2008) ------------------------------------------------------------------------------------------------------ Lord, Abbett & Co. LLC N/A 0.65% on the first $100 million, (Lord Abbett) reducing to 0.55% as assets (effective Dec. 12, 2003) increase ---------------------------------------------------------------------------------------------------------------------------------
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PARENT FUND SUBADVISER COMPANY FEE SCHEDULE --------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Barrow, Hanley, Mewhinney & F 1.00% on the first $10 million, Strauss (BHMS)(a) reducing to 0.30% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ Donald Smith & Co., Inc. N/A 0.60% on the first $175 million, (Donald Smith)(a) reducing to 0.55% as assets (effective March 12, 2004) increase ------------------------------------------------------------------------------------------------------ MDTA(a) B 0.60% on the first $75 million, reducing to (effective June 6, 2008) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Metropolitan West Capital Management, LLC G 0.50% on all assets (MetWest Capital) (effective April 24, 2006) --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 --------------------------------------------------------------------------------------------------------------------------------- Partners International Columbia Wanger Asset Management L.P. H 0.70% on the first $100 million, reducing to Select Growth (Columbia WAM) (effective Sept. 5, 2001) 0.50% as assets increase ------------------------------------------------------------------------------------------------------ Principal Global Investors, LLC N/A 0.40% on the first $250 million, reducing to (Principal) (effective April 24, 2006) 0.25% as assets increase --------------------------------------------------------------------------------------------------------------------------------- Partners International AllianceBernstein L.P. N/A 0.65% on the first $75 million, reducing to Select Value (AllianceBernstein) 0.30% as assets increase (effective Sept. 17, 2001) ------------------------------------------------------------------------------------------------------ Mondrian Investment Partners Limited N/A 0.70% on all assets (Mondrian) (effective August 18, 2008) ------------------------------------------------------------------------------------------------------ Tradewinds Global Investors, LLC N/A 0.50% on the first $250 million, reducing to (Tradewinds) (effective August 18, 2008) 0.40 as assets increase --------------------------------------------------------------------------------------------------------------------------------- Partners International AIG Global Investment Corp. (AIGGIC) I 0.75% on the first $100 million, reducing to Small Cap (effective April 24, 2006) 0.70% as assets increase ------------------------------------------------------------------------------------------------------ Batterymarch Financial Management, Inc. J 0.75% on the first $100 million, reducing to (Batterymarch) (effective April 24, 2006) 0.70% as assets increase --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Threadneedle International Limited(b) K 0.45% of the first $150 million, reducing to Markets (Threadneedle) 0.30% as assets increase, and subject to a (effective July 9, 2004) performance incentive adjustment(c) --------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Threadneedle(b) K 0.35% of the first $150 million, reducing to Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.35% of the first $150 million, reducing to Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.45% of the first $250 million, reducing to Equity Income (effective Aug. 1, 2008) 0.35% as assets increase, and subject to a performance incentive adjustment(c) --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Threadneedle(b) K 0.70% of the first $250 million, reducing to Extended Alpha (effective Aug. 1, 2008) 0.60% as assets increase, and subject to a performance incentive adjustment(c) --------------------------------------------------------------------------------------------------------------------------------- Threadneedle Threadneedle(b) K 0.35% of the first $150 million, reducing to International Opportunity (effective July 9, 2004) 0.20% as assets increase, and subject to a performance incentive adjustment(c) ---------------------------------------------------------------------------------------------------------------------------------
(a) The fee is calculated based on the combined net assets subject to the subadviser's investment management. Statement of Additional Information - Dec. 30, 2008 Page 99 (b) Davis is a 1940 Act affiliate of the investment manager because it owns or has owned more than 5% of the public issued securities of the investment manager's parent company, Ameriprise Financial. Threadneedle is an affiliate of the investment manager as an indirect wholly-owned subsidiary of Ameriprise Financial. (c) The adjustment for Threadneedle is based on the performance of one Class A share of the fund and the change in the PIA Index described in Table 14. The performance of the fund and the Index will be calculated using the method described above for the performance incentive adjustment paid to the investment manager under the terms of the Investment Management Services Agreement. The amount of the adjustment to Threadneedle's fee, whether positive or negative, shall be equal to one-half of the performance incentive adjustment made to the investment management fee payable to the investment manager under the terms of the Investment Management Services Agreement. The performance incentive adjustment was effective Dec. 1, 2004. A - Essex is majority owned by Affiliated Managers Group. B - Federated MDTA LLC is an indirect subsidiary of Federated Investors, Inc. C - American Century Investment Management, Inc. is a direct, wholly-owned subsidiary of American Century Companies, Inc. D - Systematic is an affiliate of Affiliated Managers Group. E - Jennison Associates LLC's sole member is Prudential Investments Management, Inc. which is a direct, wholly-owned subsidiary of Prudential Asset Management Holding Company LLC, which is a direct, wholly-owned subsidiary of Prudential Financial, Inc. F - BHMS is an independent-operating subsidiary of Old Mutual Asset Management. G - MetWest Capital is a majority-owned subsidiary of Evergreen Investments and Wachovia Corporation. H - Columbia WAM is an indirect wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly-owned subsidiary of Bank of America Corporation. I - AIGGIC is an indirect wholly-owned subsidiary of American International Group, Inc. (AIG). J - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason, Inc. K - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise Financial. The following table shows the subadvisory fees paid by the investment manager to subadvisers in the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 18. SUBADVISORY FEES
SUBADVISORY FEES PAID --------------------------------------- FUND SUBADVISER 2008 2007 2006 ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Essex $ 257,999 $ 281,295 $ 120,556(a) Growth -------------------------------------------------------------------------------------------- MDTA 397,581 411,034 165,110(a) -------------------------------------------------------------------------------------------- Turner 241,810 265,516 321,406 -------------------------------------------------------------------------------------------- UBS 293,079 342,871 371,341 -------------------------------------------------------------------------------------------- Former Subadviser: Bjurman, Barry & Associates N/A N/A 175,818(b) (from Aug. 18, 2003 to Sept. 23, 2005) -------------------------------------------------------------------------------------------- Former Subadviser: RS Investment Management, L.P. N/A N/A 257,675(b) (from Jan. 24, 2001 to Sept. 23, 2005) ------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage Former Subadviser: Kenwood 2,318,621 3,180,483 2,856,138 (from May 4, 1999 to Dec. 1, 2008) ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ------------------------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth American Century 1,438,912 1,321,245 512,880 -------------------------------------------------------------------------------------------- Turner 1,310,040 1,304,994 525,422 ------------------------------------------------------------------------------------------------------------------------------ Partners Fundamental Value Davis 3,220,929 3,673,544 3,787,565 ------------------------------------------------------------------------------------------------------------------------------ Partners Select Value Systematic 1,025,272 753,292(c) N/A -------------------------------------------------------------------------------------------- WEDGE 981,822 776,260(c) N/A -------------------------------------------------------------------------------------------- Former subadviser: GAMCO Asset Management Inc. N/A 786,466(d) 2,763,925 (from inception to September 28, 2006) ------------------------------------------------------------------------------------------------------------------------------
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SUBADVISORY FEES PAID --------------------------------------- FUND SUBADVISER 2008 2007 2006 ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity American Century $ 506,417 $ 662,396 $ 457,181 -------------------------------------------------------------------------------------------- Jennison 107,599(e) N/A N/A -------------------------------------------------------------------------------------------- Lord Abbett 583,123 677,462 433,231 -------------------------------------------------------------------------------------------- Former Subadviser: Wellington Management Company, 362,413(f) 650,960* 614,053* LLP (from Dec. 12, 2003 to Feb. 22, 2008) ------------------------------------------------------------------------------------------------------------------------------ Partners Small Cap Value BHMS 865,372 970,241 1,008,072 -------------------------------------------------------------------------------------------- Donald Smith 984,692 1,180,183 1,242,221 -------------------------------------------------------------------------------------------- MDTA N/A(g) N/A N/A -------------------------------------------------------------------------------------------- MetWest Capital 955,503 1,769,553 225,545(h) -------------------------------------------------------------------------------------------- Former subadviser: Franklin Portfolio Associates 964,510 1,198,029 1,289,120 (from March 2004 to June 6, 2008) -------------------------------------------------------------------------------------------- Former subadviser: Royce & Associates, LLC N/A N/A 1,395,487(i) (from inception to April 24, 2006) -------------------------------------------------------------------------------------------- Former subadviser: Goldman Sachs Asset Management, N/A 38,601(j) 1,312,424(i) L.P. (from Aug. 2002 to April 24, 2006) ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ------------------------------------------------------------------------------------------------------------------------------ Partners International Columbia WAM 1,557,963 1,568,158 1,264,808 Select Growth -------------------------------------------------------------------------------------------- Principal 1,849,485 1,760,150 632,882(k) -------------------------------------------------------------------------------------------- Former subadviser: American Century Global N/A N/A 821,124(l) Investment Management** (from Jan. 2005 to April 24, 2006) ------------------------------------------------------------------------------------------------------------------------------ Partners International AllianceBernstein 6,268,208 7,962,307 6,022,579 Select Value -------------------------------------------------------------------------------------------- Mondrian 77,048(m) N/A N/A -------------------------------------------------------------------------------------------- Tradewinds 129,124(m) N/A N/A ------------------------------------------------------------------------------------------------------------------------------ Partners International 355,245 Small Cap AIGGIC 425,696 201,650(k) -------------------------------------------------------------------------------------------- Batterymarch 386,194 439,593 205,659(k) -------------------------------------------------------------------------------------------- Former subadviser: Templeton Investment Counsel, N/A N/A 226,154(l) LLC (Franklin Templeton) (from Oct. 3, 2002 to April 24, 2006) -------------------------------------------------------------------------------------------- Former subadviser: Wellington Management Company, N/A N/A 243,185(l) LLP together with its affiliate Wellington Management International Ltd (from Oct. 3, 2002 to April 24, 2006) ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets Threadneedle 2,801,637 2,728,720 2,170,719 ------------------------------------------------------------------------------------------------------------------------------ Threadneedle European Equity Threadneedle 443,279 406,594 356,308 ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Threadneedle 2,269,177 2,408,387 2,358,731 ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Threadneedle 9,057(n) N/A N/A Income ------------------------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Threadneedle 11,750(n) N/A N/A Alpha ------------------------------------------------------------------------------------------------------------------------------ Threadneedle International Threadneedle 1,907,215 1,895,712 1,948,352 Opportunity ------------------------------------------------------------------------------------------------------------------------------
* Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource Investments is subject to a minimum annual fee of $350,000, payable to Wellington Management. ** American Century Global Investment Management managed the portion of the Fund's portfolio previously managed by American Century since Sept. 2001. The change of subadviser is the result of corporate restructuring of American Century and did not result in any modifications to the investment objective, principal investment strategies, portfolio managers, or the fees paid by the Fund. Statement of Additional Information - Dec. 30, 2008 Page 101 (a) For the fiscal period from Sept. 23, 2005 to March 31, 2006. (b) For the fiscal period from April 1, 2005 to Sept. 23, 2005. (c) For the fiscal period from Sept. 29, 2006 to May 31, 2007. (d) For the fiscal period from June 1, 2006 to Sept. 28, 2006. (e) For the fiscal period from Feb. 22, 2008 to May 31, 2008. (f) For the fiscal period from June 1, 2007 to Feb. 22, 2008. (g) The subadviser did not begin managing the fund until after the fund's fiscal year end. (h) For the fiscal period from April 24, 2006 to May 31, 2006. (i) For the fiscal period from June 1, 2005 to April 24, 2006. (j) Payments made to subadviser in accordance with termination agreement. (k) For the fiscal period from April 24, 2006 to Oct. 31, 2006. (l) For the fiscal period from Nov. 1, 2005 to April 24, 2006. (m) For the fiscal period from Aug. 18, 2008 to Oct. 31, 2008. (n) For the fiscal period from Aug. 1, 2008 to Oct. 31, 2008. Statement of Additional Information - Dec. 30, 2008 Page 102 PORTFOLIO MANAGERS. For funds other than money market funds, the following table provides information about the fund's portfolio managers as of the end of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 19. PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Dimitris Bertsimas 18 RICs $7.44 billion 7 RICs ($6.2 B) None Income 3 PIVs $67.07 million 15 other accounts $3.03 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.85 billion None None (9) (28) ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 18 RICs $7.42 billion 7 RICs ($6.2 B) None Enhanced Income 3 PIVs $67.07 million 15 other accounts $3.03 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.82 billion None None (9) (28) ----------------------------------------------------------------------------------------------------------------------------------- Income Builder Dimitris Bertsimas 18 RICs $7.12 billion 7 RICs ($6.2 B) $100,001 - Moderate Income 3 PIVs $67.07 million $500,000 15 other accounts $3.03 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $1.52 billion None $100,001 - (9) (28) $500,000 ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene(b) $50,001 - Aggressive $100,000 -------------------- ---------- David M. Joy 5 RICs $3.09 billion None None (1) (27) -------------------- ---------- Michelle M. None Keeley(c) -------------------- ---------- William F. None Truscott(c) ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $50,001 - Conservative $100,000 -------------------- ---------- David M. Joy 5 RICs $3.47 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott None ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $50,001 - Moderate $100,000 -------------------- ---------- David M. Joy 5 RICs $2.65 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley $100,001 - $500,000 -------------------- ---------- William F. Truscott None ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $10,001 - Moderate Aggressive $50,000 -------------------- ---------- David M. Joy 5 RICs $2.51 billion None $100,001 - (1) (27) $500,000 -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott $50,001 - $100,000 ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $10,001 - Moderate $50,000 Conservative -------------------- ---------- David M. Joy 5 RICs $3.27 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott None ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Kent M. Bergene $10,001 - Total Equity $50,000 -------------------- ---------- David M. Joy 5 RICs $3.14 billion None None (1) (27) -------------------- ---------- Michelle M. Keeley None -------------------- ---------- William F. Truscott None ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index David Factor 2 RICs $1.07 billion None None (2) (28) 2 PIVs $1.42 billion ----------------------------------------------------------------------------------------------------------------------------------- Small Company Index David Factor 2 RICs $563.27 million None None (2) (28) 2 PIVs $1.42 billion -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ----------------------------------------------------------------------------------------------------------------------------------- Equity Value Warren Spitz $10,001 - $50,000 -------------------- ---------- Steve Schroll 11 RICs $15.57 billion $50,001 - (2) (28) 1 PIV $44.32 million 6 RICs ($15.06 B) $100,000 -------------------- ---------- Laton Spahr 7 other accounts $457.39 million $100,001 - $500,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap UBS: Growth Paul A. Graham 5 RICs $657.0 million 1 PIV $159.0 million 17 other accounts $322.0 million 1 other account --------------------------------------------------------- David N. Wabnik 5 RICs $657.0 million ($52.5 M) None (4) (29) 1 PIV $159.0 million 26 other accounts $290.0 million -------------------------------------------------------------------------------------------------------------- TURNER: William C. McVail 7 RICs $1.1 billion 1 RIC ($37.0 M); 10 PIVs $140.0 million 4 other accounts 50 other accounts $3.6 billion ($346.0 M) ---------------------------------------------------------------------------- Jason D. 15 RICs $3.7 billion 1 RIC ($56.0 M); Schrotberger 27 PIVs $499.0 million 2 PIVs ($4.0 M); 55 other accounts $2.9 billion 5 other accounts None (5) (30) ($457.0 M) ---------------------------------------------------------------------------- Rick Wetmore 4 RICs $418.0 million 4 other accounts 6 PIVs $43.0 million ($346 M) 41 other accounts $2.1 billion -------------------------------------------------------------------------------------------------------------- ESSEX: Nancy B. Prial 3 RICs $108.8 million None None (6) (31) 1 PIV $144.6 million 52 other accounts $567.7 million -------------------------------------------------------------------------------------------------------------- MDTA: David Goldsmith -------------------- Frederick L. Konopka 10 RICs $1.1 billion 4 PIVs $225.1 million None None (7) (32) -------------------- 48 other accounts $6.85 billion Brian M. Greenberg -------------------- Douglas K. Thunen ----------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Clay Hoes 1 PIV $97.2 million None $10,001 - (2),(3) (28) Mining $50,000 ----------------------------------------------------------------------------------------------------------------------------------- Small Cap SELIGMAN: Advantage Neil T. Eigen(j) 3 RICs $480.10 million None None (2) (53) 2 PIVs $173.20 million 1,383 other accounts $4.05 billion ---------------------------------------------------------------------------- Richard S. Rosen(j) 3 RICs $480.10 million None 2 PIVs $173.20 million 1,383 other accounts $4.01 billion ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ----------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Warren Spitz None Equity -------------------- ---------- Steve Schroll 11 RICs $17.52 billion $10,001 - 1 PIV $43.95 million 6 RICs ($17.0 B) $50,000 -------------------- ---------- Laton Spahr 7 other accounts $493.17 million $100,001 - (2) (28) $500,000 -------------------- ---------- Paul Stocking $100,001 - $500,000 ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.04 billion None -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.03 billion None ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) $10,001 - (9) (28) 3 PIVs $57.83 million $50,000 14 other accounts $3.53 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.03 billion None None ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion --------------------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.03 billion None $10,001- $50,000 ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Dimitris Bertsimas 17 RICs $7.84 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.04 billion None ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (28) 3 PIVs $57.83 million 14 other accounts $3.53 billion ---------------------------------------------------------------------------- Colin Lundgren 12 RICs $2.05 billion None ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ----------------------------------------------------------------------------------------------------------------------------------- High Yield Bond Scott Schroepfer 1 RIC $893.98 million None $100,001 - (2) (28) $500,000 --------------------------------------------------------------------------------------- Jennifer Ponce de 5 RICs $10.57 billion None None Leon 1 PIV $8.43 million 8 other accounts $2.13 billion ----------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive AMERICAN CENTURY: None None (10) (34) Growth Glenn A. Fogle 6 RICs $3.98 billion -------------------- Brad Eixmann 2 other accounts $148.74 million -------------------------------------------------------------------------------------------------------------- TURNER: None (5) (30) Christopher K. 15 RICs $4.4 billion 3 RICs ($885 M); McHugh 28 PIVs $586.0 million 3 PIVs ($30 M); 24 other accounts $2.4 billion 2 other accounts ($155 M) ---------------------------------------------------------------------------- Tara Hedlund 10 RICs $3.5 billion 1 RIC ($54 M); 21 PIVs $457.0 million 2 PIVs ($5 M); 14 other accounts $898.0 million 1 other account ($123 M) ---------------------------------------------------------------------------- Jason Schrotberger 15 RICs $4.0 billion 1 RIC ($54 M); 27 PIVs $528.0 million 3 PIVs ($30 M); 55 other accounts $3.2 billion 5 other accounts ($514 M) ----------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental DAVIS: None None(f) (13) (37) Value Christopher C. Davis 27 RICs $81.4 billion 12 PIVs $1.3 billion 128 other $13.9 billion accounts(e) --------------------------------------------------------- Kenneth C. Feinberg 27 RICs $81.3 billion 13 PIVs $1.3 billion 128 other $13.9 billion accounts(e) ----------------------------------------------------------------------------------------------------------------------------------- Partners Select SYSTEMATIC: Value Ron Mushock 8 RIC $1.36 billion -------------------- 6 PIVs $519.0 million 1 other account None (25) (49) 1,979 other accounts $6.12 billion ($334 M) Kevin McCreesh --------------------------------------------------------------------------------------- WEDGE: R. Michael James 5 RICs $272.0 million -------------------- Peter R. Bridge 1 PIV $3.7 million None None (26) (50) -------------------- Paul M. VeZolles 201 other accounts $3.0 billion -----------------------------------------------------------------------------------------------------------------------------------
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OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap AMERICAN CENTURY: None None (10) (34) Equity Thomas P. Vaiana 9 RICs $5.35 billion 2 PIVs $129.29 million 4 other accounts $244.93 million --------------------------------------------------------- Wihelmine von Turk 5 RICs $1.34 billion 1 PIV $85.54 million 2 other accounts $229.6 million --------------------------------------------------------- Brian Ertley 7 RICs $1.55 billion 1 PIV $85.54 million 4 other accounts $232.61 million --------------------------------------------------------- Melissa Fong 5 RICs $1.34 billion 1 PIV $85.54 million 2 other accounts $229.6 million -------------------------------------------------------------------------------------------------------------- JENNISON: None (12) (36) John Mullman 3 RICs $3.06 billion 3 PIVs 8 PIVs $775.81 million ($85.6 M)(h) 11 other accounts(g) $1.26 billion ---------------------------------------------------------------------------- Jason Swiatek 3 PIVs $639.57 million None 11 other accounts $1.28 billion -------------------------------------------------------------------------------------------------------------- LORD, ABBETT: Michael T. Smith 2 RICs $1.85 billion None None(i) (14) (38) 14 other accounts $991.3 million ----------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap DONALD SMITH: Value Donald G. Smith 2 RICs $1.14 billion -------------------- 1 PIV $122.0 million None None (15) (39) 37 other accounts $2.23 billion Richard L. Greenberg -------------------------------------------------------------------------------------------------------------- MDTA: David Goldsmith -------------------- 10 RICs $1.13 billion 4 PIVs $240.5 million None None (7) (32) Douglas Thunen 51 other accounts $7.61 billion -------------------- Frederick Konopka -------------------- Brian M. Greenberg -------------------------------------------------------------------------------------------------------------- BHMS: James S. McClure 4 RICs $666.0 million -------------------- 1 PIV $4.6 million None None (17) (41) 16 other accounts $716.2 million John P. Harloe -------------------------------------------------------------------------------------------------------------- METWEST: Gary W. Lisenbee 4 RICs $347.8 million -------------------- 3 PIVs $61.2 million None None (18) (42) 9 other accounts $54.4 million Samir Sikka ----------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Jamie Jackson 12 RICs $22.96 billion 3 RICs ($1.37 B); $10,001 - Government 6 PIVs $2.98 billion 1 other account $50,000 (2) (28) 27 other accounts(d) $11.83 billion ($49.78 M) --------------------------------------------------------------------------------------- Todd White(n) N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government Todd White(n) N/A N/A N/A N/A (2) (28) Mortgage ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ----------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Warren Spitz $500,001 - $1,000,000 -------------------- ---------- Steve Schroll 11 RICs $14.7 billion $100,001 - (2) (28) 1 PIV $26.73 million 6 RICs ($14.24 B) $500,000 -------------------- ---------- Laton Spahr 8 other accounts(d) $380.85 million $100,001 - $500,000 -------------------- ---------- Paul Stocking $50,001 - $100,000 ----------------------------------------------------------------------------------------------------------------------------------- Real Estate Julene Melquist None None None $10,001 - (2),(3) (28) $50,000 ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Dimitris Bertsimas 22 RICs $3.74 billion 5 RICs ($2.32 B) $100,001 - 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million --------------------------------------------------------------------------------------- (2) (28) Gina Mourtzinou 4 RICs $1.58 billion 4 RICs ($1.58 B) $50,001 - 5 other accounts $136.55 million $100,000 -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 106
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.26 B) $100,001 - and Mid Cap Equity 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) None (2) (28) 5 other accounts $136.55 million --------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 - 1 other account $10.19 million $50,000 ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.27 B) $100,001 - Cap Value 2 PIVs $22.75 million $500,000 14 other accounts $3.50 million --------------------------------------------------------------------------------------- Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) $10,001 - (2) (28) 5 other accounts $136.55 million $50,000 --------------------------------------------------------------------------------------- Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 - 1 other account $10.19 million $50,000 ----------------------------------------------------------------------------------------------------------------------------------- Floating Rate Lynn Hopton 11 PIVs $5.02 billion None -------------------- ---------- Yvonne Stevens 3 other accounts $496.12 million None --------------------------------------------------------- ---------- Steve Staver(l) 10 PIVs $4.65 billion None None (2) (28) 3 other accounts $507.57 million ----------------------------------------------------------------------------------------------------------------------------------- Growth Erik J. Voss(l) 8 RICs $2.60 billion None None (2) (51) 20 other accounts $179.40 million ----------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Brian Lavin 1 RIC $871.16 million $50,001 - 1 PIV $7.02 million None $100,000 (2) (28) 1 other account $608.42 million --------------------------------------------------------- ---------- Jennifer Ponce de 5 RICs $11.59 billion $10,001 - Leon 1 PIV $7.02 million $50,000 8 other accounts $2.05 billion ----------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Jamie Jackson 12 RICs $22.01 billion 3 RICs ($1.32 B); $10,001 - (2) (28) Securities 5 PIVs $2.59 billion 1 other account $50,000 26 other accounts(d) $8.48 billion ($49.96 M) ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Dimitris 24 RICs $5.96 billion 7 RICs ($4.62 B) None (2) (28) Bertsimas(l) 2 PIVs $21.11 million 15 other accounts $3.31 billion ---------------------------------------------------------------------------- Gina Mourtzinou(l) 6 RICs $4.04 billion 6 RICs ($4.04 B) 5 other accounts $118.86 million ----------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Warren Spitz(l) 12 RICs $14.57 billion -------------------- Steve Schroll(l) 2 PIVs $27.55 million 7 RICs ($14.11 B) None (2) (28) -------------------- Laton Spahr(l) -------------------- Paul Stocking(l) 8 other accounts $441.14 million ----------------------------------------------------------------------------------------------------------------------------------- Limited Duration Tom Murphy 5 RICs $9.93 billion 3 RICs ($1.32 B) $50,001 - Bond 2 PIVs $885.02 million $100,000 14 other accounts $10.75 billion --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $22.76 billion 3 RICs ($1.32 B); $10,001 - 5 PIVs $2.59 billion 1 other account $50,000 (2) (28) 26 other accounts(d) $8.48 billion ($49.96 M) --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None --------------------------------------------------------------------------------------- Todd White(n) N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ----------------------------------------------------------------------------------------------------------------------------------- California Tax- 5 RICs $3.68 billion Exempt 11 other accounts $7.38 billion -------------------- ------------------------------------ Minnesota Tax-Exempt Catherine Stienstra 5 RICs $3.55 billion None None (2) (28) 11 other accounts $7.38 billion -------------------- ------------------------------------ New York Tax-Exempt 5 RICs $3.80 billion 11 other accounts $7.38 billion ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Tom Murphy 5 RICs $6.55 billion 3 RICs ($1.33 B) $50,001 - 2 PIVs $880.06 million $100,000 14 other accounts $10.90 billion --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $19.46 billion 3 RICs ($1.33 B); $100,001 - 5 PIVs $2.52 billion 1 other account $500,000 26 other accounts(d) $7.37 billion ($50.09 M) --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 billion None None (2) (28) --------------------------------------------------------------------------------------- Todd White(n) N/A N/A N/A N/A -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 107
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- FOR FUND WITH FISCAL PERIOD ENDING SEPTEMBER 30 ----------------------------------------------------------------------------------------------------------------------------------- Balanced Warren Spitz(l) 12 RICs $14.57 billion None (2) (28) Steve Schroll(l) 2 PIVs $27.55 million 7 RICs ($14.11 B) None Laton Spahr(l) 8 other accounts(d) $441.14 million $1 - Paul Stocking(l) $10,000 None --------------------------------------------------------------------------------------- Tom Murphy() 5 RICs $9.77 billion $10,001- 2 PIVs $870.92 million 2 RICs ($996.38 M) $50,000 14 other accounts $10.19 million --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $22.59 billion 2 RICs $10,001- 5 PIVs $2.77 million ($996.38 M); $50,000 26 other accounts(d) $6.83 million 1 other account ($50.1 M) --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None --------------------------------------------------------------------------------------- Todd White(n) N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 23 RICs $5.77 million 6 RICs ($4.42 B) None Large Cap 2 PIVs $21.11 million Growth 15 other accounts $3.31 billion (2) (28) --------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $3.85 billion 5 RICs ($3.85 B) None 5 other accounts $118.86 million ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 23 RICs $5.95 million 6 RICs ($4.61 B) None Large Cap 2 PIVs $21.11 million Value 15 other accounts $3.31 billion (2) (28) --------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $4.03 billion 5 RICs ($4.03 B) None 5 other accounts $118.86 million ----------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Warren Spitz $50,001- Income $100,000 -------------------- ---------- Laton Spahr 11 RICs $8.78 billion $100,001- $500,000 -------------------- ---------- Steve Schroll 2 PIVs $27.55 million 6 RICs ($8.32 B) $50,001- (2) (28) $100,000 -------------------- ---------- Paul Stocking 8 other accounts(d) $441.14 million $100,001- $500,000 ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Warren Spitz $50,001- $100,000 -------------------- ---------- Laton Spahr 11 RICs $12.21 billion $100,001- $100,000 -------------------- ---------- Steve Schroll 2 PIVs $27.55 million 6 RICs ($11.75 B) $50,001- (2) (28) $100,000 -------------------- ---------- Paul Stocking 8 other accounts(d) $441.14 million $100,001- $500,000 ----------------------------------------------------------------------------------------------------------------------------------- Strategic Tom Murphy 5 RICs $9.47 million 2 RICs ($699.76 M) $100,001- Allocation 2 PIVs $870.92 million $500,000 14 other accounts $10.19 million --------------------------------------------------------------------------------------- Jamie Jackson 12 RICs $22.29 billion 2 RICs $10,001- 5 PIVs $2.77 billion ($699.76 M); $50,000 26 other accounts(d) $6.83 billion 1 other account ($50.1 M) --------------------------------------------------------------------------------------- Scott Schroepfer(m) 2 RICs $953.09 million None None --------------------------------------------------------------------------------------- Todd White(n) N/A N/A N/A N/A --------------------------------------------------------------------------------------- Dimitris Bertsimas 23 RICs $4.85 billion 6 RICs ($3.5 B) Over (2) (28) 2 PIVs $21.11 million $500,000 15 other accounts $3.31 billion --------------------------------------------------------------------------------------- Gina Mourtzinou 5 RICs $2.93 billion 5 RICs ($2.93 B) $100,001- 5 other accounts $118.86 million $500,000 --------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $573.80 million 1 RIC ($573.8 M) $1-$10,000 --------------------------------------------------------------------------------------- Steve E. Kokkotos 2 RICs $69.74 million 2 RICs ($69.74 M) $100,001- 1 other account $9.26 million $500,000 ----------------------------------------------------------------------------------------------------------------------------------- Strategic Dimitris Bertsimas 23 RICs $5.95 billion 7 RICs ($4.62 B) None Allocation 2 PIVs $21.11 million Income 15 other accounts $3.31 billion (2) (28) ---------------------------------------------------------------------------- Colin Lundgren 17 RICs $1.76 billion None None ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ----------------------------------------------------------------------------------------------------------------------------------- Absolute Return Nicholas Pifer 7 RICs $10.79 billion None $50,001- (2) (28) Currency and 6 PIVs $284.56 million $100,000 Income 11 other accounts $3.27 billion -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 108
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 23 RICs $4.53 billion 6 RICs ($3.35 B) $100,001- International 2 PIVs $19.28 million $500,000 Equity 15 other accounts $2.88 billion (2) (28) --------------------------------------------------------------------------------------- Alex Sauer-Budge 1 RIC $837.35 million 1 RIC ($837.35 M) $1-$10,000 ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Nicholas Pifer 7 RICs $11.31 billion None $10,001- (2) (28) Bond 6 PIVs $284.56 million $50,000 11 other accounts $3.27 billion --------------------------------------------------------- ---------- Jim Carlene(m) 4 PIVs $312.86 million None 3 other accounts $170.11 million ----------------------------------------------------------------------------------------------------------------------------------- Global Bond Nicholas Pifer 7 RICs $10.85 billion None $50,001- (2) (28) 6 PIVs 284.56 million $100,000 11 other accounts $3.27 billion ----------------------------------------------------------------------------------------------------------------------------------- Global SELIGMAN: Technology Richard M. 4 RICs $2.40 billion 2 PIVs ($1.5B); None (2) (52) Parower(o) 5 PIVs $1.50 billion 2 other accounts 6 other accounts $186.40 ($183.7 M) million(p) --------------------------------------------------------- Paul H. Wick(o) 4 RICs $2.40 billion 5 PIVs $1.50 billion 6 other accounts $185.60 million(p) --------------------------------------------------------- Reema D. Shah(o) 4 RICs $2.40 billion 5 PIVs $1.50 billion 5 other accounts $186.40 million(p) --------------------------------------------------------- Ajay Diwan(o) 4 RICs $2.40 billion 5 PIVs $1.50 billion 5 other accounts $189.20 million(p) ---------------------------------------------------------------------------- Benjamin Lu(o) 2 RICs $204.50 million None 2 PIVs $31.20 million 1 other account $0.05 million(p) ----------------------------------------------------------------------------------------------------------------------------------- Partners COLUMBIA WAM: International Select P. Zachary Egan 1 RIC $3.0 billion None None (20) (43) --------------------------------------------------------- Growth Louis J. Mendes 2 RICs $4.0 billion -------------------------------------------------------------------------------------------------------------- PRINCIPAL: John Pihlblad 2 RICs $1.31 billion None None (21) (45) 2 PIVs $95.93 million 9 other accounts $987.26 million --------------------------------------------------------- Steven Larson 2 RICs $1.32 billion 2 PIVs $93.40 million 9 other accounts $987.26 million ----------------------------------------------------------------------------------------------------------------------------------- Partners ALLIANCEBERNSTEIN: International Select Kevin F. Simms 132 RICs $46.32 billion 3 RICs ($6.66 B); Value 168 PIVs $24.39 billion 9 PIVs ($1.17 B); 39,323 other $106.60 billion 139 other accounts accounts ($12.51 B) ---------------------------------------------------------------------------- Henry S. D'Auria 89 RICs $27.28 billion 2 RICs ($2.74 B); 103 PIVs $18.93 billion 7 PIVs ($563 M); 953 other $78.52 billion 131 other accounts accounts ($11.85 B) ---------------------------------------------------------------------------- Sharon E. Fay 132 RICs $46.32 billion 3 RICs ($6.66 B); 156 PIVs $21.41 billion 8 PIVs ($563 M); 39,323 other 106.60 billion 139 other accounts accounts ($12.51 B) ---------------------------------------------------------------------------- Marilyn G. Fedak 120 RICs $45.86 billion 3 RICs ($6.66 B); None (22) (46) 140 PIVs $17.32 billion 3 PIVs ($217 M); 39,230 other $89.62 billion 110 other accounts accounts ($7.76 B) ---------------------------------------------------------------------------- John P. Mahedy 119 RICs $45.62 billion 3 RICs ($6.66 B); 139 PIVs $17.20 billion 3 PIVs ($217 M); 39,211 other $88.11 billion 101 other accounts accounts ($7.55 B) ---------------------------------------------------------------------------- Giulio Martini 71 RICs $25.49 billion 2 RICs ($2.74 B); 106 PIVs $21.29 billion 8 PIVs ($1.13 B); 811 other $62.13 billion 105 other accounts accounts ($8.1 B) -------------------------------------------------------------------------------------------------------------- MONDRIAN: Ormala Krishnan 1 RIC $265.0 million None None (11) (35) 1 PIV $141.90 million 7 other accounts $528.80 million --------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 109
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- TRADEWINDS: Paul J. Hechmer 4 RICs $942.62 million 1 other account None (16) (40) 9 PIVs $560.69 million ($59.17 M) 49,903 other $11.14 billion accounts ----------------------------------------------------------------------------------------------------------------------------------- Partners AIGGIC: International Small Chantal Brennan 2 RICs $347.0 million 3 other accounts Cap 4 PIVs $323.0 million ($90 M) 8 other accounts $255.0 million ---------------------------------------------------------------------------- Midori Katsumi 1 RIC $7.0 million 4 other accounts None (23) (47) 1 PIV $58.0 million ($200 M) 7 other accounts $269.0 million ---------------------------------------------------------------------------- Elizabeth Soon 2 RICs $69.0 million 3 other accounts 2 PIVs $53.0 million ($27 M) 7 other accounts $80.0 million -------------------------------------------------------------------------------------------------------------- BATTERYMARCH: Adam Petryk 8 RICs $2.36 billion None None (24) (48) 19 PIVs $1.45 billion 34 other accounts $3.66 billion --------------------------------------------------------- Charles F. Lovejoy 4 RICs $1.22 billion -------------------- Christopher W. 12 PIVs $669.86 million Floyd 22 other accounts $2.34 billion ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Emerging Markets Julian A.S. Thompson 1 RIC $695.16 million 1 RIC ($695.16 M) None(k) (19) (43) 1PIV $26.09 million Jules Mort 2 other accounts $18.74 million ------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: European Equity Rob Jones 1 PIV $32.78 million None None(k) (19) (43) 1 other account $184.29 million ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Global Equity Stephen Thornber 1 RIC $9.58 million 1 RIC ($9.58 M) None(k) (19) (43) 1 PIV $7.73 million 3 other accounts $346.56 million ---------------------------------------------------------------------------- Andrew Holliman 1 RIC $6.0 million 1 RIC ($6 M) 2 PIVs $404.78 million 2 other accounts $309.49 million ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Global Equity Income Stephen Thornber 1 RIC $432.44 million 1 RIC ($432.44 M) None(k) (19) (43) 1 PIV $7.73 million 3 other accounts $346.56 million ---------------------------------------------------------------------------- Jeremy Podger 1 RIC $6.0 million 1 RIC ($6 M) 2 PIVs $10.58 million 2 other accounts $221.36 million ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: Global Extended Andrew Holliman 1 RIC $432.44 million 1 RIC ($432.44 M) None(k) (19) (43) Alpha 2 PIVs $404.78 million 2 other accounts $309.49 million ---------------------------------------------------------------------------- Jeremy Podger 1 RIC $9.58 million 1 RIC ($9.58 M) 2 PIVs $10.58 million 2 other accounts $221.36 million ----------------------------------------------------------------------------------------------------------------------------------- Threadneedle THREADNEEDLE: International Alex Lyle 1 RIC $9.85 billion 1 RIC ($9.85 B) None(k) (19) (43) Opportunity 28 PIVs $834.30 million 11 other accounts $415.43 million --------------------------------------------------------- Esther Perkins 1 RIC $9.85 billion 1 other account $184.29 million ----------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Catherine Stienstra 8 RICs $4.06 billion None None (2) (28) Tax-Exempt 12 other accounts $7.95 billion ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap John K. Schonberg 1 RIC $607.47 million 1 RIC (2) Growth 2 PIVs $67.07 million 4 other accounts $10.0 million -------------------------------------------------------------------------------------------------------------- Sam Murphy 1 RIC $607.47 million ($607.47 M) None (2), (3) (28) -------------------- Mike Marzolf 1 RIC None (28) ($607.47 M) -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 110
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND) ------------------------------------------------------- POTENTIAL APPROXIMATE OWNERSHIP CONFLICTS NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Catherine Stienstra 8 RICs $3.42 billion None None (2) (28) Bond 12 other accounts $7.95 billion ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Catherine Stienstra 8 RICs $1.46 billion None None (2) (28) High Income 12 other accounts $7.95 billion -----------------------------------------------------------------------------------------------------------------------------------
* RIC refers to a Registered Investment Company; PIV refers to a Pooled Investment Vehicle. (a) Number of accounts for which the advisory fee paid is based in part or wholly on performance and the aggregate net assets in those accounts. (b) Mr. Bergene has overall accountability for the group that monitors the subadvisers for RiverSource funds and for making recommendations to the Boards of Directors on changes to those subadvisers. (c) Ms. Keeley, who serves as Executive Vice President -- Equity and Fixed Income for RiverSource Investments, and Mr. Truscott, who serves as Chief Investment Officer for RiverSource Investments, oversee the portfolio managers who manage other accounts for RiverSource Investments, including the underlying funds in which the Funds-of-Funds invest, and other accounts managed by RiverSource Investments and its affiliates including institutional assets, proprietary assets and hedge funds. (d) Reflects each wrap program strategy as a single client, rather than counting each participant in the program as a separate client. (e) Wrap accounts have been counted at the sponsor level. (f) Neither Christopher Davis nor Kenneth Feinberg own any shares of RiverSource Partners Fundamental Value Fund. However, both portfolio managers have over $1 million invested in the Davis Funds, which are managed in a similar style. (g) Other accounts exclude the assets and number of accounts in wrap fee programs that are managed using model portfolios. (h) Mr. Mullman only manages a portion of the accounts subject to a performance fee. The total assets shown reflect the portion of those accounts managed by Mr. Mullman. (i) Michael T. Smith does not own any shares of RiverSource Partners Small Cap Equity Fund. However, he invests in the Lord Abbett Small Cap Blend Fund, which is managed in a similar style. (j) The portfolio manager began managing the fund after its last fiscal year end; therefore reporting information is as of Dec. 31, 2007. (k) The fund is available for sale only in the U.S. The portfolio manager(s) do not reside in the U.S. and therefore do not hold any shares of the fund. (l) The portfolio manager began managing the fund after its last fiscal year end; therefore reporting information is as of Sept. 30, 2008. (m) The portfolio manager began managing the fund after its last fiscal year end; reporting information is as of Oct. 31, 2008. (n) Mr. White is new to the company as of Nov. 17, 2008; therefore he has no reporting information available. (o) The portfolio manager began managing the fund after its last fiscal year end; reporting information is provided as of Nov. 17, 2008. (p) Includes accounts managed in a personal capacity, the amounts for which are provided as of Nov. 30, 2008. POTENTIAL CONFLICTS OF INTEREST (1) Management of Funds-of-Funds differs from that of the other RiverSource funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on initial asset class guidance provided by the Capital Markets Committee, a group of RiverSource Investments investment professionals, and subsequent allocation determinations by the Asset Allocation Committee and Fund Selection Committee within established guidelines set forth in the prospectus. The Asset Allocation Committee, comprised of portfolio managers Joy, Keeley and Truscott, determines each funds-of-fund's allocation among the three main asset classes (equity, fixed income and cash) and allocation among investment categories within each asset class. The Fund Selection Committee, comprised portfolio managers Bergene, Joy, Keeley and Truscott, determines each funds-of-fund's allocation among the underlying funds. These allocation determinations are reviewed by the Asset Allocation Committee and Fund Selection Committee at least quarterly. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include - The portfolio managers of the underlying funds are under the supervision of portfolio managers Keeley and Truscott. Keeley and Truscott may have influence over the management of the underlying funds through their supervision of the underlying funds' portfolio managers and/or through their ability, as part of the Asset Allocation Committee and Fund Selection Committee, to influence the allocation of funds-of-funds assets to or away from the underlying funds. - Portfolio managers Joy, Keeley and Truscott also serve as members of the Capital Markets Committee. As described above, the Capital Markets Committee provides initial guidance with respect to asset allocation, and its view may play a significant role in the asset class determinations made by the Asset Allocation Committee and, as a result, in the underlying fund determinations made by the Fund Selection Committee. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. Statement of Additional Information - Dec. 30, 2008 Page 111 (2) RiverSource Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including hedge funds, proprietary accounts, separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage another account whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, competing investment decisions made for different accounts and the aggregation and allocation of trades. In addition, RiverSource Investments monitors a variety of areas (e.g., allocation of investment opportunities) and compliance with the firm's Code of Ethics, and places additional investment restrictions on portfolio managers who manage hedge funds and certain other accounts. RiverSource Investments has a fiduciary responsibility to all of the clients for which it manages accounts. RiverSource Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and equitable basis over time. RiverSource Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager's Code of Ethics is designed to address conflicts and, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (3) The portfolio manager's responsibilities also include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that the portfolio manager manages versus communicating his or her analyses to other portfolio managers concerning securities that he or she follows as an analyst. (4) The management of a portfolio and other accounts by a portfolio manager could result in potential conflicts of interest if the portfolio and other accounts have different objectives, benchmarks and fees because the portfolio manager and his team must allocate time and investment expertise across multiple accounts, including the portfolio. The portfolio manager and his team manage the portfolio and other accounts utilizing a model portfolio approach that groups similar accounts within a model portfolio. UBS Global Asset Management (Americas) Inc. manages accounts according to the appropriate model portfolio, including where possible, those accounts that have specific investment restrictions. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across accounts, which may minimize the potential for conflicts of interest. If a portfolio manager identifies a limited investment opportunity that may be suitable for more than one account or model portfolio, the portfolio may not be able to take full advantage of that opportunity due to an allocation or filled purchase or sale orders across all eligible model portfolios and accounts. To deal with these situations, UBS Global Asset Management (Americas) Inc. has adopted procedures for allocating portfolio trades among multiple accounts to provide fair treatment to all accounts. The management of personal accounts by a portfolio manager may also give rise to potential conflicts of interest. UBS Global Asset Management (Americas) Inc. has adopted Codes of Ethics that govern such personal trading, but there is no assurance that the Codes will adequately address all such conflicts. (5) As is typical for many money managers, potential conflicts of interest may arise related to Turner's management of accounts including the Fund where not all accounts are able to participate in a desired IPO, or other limited opportunity, relating to use of soft dollars and other brokerage practices, related to the voting of proxies, employee personal securities trading, and relating to a variety of other circumstances. In all cases, however, Turner believes it has written policies and procedures in place reasonably designed to prevent violations of the federal securities laws and to prevent material conflicts of interest from arising. Please also see Turner's Form ADV, Part II for a description of some of its policies and procedures in this regard. (6) Potential conflicts of interest may be presented in connection with the Portfolio Manager's management of the Fund's investments, on the one hand, and the investments of other accounts, on the other, such as conflicts of interest related to the aggregation of trades, the allocation of investment opportunities, contrary client positions and employee securities trading. Essex has established written policies and procedures relating to its investment management and trading practices that are designed to prevent such conflicts of interest. On occasion, employees of Essex may purchase or sell, for their own accounts, securities also invested in by clients or recommended to clients. Essex maintains a code of ethics that is designed to prevent the conflicts of interest presented by employees' personal securities transactions. (7) As a general matter, certain conflicts of interest may arise in connection with a portfolio manager's management of a fund's investments, on the one hand, and the investments of other accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various accounts managed could have different investment strategies that, Statement of Additional Information - Dec. 30, 2008 Page 112 at times, might conflict with one another to the possible detriment of the Fund. Alternatively, to the extent that the same investment opportunities might be desirable for more than one account, possible conflicts could arise in determining how to allocate them. Other potential conflicts might include conflicts created by specific portfolio manager compensation arrangements, and conflicts relating to selection of brokers or dealers to execute fund portfolio trades and/or specific uses of commissions from Fund portfolio trades (for example, research, or "soft dollars"). The Adviser has structured the portfolio managers' compensation in a manner, and the Fund has adopted policies and procedures, reasonably designed to safeguard the Fund from being negatively affected as a result of any such potential conflicts. (8) N/A Kenwood has a fiduciary responsibility to all of the clients for which it manages accounts. Kenwood seeks to provide best execution of all securities transactions. Where possible, security transactions are aggregated and allocated to client accounts in a fair and timely manner. Kenwood has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. In addition to monitoring these policies and procedures, Kenwood monitors compliance with the firm's Code of Ethics and places additional investment restrictions on portfolio managers who manage certain other accounts. (9) Management of the Income Builder and Retirement Plus Funds-of-Funds differs from that of the other RiverSource funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on proprietary, quantitative techniques and qualitative review of the quantitative output. Using these methodologies, a group of RiverSource investment professionals allocates each fund's assets within and across different asset classes in an effort to achieve the fund's objective of providing a high level of current income and growth of capital. After the initial allocation, the fund will be rebalanced monthly in an effort to maximize the level of income and capital growth, incorporating various measures of relative value subject to constraints that set minimum or maximum exposure within asset classes, as set forth in the prospectus. Within the equity and fixed income asset classes, the quantitative model establishes allocations for the funds, seeking to achieve each fund's objective by investing in defined investment categories. The target allocation range constraints are intended, in part, to promote diversification within the asset classes. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include: - In certain cases, the portfolio managers of the underlying funds are the same as the portfolio managers of the Income Builder and Retirement Plus Funds-of-Funds, and could influence the allocation of funds-of-funds assets to or away from the underlying funds that they manage. - RiverSource Investments, LLC and its affiliates may receive higher compensation as a result of allocations to underlying funds with higher fees. - RiverSource Investments, LLC monitors the performance of the underlying funds and may, from time to time, recommend to the board of directors of the funds a change in portfolio management or fund strategy or the closure or merger of an underlying fund. In addition, RiverSource Investments, LLC may believe that certain RiverSource funds may benefit from additional assets or could be harmed by redemptions. All of these factors may also influence decisions in connection with the allocation of funds-of-funds assets to or away from certain underlying funds. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (10) Certain conflicts of interest may arise in connection with the management of multiple portfolios. Potential conflicts include, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. American Century has adopted policies and procedures that are designed to minimize the effects of these conflicts. Responsibility for managing American Century client portfolios is organized according to investment discipline. Investment disciplines include, for example, quantitative equity, small- and mid-cap growth, large-cap growth, value, international, fixed income, asset allocation, and sector funds. Within each discipline are one or more portfolio teams responsible for managing specific client portfolios. Generally, client portfolios with similar strategies are managed by the same team using the same objective, approach, and philosophy. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which minimizes the potential for conflicts of interest. Statement of Additional Information - Dec. 30, 2008 Page 113 For each investment strategy, one portfolio is generally designated as the "policy portfolio." Other portfolios with similar investment objectives, guidelines and restrictions are referred to as "tracking portfolios." When managing policy and tracking portfolios, a portfolio team typically purchases and sells securities across all portfolios that the team manages. American Century's trading systems include various order entry programs that assist in the management of multiple portfolios, such as the ability to purchase or sell the same relative amount of one security across several funds. In some cases a tracking portfolio may have additional restrictions or limitations that cause it to be managed separately from the policy portfolio. Portfolio managers make purchase and sale decisions for such portfolios alongside the policy portfolio to the extent the overlap is appropriate, and separately, if the overlap is not. American Century may aggregate orders to purchase or sell the same security for multiple portfolios when it believes such aggregation is consistent with its duty to seek best execution on behalf of its clients. Orders of certain client portfolios may, by investment restriction or otherwise, be determined not available for aggregation. American Century has adopted policies and procedures to minimize the risk that a client portfolio could be systematically advantaged or disadvantaged in connection with the aggregation of orders. To the extent equity trades are aggregated, shares purchased or sold are generally allocated to the participating portfolios pro rata based on order size. Because initial public offerings (IPOs) are usually available in limited supply and in amounts too small to permit across- the-board pro rata allocations, American Century has adopted special procedures designed to promote a fair and equitable allocation of IPO securities among clients over time. Fixed income securities transactions are not executed through a centralized trading desk. Instead, portfolio teams are responsible for executing trades with broker/dealers in a predominantly dealer marketplace. Trade allocation decisions are made by the portfolio manager at the time of trade execution and orders entered on the fixed income order management system. Finally, investment of American Century's corporate assets in proprietary accounts may raise additional conflicts of interest. To mitigate these potential conflicts of interest, American Century has adopted policies and procedures intended to provide that trading in proprietary accounts is performed in a manner that does not give improper advantage to American Century to the detriment of client portfolios. (11) Mondrian does not foresee any material conflicts of interest that may arise in the management of the funds and any other accounts managed with similar investment guidelines. Mondrian acts solely as an investment manager and does not engage in any other business activities. The following is a list of some potential conflicts of interest that can arise in the course of normal investment management business activities. Mondrian maintains and operates various policies and procedures which are designed to prevent or manage any of the conflicts identified below so that the interests of its clients are always put ahead of Mondrian's own interests or those of its employees and directors: Allocation of aggregated trades Mondrian may from time to time aggregate trades for a number of its clients. Mondrian's policy requires that all allocations of aggregated trades must be fair between clients. Transactions involving commingled orders are allocated in a manner deemed equitable to each account. When a combined order is executed in a series of transactions, at different prices, each account participating in the order may be allocated an average price obtained from the broker/dealer. When a trade can be allocated in a cost efficient manner to our clients, it will be prorated across all participating accounts. Mondrian may randomly allocate purchases or sales among participating accounts when the amounts involved are too small to be evenly proportioned in a cost efficient manner. In performing random allocations, Mondrian will consider consistency of strategy implementation among participating accounts. Allocation of investment opportunities Mondrian is an investment manager of multiple client portfolios. As such, it has to ensure that investment opportunities are allocated fairly between clients. There is a potential risk that Mondrian may favor one client over another client in making allocations of investment opportunities. Mondrian makes security selection decisions at committee level. Those securities identified as investment opportunities are added to a list of approved securities; portfolios will hold only such approved securities. All portfolios governed by the same or a similar mandate will be structured similarly (that is, will hold the same or comparable stocks), and will exhibit similar characteristics. Sale and purchase opportunities identified at regular investment meetings will be applied to portfolios across the board, subject to the requirements of individual client mandates. See also "Side-by-side management of hedge funds" below. Allocation of IPO opportunities Initial Public Offerings ("IPO's") present a potential conflict of interest when they are priced at a discount to the anticipated secondary market price and the issuer has restricted or scaled back its allocation due to market demand. In such instances, the IPO allocation could be divided among a small select group of clients with others not receiving the allocation they would otherwise be entitled to. Statement of Additional Information - Dec. 30, 2008 Page 114 Mondrian clients with relevant mandates are given an equal opportunity, proportionate to the size of their portfolio, to participate in IPO trades. All IPO purchases are allocated on a strict pro-rata basis. Dealing in investments as principal in connections with the provision of seed capital A conflict of interest exists when a portfolio management firm manages its own money alongside client money. Mondrian generally does not trade for its own account. However, Mondrian and its affiliates have provided the seed capital to certain investment vehicles that have been established by Mondrian group entities. Mondrian serves as the investment manager to these investment vehicles. Mondrian operates dealing policies designed to ensure the fair and equal treatment of all clients e.g. the allocation of aggregated trades among clients. These policies ensure that any portfolios in which Mondrian has an investment interest do not receive favorable treatment relative to other client portfolios. Directorships and external arrangements Certain Mondrian staff may hold positions in external organizations. There is a potential risk that Mondrian personnel may place their own interests (resulting from outside employment/directorships) ahead of the interests of Mondrian clients. Before accepting an executive or non-executive directorship or any other appointment in another company, employees, including executive directors, must obtain the prior approval of the Chief Executive Officer. The Chief Compliance Officer must also be informed of all such appointments and changes. The CEO and CCO will only permit appointments that would not present a conflict of interest with the individual's responsibilities to Mondrian clients. Dual agency Dual Agency (also known as Cross Trading) concerns those transactions where Mondrian may act as agent for both the buyer and seller. In such circumstances there is a potential conflict of interest as it may be possible to favor one client over another when establishing the execution price and/or commission rate. Although it rarely does so, Mondrian may act as agent for both buying and selling parties with respect to transactions in investments. If Mondrian proposes to act in such capacity, the Portfolio Manager will first obtain approval from the Chief Compliance Officer. The CCO has an obligation to ensure that both parties are treated fairly in any such trade. Employee personal account dealing There are a number of potential conflicts when staff of an investment firm engage in buying and selling securities for their personal account. Mondrian has arrangements in place to ensure that none of its directors, officers or employees (or persons connected to them by way of a business or domestic relationship) effects any transaction on their own account which conflicts with client interests. Mondrian's rules which govern personal account dealing and general ethical standards are set out in the Mondrian Investment Partners Code of Ethics. Gifts and entertainment (received) In the normal course of business Mondrian employees may receive gifts and entertainment from third parties e.g. brokers and other service providers. This results in a potential conflict of interest when selecting third parties to provide services to Mondrian and its clients. Mondrian has a policy which requires that gifts and entertainment received are reported to the Chief Compliance Officer (any items in excess of L100 require pre-approval). All gifts and entertainment are reviewed to ensure that they are not inappropriate and that staff have not been unduly influenced by them. Gifts and entertainment (given) In the normal course of business, Mondrian employees may provide gifts and entertainment to third parties. Excessively lavish gifts and entertainment would be inappropriate. Mondrian has a policy which requires that any gifts and entertainment provided are reported to the Chief Compliance Officer (any items in excess of L200 require pre-approval). All gifts and entertainment are reviewed to ensure that they are not inappropriate and that staff have not attempted to obtain undue influence from them. Performance fees Where an investment firm has clients with a performance fee arrangement there is a risk that those clients could be favored over clients without performance fees. Statement of Additional Information - Dec. 30, 2008 Page 115 Mondrian charges fees as a proportion of assets under management. In a very limited number of situations, in addition to this fee basis, certain accounts also include a performance fee basis. The potential conflict of interest arising from these fee arrangements is addressed by Mondrian's procedures for the allocation of aggregated trades among clients. Investment opportunities are allocated totally independently of fee arrangements. Side-by-side management of hedge funds (Mondrian Alpha Funds) Where an investment manager has responsibility for managing long only portfolios alongside portfolios that can take short positions there is potential for a conflict of interest to arise between the two types of portfolio. Mondrian acts as investment manager for two Fixed Income Alpha and one Equity Alpha fund. The Alpha Funds are permitted to take short positions and are also permitted to invest in some or all of the same securities that Mondrian manages for other clients. Mondrian is satisfied that the investment styles of these different products significantly reduce the likelihood of a conflict of interest arising. However, Mondrian has a number of policies and procedures in place that are designed to ensure that any potential conflicts are correctly managed and monitored so that all clients are treated fairly. Soft dollar arrangements Where an investment manager has soft dollar arrangements in place with a broker/dealer there is a potential conflict of interest as trading volumes through that broker/dealer are usually important in ensuring that soft dollar targets are met. As is typical in the investment management industry, Mondrian client funds are used to pay brokerage commissions for the execution of transactions in the client's portfolio. As part of that execution service, brokers generally provide proprietary research to their clients as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; and providing information on economic factors and trends. Proprietary research may be used by Mondrian in connection with its investment decision-making process with respect to one or more accounts managed by it, and it may or may not be used, or used exclusively, with respect to the account generating the brokerage. With the exception of the receipt of proprietary research, Mondrian has no other soft dollar or commission sharing arrangements in place with brokers. (12) In managing other portfolios (including affiliated accounts), certain potential conflicts of interest may arise. Potential conflicts include, for example, conflicts among investment strategies, conflicts in the allocation of investment opportunities, or conflicts due to different fees. As part of its compliance program, Jennison has adopted policies and procedures that seek to address and minimize the effects of these conflicts. Jennison's portfolio managers typically manage multiple accounts. These accounts may include, among others, mutual funds, separately managed advisory accounts (assets managed on behalf of institutions such as pension funds, colleges and universities, foundations), commingled trust accounts, other types of unregistered commingled accounts, affiliated single client and commingled insurance separate accounts, model nondiscretionary portfolios, and model portfolios used for wrap fee programs. Portfolio managers make investment decisions for each portfolio based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may recommend the purchase (or sale) of certain securities for one portfolio and not another portfolio. Securities purchased in one portfolio may perform better than the securities purchased for another portfolio. Similarly, securities sold from one portfolio may result in better performance if the value of that security declines. Generally, however, portfolios in a particular product strategy (e.g., large cap growth equity) with similar objectives are managed similarly. Accordingly, portfolio holdings and industry and sector exposure tend to be similar across a group of accounts in a strategy that have similar objectives, which tends to minimize the potential for conflicts of interest. While these accounts have many similarities, the investment performance of each account will be different primarily due to differences in guidelines, timing of investments, fees, expenses and cash flows. Furthermore, certain accounts (including affiliated accounts) in certain investment strategies may buy or sell securities while accounts in other strategies may take the same or differing, including potentially opposite, position. For example, certain strategies may short securities that may be held long in other strategies. The strategies that sell a security short held long by another strategy could lower the price for the security held long. Similarly, if a strategy is purchasing a security that is held short in other strategies, the strategies purchasing the security could increase the price of the security held short. Jennison has policies and procedures that seek to mitigate, monitor and manage this conflict. In addition, Jennison has adopted trade aggregation and allocation procedures that seek to treat all clients (including affiliated accounts) fairly and equitably. These policies and procedures address the allocation of limited investment opportunities, such as IPOs and the allocation of transactions across multiple accounts. Some accounts have higher fees, Statement of Additional Information - Dec. 30, 2008 Page 116 including performance fees, than others. These differences may give rise to a potential conflict that a portfolio manager may favor the higher fee-paying account over the other or allocate more time to the management of one account over another. While Jennison does not monitor the specific amount of time that a portfolio manager spends on a single portfolio, senior Jennison personnel periodically review the performance of Jennison's portfolio managers as well as periodically assess whether the portfolio manager has adequate resources to effectively manage the accounts assigned to that portfolio manager. Jennison also believes that its compensation structure tends to mitigate this conflict. (13) Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one portfolio or other account. More specifically, portfolio managers who manage multiple portfolios and/or other accounts are presented with the following potential conflicts: - The management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. Davis Advisors seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the portfolios. - If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one portfolio or other account, a portfolio may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible portfolios and other accounts. To deal with these situations, Davis Advisors has adopted procedures for allocating portfolio transactions across multiple accounts. - With respect to securities transactions for the portfolios, Davis Advisors determines which broker to use to execute each order, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts (such as mutual funds, other pooled investment vehicles that are not registered mutual funds, and other accounts managed for organizations and individuals), Davis Advisors may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Davis Advisors may place separate, non- simultaneous, transactions for a portfolio and another account which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the portfolio or the other account. - Finally, substantial investment of Davis Advisor or Davis Family assets in certain mutual funds may lead to conflicts of interest. To mitigate these potential conflicts of interest, Davis Advisors has adopted policies and procedures intended to ensure that all clients are treated fairly over time. Davis Advisors does not receive an incentive based fee on any account. (14) Conflicts of interest may arise in connection with the investment manager's management of the investments of the relevant fund and the investments of the other accounts. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts Conflicts of interest may arise in connection with the portfolio managers' management of the investments of the relevant fund and the investments of the other accounts included in the table above. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts with similar investment objectives and policies. A portfolio manager potentially could use information concerning the relevant fund's transactions to the advantage of other accounts and to the detriment of the relevant fund. To address these potential conflicts of interest, Lord Abbett has adopted and implemented a number of policies and procedures. Lord Abbett has adopted Policies and Procedures for Evaluating Best Execution of Equity Transactions, as well as Trading Practices/Best Execution Procedures. The objective of these policies and procedures is to ensure the fair and equitable treatment of transactions and allocation of investment opportunities on behalf of all accounts managed by Lord Abbett. In addition, Lord Abbett's Code of Ethics sets forth general principles for the conduct of employee personal securities transactions in a manner that avoids any actual or potential conflicts of interest with the interests of Lord Abbett's clients including the relevant fund. Moreover, Lord Abbett's Statement of Policy and Procedures on Receipt and Use of Inside Information sets forth procedures for personnel to follow when they have inside information. Lord Abbett is not affiliated with a full service broker-dealer and therefore does not execute any portfolio transactions through such an entity, a structure that could give rise to additional conflicts. Lord Abbett does not conduct any investment bank functions and does not manage any hedge funds. Lord Abbett does not believe that any material conflicts of interest exist in connection with the portfolio managers' management of the investments of the relevant fund and the investments of the other accounts referenced in the table above. (15) Donald Smith & Co., Inc. is very sensitive to conflicts of interest that could possibly arise in its capacity of serving as an investment adviser. It remains committed to resolving any and all conflicts in the best interest of its clients. Donald Smith & Co., Inc. is an independent investment advisor with no parent or subsidiary organizations. Additionally, it has no affiliated organizations, brokerage, nor any investment banking activities. Statement of Additional Information - Dec. 30, 2008 Page 117 Clients include mutual funds, public and corporate pension plans, endowments and foundations, and other separate accounts. Donald Smith & Co., Inc. has put in place systems, policies and procedures, which have been designed to maintain fairness in portfolio management across all clients. Potential conflicts between funds or with other types of accounts are managed via allocation policies and procedures, internal review processes, and direct oversight by Donald G. Smith, President. (16) Tradewinds recognizes that actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one account. More specifically, Tradewinds, because it manages multiple accounts is presented with several potential conflicts and it seeks to manage these conflicts as follows: - The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Tradewinds seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most accounts managed by a portfolio manager in a particular investment strategy are managed using the same investment models. - If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one account, an account may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible accounts. To deal with these situations, Tradewinds has adopted procedures for fairly allocating portfolio transactions across multiple accounts. - With respect to many of its clients' accounts, Tradewinds determines which broker to use to execute transaction orders, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts, Tradewinds may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Tradewinds may place separate, non-simultaneous, transactions for a Fund and other accounts which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the Fund or the other accounts. - Some clients are subject to different regulations. As a consequence of this difference in regulatory requirements, some clients may not be permitted to engage in all the investment techniques or transactions (e.g., short selling) or to engage in these transactions to the same extent as the other accounts managed by the portfolio manager. Finally, the appearance of a conflict of interest may arise where Tradewinds has an incentive, such as a performance-based management fee, which relates to the management of some accounts, with respect to which a portfolio manager has day-to-day management responsibilities. Tradewinds has adopted certain compliance procedures which are designed to address these types of conflicts common among investment managers. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises. (17) Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including the Fund). BHMS manages potential conflicts between funds or with other types of accounts through allocation policies and procedures, internal review processes and oversight by directors and independent third parties to ensure that no client, regardless of type or fee structure, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations where two or more funds or accounts participate in investment decisions involving the same securities. (18) Certain conflicts of interest may arise in connection with the management of multiple portfolios and investment strategies. Potential conflicts include the allocation of investment opportunities across client accounts and the allocation of similar investments across different strategies. MetWest Capital has adopted policies and procedures designed to minimize the effects of these conflicts. Responsibility for managing MetWest Capital client portfolios is organized according to investment strategy. All accounts in each strategy are managed to a model portfolio, as specified by the investment team. The investment team implements the model consistently across client portfolios. Consequently, position sizes and industry and sector allocations are similar across our clients' portfolios. Typically, no positions differ from portfolio to portfolio, except in the case of client-imposed restrictions. For such a portfolio, the investment team determines the position(s) that comply with client requirements. This process minimizes the potential for conflicts of interest. MetWest Capital's allocation policy allocates all investment opportunities among clients in the fairest possible way, taking into account clients' best interests. We have adopted policies and procedures designed to ensure that allocations do not involve a practice of favoring or disfavoring any strategy, client or group of clients. Account and strategy performance is never a factor in trade allocations. When necessary, we address known conflicts of interests in our trading practices by disclosure to clients and/or in our Form ADV or other appropriate action. The decision to buy or sell a position in the model portfolio is based on the direction of the investment team. Once the decision is made, traders prepare the trade "blocks." All participating strategies and client portfolios (those without pending cash flows or prohibited transactions) are block-traded together, typically grouped either by custodian or trade Statement of Additional Information - Dec. 30, 2008 Page 118 broker according to best-execution practices. Orders are placed to ensure random fills so that no one strategy, client or group of clients is favored or disfavored on a systematic basis. Each portfolio/relationship manager is responsible for reviewing the blocks and implementing all buy and sell orders for his/her accounts, taking into consideration client-specific factors. A committee, comprised of the Chief Investment Officer and portfolio/relationship managers, reviews trade reports for all accounts on a daily basis. (19) Threadneedle Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including proprietary accounts, separate accounts for institutions, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicle whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, the portfolio manager's responsibilities at Threadneedle Investments include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that he/she manages versus communicating his/her analyses to other portfolio managers concerning securities that he/she follows as an analyst. Threadneedle Investments has a fiduciary responsibility to all of the clients for which it manages accounts. Threadneedle Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. Threadneedle Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. (20) Like other investment professionals with multiple clients, a Fund's portfolio manager(s) may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The Advisor and the Funds have adopted compliance policies and procedures that attempt to address certain of the potential conflicts that portfolio managers face in this regard. Certain of these conflicts of interest are summarized below. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance (performance fee accounts), if any, may raise potential conflicts of interest for a portfolio manager by creating an incentive to favor higher fee accounts. Potential conflicts of interest also may arise when a portfolio manager has personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to the Advisor's Code of Ethics and certain limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Funds. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. The effects of this potential conflict may be more pronounced where funds and/or accounts managed by a particular portfolio manager have different investment strategies. A portfolio manager may be able to select or influence the selection of the broker/dealers that are used to execute securities transactions for the Funds. A portfolio manager's decision as to the selection of broker/dealers could produce disproportionate costs and benefits among the Funds and the other accounts the portfolio manager manages. A potential conflict of interest may arise when a portfolio manager buys or sells the same securities for a Fund and other accounts. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent consistent with applicable laws and regulations, aggregate the securities to be sold or bought in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if a portfolio manager favors one account over another in allocating the securities bought or sold. "Cross trades," in which a portfolio manager sells a particular security held by a Fund to another account (potentially saving transaction costs for both accounts), could involve a potential conflict of interest if, for example, a portfolio manager is permitted to sell a security from one account to another account at a higher price than an independent third party would pay. The Advisor and the Funds have adopted compliance procedures that provide that any transactions between the Fund and another account managed by the Advisor are to be made at an independent current market price, consistent with applicable laws and regulation. Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts managed by its portfolio manager(s). Depending on another account's objectives and other factors, a Statement of Additional Information - Dec. 30, 2008 Page 119 portfolio manager may give advice to and make decisions for a Fund that may differ from advice given, or the timing or nature of decisions made, with respect to another account. A portfolio manager's investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a portfolio manager may buy or sell a particular security for certain accounts, and not for a Fund, even though it could have been bought or sold for the Fund at the same time. A portfolio manager also may buy a particular security for one or more accounts when one or more other accounts are selling the security (including short sales). There may be circumstances when a portfolio manager's purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts, including the Funds. A Fund's portfolio manager(s) also may have other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the Fund and other accounts. Many of the potential conflicts of interest to which the Advisor's portfolio managers are subject are essentially the same as or similar to the potential conflicts of interest related to the investment management activities of the Advisor and its affiliates. (21) Principal Global Investors provides investment advisory services to numerous clients other than the Fund. The investment objectives and policies of these accounts may differ from those of the Fund. Based on these differing circumstances, potential conflicts of interest may arise because the subadviser may be required to pursue different investment strategies on behalf of the Fund and other client accounts. For example, a subadviser may be required to consider an individual client's existing positions, personal tax situation, suitability, personal biases and investment time horizon, which considerations would not affect his investment decisions on behalf of the Fund. This means that research on securities to determine the merits of including them in the Fund's portfolio are similar, but not identical, to those employed in building private client portfolios. As a result, there may be instances in which a subadviser purchases or sells an investment for one or more private accounts and not for the Fund, or vice versa. To the extent the Fund and other clients seek to acquire the same security at about the same time, the Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the security. Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular security if the subadviser desires to sell the same portfolio security at the same time on behalf of other clients. On the other hand, if the same securities are bought or sold at the same time by more than one client, the resulting participation in volume transactions could produce better executions for the Fund. (22) As an investment adviser and fiduciary, AllianceBernstein owes its clients and shareholders an undivided duty of loyalty. We recognize that conflicts of interest are inherent in our business and accordingly have developed policies and procedures (including oversight monitoring) reasonably designed to detect, manage and mitigate the effects of actual or potential conflicts of interest in the area of employee personal trading, managing multiple accounts for multiple clients, including AllianceBernstein Mutual Funds, and allocating investment opportunities. Investment professionals, including portfolio managers and research analysts, are subject to the above-mentioned policies and oversight monitoring to ensure that all clients are treated equitably. We place the interests of our clients first and expect all of our employees to meet their fiduciary duties. Employee Personal Trading AllianceBernstein has adopted a Code of Business Conduct and Ethics that is designed to detect and prevent conflicts of interest when investment professionals and other personnel of AllianceBernstein own, buy or sell securities which may be owned by, or bought or sold for, clients. Personal securities transactions by an employee may raise a potential conflict of interest when an employee owns or trades in a security that is owned or considered for purchase or sale by a client, or recommended for purchase or sale by an employee to a client. Subject to the reporting requirements and other limitations of its Code of Business Conduct and Ethics, AllianceBernstein permits its employees to engage in personal securities transactions, and also allows them to acquire investments in the AllianceBernstein Mutual Funds through direct purchase, 401K/profit sharing plan investment and/or notionally in connection with deferred incentive compensation awards. AllianceBernstein's Code of Ethics and Business Conduct requires disclosure of all personal accounts and maintenance of brokerage accounts with designated broker-dealers approved by AllianceBernstein. The Code also requires preclearance of all securities transactions and imposes a one-year holding period for securities purchased by employees to discourage short-term trading. Managing Multiple Accounts for Multiple Clients AllianceBernstein has compliance policies and oversight monitoring in place to address conflicts of interest relating to the management of multiple accounts for multiple clients. Conflicts of interest may arise when an investment professional has responsibilities for the investments of more than one account because the investment professional may be unable to devote equal time and attention to each account. The investment professional or investment professional teams for each client may have responsibilities for managing all or a portion of the investments of multiple accounts with a common investment strategy, including other registered investment companies, unregistered investment vehicles, Statement of Additional Information - Dec. 30, 2008 Page 120 such as hedge funds, pension plans, separate accounts, collective trusts and charitable foundations. Among other things, AllianceBernstein's policies and procedures provide for the prompt dissemination to investment professionals of initial or changed investment recommendations by analysts so that investment professionals are better able to develop investment strategies for all accounts they manage. In addition, investment decisions by investment professionals are reviewed for the purpose of maintaining uniformity among similar accounts and ensuring that accounts are treated equitably. No investment professional that manages client accounts carrying performance fees is compensated directly or specifically for the performance of those accounts. Investment professional compensation reflects a broad contribution in multiple dimensions to long-term investment success for our clients and is not tied specifically to the performance of any particular client's account, nor is it directly tied to the level or change in the level of assets under management. Allocating Investment Opportunities AllianceBernstein has policies and procedures intended to address conflicts of interest relating to the allocation of investment opportunities. These policies and procedures are designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The investment professionals at AllianceBernstein routinely are required to select and allocate investment opportunities among accounts. Portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar accounts, which minimizes the potential for conflicts of interest relating to the allocation of investment opportunities. Nevertheless, investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons. AllianceBernstein's procedures are also designed to prevent potential conflicts of interest that may arise when AllianceBernstein has a particular financial incentive, such as a performance-based management fee, relating to an account. An investment professional may perceive that he or she has an incentive to devote more time to developing and analyzing investment strategies and opportunities or allocating securities preferentially to accounts for which AllianceBernstein could share in investment gains. To address these conflicts of interest, AllianceBernstein's policies and procedures require, among other things, the prompt dissemination to investment professionals of any initial or changed investment recommendations by analysts; the aggregation of orders to facilitate best execution for all accounts; price averaging for all aggregated orders; objective allocation for limited investment opportunities (e.g., on a rotational basis) to ensure fair and equitable allocation among accounts; and limitations on short sales of securities. These procedures also require documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. (23) AIG Global Investment Corp. ("AIGGIC") aims to conduct its activities in such a manner that permits it to deal fairly with each of its clients on an overall basis in accordance with applicable securities laws and fiduciary obligations. In that regard, AIGGIC has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, which AIGGIC believes address the conflicts associated with managing multiple accounts for multiple clients (including affiliated clients). AIGGIC also monitors a variety of areas, including compliance with guidelines of the Fund and other accounts it manages and compliance with AIGGIC's Code of Ethics. Furthermore, AIGGIC's management periodically reviews the performance of a portfolio manager. Although AIGGIC does not track the time a portfolio manager spends on a single portfolio, AIGGIC does periodically assess whether a portfolio manager has adequate time and resources to effectively manage all of such portfolio manager's accounts. (24) Batterymarch recognizes that actual or potential conflicts may arise in managing multiple client accounts. A brief description of some of the potential conflicts of interest and compliance factors that may arise as a result is included below. We do not believe any of these potential conflicts of interest and compliance factors pose significant risk to any client account. Allocation of Limited Investment Opportunities If an investment team identifies a limited investment opportunity (including initial public offerings) that may be suitable for multiple client accounts, each account may not be able to take full advantage of that opportunity due to liquidity constraints or other factors. Batterymarch has adopted policies and procedures designed to ensure that allocations of limited investment opportunities are conducted in a fair and equitable manner between client accounts. Although Batterymarch strives to ensure that client accounts managed under similar investment mandates have similar portfolio characteristics, Batterymarch does not "clone" client accounts (i.e., assemble multiple client accounts with identical portfolios of securities). As a result, the portfolio of securities held in any single client account may perform better or worse than the portfolio of securities held in another similarly managed client account. Statement of Additional Information - Dec. 30, 2008 Page 121 Allocation of Partially-Filled Transactions in Securities Batterymarch often aggregates for execution as a single transaction orders for the purchase or sale of a particular security for multiple client accounts. If Batterymarch is unable to fill an aggregated order completely, but receives a partial fill, Batterymarch will typically allocate the transactions relating to the partially filled order to clients on a pro-rata basis with a minimum fill size. Batterymarch may make exceptions from this general policy from time to time based on factors such as the availability of cash, country/regional/sector allocation decisions, investment guidelines and restrictions, and the costs for minimal allocation actions. Opposite (i.e., Contradictory) Transactions in Securities Batterymarch provides investment advisory services for various clients and under various investment mandates and may give advice, and take action, with respect to any of those clients that may differ from the advice given, or the timing or nature of action taken, with respect to any other individual client account. In the course of providing advisory services, Batterymarch may simultaneously recommend the sale of a particular security for one client account while recommending the purchase of the same or a similar security for another account. This may occur for a variety of reasons. For example, in order to raise cash to handle a redemption/withdrawal from a client account, Batterymarch may be forced to sell a security that is ranked a "buy" by its stock selection model. Certain Batterymarch portfolio managers that manage long-only portfolios also manage portfolios that sell securities short. As such, Batterymarch may purchase or sell a security in one or more of its long-only portfolios under management during the same day it executes an opposite transaction in the same or a similar security for one or more of its portfolios under management that hold securities short, and certain Batterymarch client account portfolios may contain securities sold short that are simultaneously held as long positions in certain of the long- only portfolios managed by Batterymarch. The stock selection model(s), risk controls and portfolio construction rules used by Batterymarch to manage its clients' long-only portfolios differ from the model and rules that are used to manage client account portfolios that hold securities short. Because different stock selection models, risk controls and portfolio construction rules are used, it is possible that the same or similar securities may be ranked differently for different mandates and that the timing of trading in such securities may differ. Batterymarch has created certain compliance policies and procedures designed to minimize harm from such contradictory activities/events. Selection of Brokers/Dealers In selecting a broker or dealer, Batterymarch may choose a broker whose commission rate is in excess of that which another broker might have charged for the same transaction, based upon Batterymarch's judgment of that broker's superior execution capabilities and/or as a result of Batterymarch's perceived value of the broker's research services. Although Batterymarch does not participate in any traditional soft dollar arrangements whereby a broker purchases research from a third party on Batterymarch's behalf, Batterymarch does receive proprietary research services from brokers. Batterymarch generally seeks to achieve trade executions with brokers of the highest quality and at the lowest possible cost, although there can be no assurance that this objective will always be achieved. Batterymarch does not enter into any arrangements with brokers, formal or otherwise, regarding order flow as a result of research received. Clients should consider that there is a potential conflict of interest between their interests in obtaining best execution and an investment adviser's receipt of research from brokers selected by the investment adviser for trade executions. The proprietary research services which Batterymarch obtains from brokers may be used to service all of Batterymarch's clients and not just those clients paying commissions to brokers providing those research services, and not all proprietary research may be used by Batterymarch for the benefit of the one or more client accounts which paid commissions to a broker providing such research. Personal Securities Transactions Batterymarch allows its employees to trade in securities that it recommends to advisory clients. Batterymarch's supervised persons, to the extent not prohibited by Batterymarch's Code of Ethics, may buy, hold or sell securities or investment products (including interests in partnerships and investment companies) at or about the same time that Batterymarch is purchasing, holding or selling the same or similar securities or investment products for client account portfolios and the actions taken by such persons on a personal basis may be, or may be deemed to be, inconsistent with the actions taken by Batterymarch for its client accounts. Clients should understand that these activities may create a conflict of interest between Batterymarch, its supervised persons and its clients. Batterymarch employees may also invest in mutual funds that are managed by Batterymarch. This may result in a potential conflict of interest since Batterymarch employees have knowledge of such funds' investment holdings, which is non-public information. Statement of Additional Information - Dec. 30, 2008 Page 122 To address this, Batterymarch has adopted a written Code of Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including shareholders' interests in funds managed by Batterymarch). Batterymarch and certain Batterymarch employees may also have ownership interests in certain other client accounts, including pooled investment vehicles, that invest in long and short positions. Firm and employee ownership of such accounts may create additional potential conflicts of interest for Batterymarch. Performance-Based Fee Arrangements Batterymarch manages some accounts under performance-based fee arrangements. Batterymarch recognizes that this type of incentive compensation creates the risk for potential conflicts of interest. This structure may create an incentive to allocate investments having a greater potential for higher returns to accounts of those clients paying the higher performance fee. To prevent conflicts of interest, Batterymarch generally requires portfolio decisions to be made on a product specific basis. Additionally, Batterymarch requires average pricing of all aggregated orders. Lastly, the investment performance on specific accounts is not a factor in determining the portfolio managers' compensation; performance analysis is reviewed on an aggregate product basis. Although Batterymarch believes that its policies and procedures are appropriate to prevent, eliminate or minimize the harm of many potential conflicts of interest between Batterymarch, its related persons and clients, clients should be aware that no set of policies and procedures can possibly anticipate or relieve all potential conflicts of interest. Moreover, it is possible that additional potential conflicts of interest may exist that Batterymarch has not identified in the summary above. Batterymarch's CCO conducts a review of the firm's potential conflicts of interest and a risk assessment on an annual basis. (25) Systematic Financial Management, L.P. is an affiliated firm of Affiliated Managers Group, Inc. (AMG) a publicly traded asset management company, which invests in mid-sized asset management firms. Neither AMG nor any of their affiliates formulate advice for Systematic's clients and do not, in Systematic's view, present any potential conflict of interest with Systematic's clients. Portfolio managers oversee the investment of various types of accounts in the same strategy such as mutual funds, pooled investment vehicles and separate accounts for individuals and institutions. Investment decisions are generally applied to all accounts utilizing that particular strategy taking into consideration client restrictions, instructions and individual needs. A portfolio manager may manage an account whose fees may be higher or lower than the basic fee schedule to provide for varying client circumstances. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of client trades. However, Systematic has a variety of internal controls in place that are reasonably designed to detect such conflicts and protect the interests of its clients. Conflicts of interest, including employee personal securities trading, security selection, proxy voting and security allocation, may arise as a result of providing advisory services to a diverse group of clients invested in various strategies. To mitigate such potential conflicts and harm to Systematic's clients, Systematic has adopted policies and procedures, including but not limited to, its Code of Ethics, which addresses personal securities trading, Proxy Voting and Trade Error Policies. These policies and procedures are subject to periodic testing and reviews, which are reasonably designed to detect such conflicts and protect the interests of its clients. A portfolio manager may also face other potential conflicts of interest in managing the Partners Select Value Fund. The description above is not a complete description of every conflict of interest that could be deemed to exist in managing this Fund and other accounts listed above. (26) During the normal course of managing assets for multiple clients of varying types and asset levels, WEDGE will inevitably encounter conflicts of interest that could, if not properly addressed, be harmful to one or more of its clients. Those of a material nature that are encountered most frequently surround security selection, brokerage selection, employee personal securities trading, proxy voting and the allocation of securities. WEDGE is therefore forced to consider the possible personal conflicts that occur for an analyst and portfolio manager as well as those for the firm when a security is recommended for purchase or sale. When trading securities, WEDGE must address the issues surrounding the selection of brokers to execute trades considering the personal conflicts of the trader and the firm's conflict to obtain best execution of client transactions versus offsetting the cost of research or enhancing its relationship with a broker for potential future gain. And finally, WEDGE must consider the implications that a limited supply or demand for a particular security poses on the allocation of that security across accounts. To mitigate these conflicts and ensure its clients are not negatively impacted by the adverse actions of WEDGE or its employees, WEDGE has implemented a series of policies including its Personal Security Trading Policy, Proxy Voting Policy, Equity Trading Policy, Trading Error Policy, and others designed to prevent and detect conflicts when they occur. WEDGE reasonably believes that these and other policies combined with the periodic review and testing performed by its compliance professionals adequately protects the interests of its clients. Statement of Additional Information - Dec. 30, 2008 Page 123 STRUCTURE OF COMPENSATION (27) The compensation of RiverSource Investments employees consists of (i) a base salary, (ii) an annual cash bonus, and (iii) equity incentive awards in the form of stock options and/or restricted stock. The annual cash bonus is based on management's assessment of the employee's performance relative to individual and business unit goals and objectives which, for portfolio managers Joy, Keeley and Truscott, may be based, in part, on achieving certain investment performance goals and retaining and attracting assets under management, and for portfolio manager Bergene, on developing competitive products, managing existing products, and selecting and monitoring subadvisers for RiverSource funds. In addition, subject to certain vesting requirements, the compensation of portfolio managers Joy, Keeley and Truscott, includes an annual award based on the performance of Ameriprise Financial over rolling three-year periods. RiverSource Investments' portfolio managers are provided with a benefit package including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (28) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Unless otherwise noted, funding for the bonus pool for equity portfolio managers is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, plus, where applicable, a percentage of the assets of the funds they support as research analysts*, and by the short term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to the relevant peer group universe. Additionally, with respect to the Contrarian Equity Team** only, funding for the bonus pool would also include a percentage of any performance fees earned on long/short mutual funds managed by the Team. Funding for the bonus pool for fixed income portfolio managers is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and by the short-term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to applicable benchmarks or the relevant peer group universe. Bonus pool funding for Lynn Hopton and Yvonne Stevens, is based upon a percentage of profits generated by the institutional portfolios they manage. Lynn Hopton and Yvonne Stevens may also be paid from a bonus pool based upon the performance of the mutual fund(s) they manage. Funding for this bonus pool is determined by a percentage of the aggregate assets under management in the mutual fund(s) they manage, and by the short term (typically one-year) and long-term (typically three- year) performance of the mutual fund(s) in relation to the relevant peer group universe. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers, plus, where applicable, a percentage of performance fees earned on the hedge funds or accounts they support as research analysts*. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. In addition, where portfolio managers invest in a hedge fund managed by the investment manager, they receive a cash reimbursement for the investment management fees charged on their hedge fund investments. Senior management of RiverSource Investments does not have discretion over the size of the bonus pool related to institutional portfolios managed by Lynn Hopton and Yvonne Stevens. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (29) As an employer, UBS Global Asset Management operates within a highly competitive compensation environment. To review industry comparatives, we measure our compensation structures against benchmark data of competitors provided by McLagan Partners, the industry standard provider for compensation measurement and assessment, on an annual basis. ---------- * The portfolio managers that currently support funds as research analysts are: Clay Hoes, Julene Melquist, Sam Murphy and Mike Marzolf. ** The Contrarian Equity Team is comprised of Warren Spitz, Steve Schroll, Laton Spahr and Paul Stocking. * The portfolio managers that currently support funds as research analysts are: Clay Hoes, Julene Melquist, Sam Murphy and Mike Marzolf. Statement of Additional Information - Dec. 30, 2008 Page 124 We also perform compensation analysis on an as-needed basis, e.g., when bringing new employees into the organization, or when the market shifts and we need to consider adjustments for retention purposes. Our Global Head of Compensation works closely with our parent company and various data sources to validate our procedures and assumptions. Our compensation and benefits programs are designed to provide our investment professionals with incentives to excel, and to promote an entrepreneurial, performance-oriented culture. They also align the interests of our investment professionals with the interests of our clients. Overall compensation can be grouped into four categories: 1. Competitive salary, benchmarked annually to maintain very competitive compensation opportunities. 2. Annual bonus, tied to individual contributions and investment performance. 3. Analyst incentives, tied to performance of model portfolios. 4. UBS equity awards, promoting company-wide success and employee retention. Base salary is used to recognize the experience, skills and knowledge that our investment professionals bring to their roles. Salary levels are monitored and adjusted periodically in order to remain competitive within the investment management industry. Annual bonuses are strictly and rigorously correlated with performance. As such, annual incentives can be highly variable, and are based on three components: 1) the firm's overall business success; 2) the performance of the respective asset class and/or investment mandate; and 3) an individual's specific contribution to the firm's results. We strongly believe that tying bonuses to both long-term (3-year) and shorter-term (1-year) portfolio performance closely aligns our investment professionals' interests with those of our clients. Analyst Incentives. Because we value our proprietary research, we have designed a compensation system that has made investment analysis a highly regarded career within our firm. Grouped into 12 global sector teams, our analysts manage model portfolios in global and local sectors. Our portfolio managers use the model sector portfolios to build actual client portfolios. Analyst incentives are tied to the performance of the model portfolios, which we evaluate over rolling three-year periods. One-third of each analyst's rating is based upon the performance of the model global sector portfolio; one-third on the model local sector portfolio; and one-third is a qualitative assessment of their contribution. We believe that this system closely aligns our analysts' incentives with our clients. UBS AG equity. Many of our senior investment professionals are required to defer a portion of their annual performance-based incentive in the form of deferred or restricted UBS AG shares or employee stock options. Not only does this reinforce the critical importance of creating long- term business value, it also serves as an effective retention tool as the equity shares typically vest over a number of years. Broader equity share ownership is encouraged for all employees through "Equity Plus". This long-term incentive program gives employees the opportunity to purchase UBS stock with after-tax funds from their bonus or salary. Two UBS stock options are given for each share acquired and held for two years. We feel this engages our employees as partners in the firm's success, and helps to maximize our integrated business strategy. (30) Turner's investment professionals receive a base salary commensurate with their level of experience. Turner's goal is to maintain competitive base salaries through review of industry standards, market conditions, and salary surveys. Bonus compensation, which is a multiple of base salary, is based on the performance of each individual's sector and portfolio assignments relative to appropriate market benchmarks. In addition, each employee is eligible for equity awards. Turner believes this compensation provides incentive to attract and retain highly qualified people. The objective performance criteria noted above accounts for 90% of the bonus calculation. The remaining 10% is based upon subjective, "good will" factors including teamwork, interpersonal relations, the individual's contribution to overall success of the firm, media and client relations, presentation skills, and professional development. Portfolio managers/analysts are reviewed on an annual basis. The Chief Investment Officer, Robert E. Turner, CFA, is responsible for setting base salaries, bonus targets, and making all subjective judgments related to an investment professionals' compensation. (31) The professionals at Essex are compensated by a three-tiered approach. First, all of the investment professionals have industry-competitive base salaries and receive a percentage of the firm's profits through a profit-sharing/pension plan. Second, Essex's professionals receive a year-end bonus based on their personal performance and Essex's composite performance relative to our peers and benchmark. Third, Essex offers a competitive benefits package including comprehensive family health coverage. Essex's yearly investment performance drives the portfolio managers' incentive portion ("bonus") of their compensation package. The portfolio managers' bonus is based on their respective portfolios' absolute, relative, and risk-adjusted performance. Eighty percent of the evaluation is based on the performance of the portfolios and twenty percent is based on teamwork, communication, and other subjective criteria. We also incent them on their one, two and three-year performance track record. Statement of Additional Information - Dec. 30, 2008 Page 125 As an added retention mechanism, Essex offers ownership to both existing and prospective employees. The current ownership structure allows Essex to capitalize a portion of its free cash flow each year and transform it into stock ownership. Essex envisions granting ownership as an additional incentive to the employees who contribute the greatest to the firm's future success. Finally, Essex is committed to using a fundamental team approach and culture that encourages continuity among its investment professionals and makes a conscious effort to reward its team members accordingly. (32) The portfolio managers are paid a fixed base salary and a variable annual incentive. Base salary is determined within a market competitive position-specific salary range, based on experience and performance. For purposes of calculating the annual incentive amount, each mutual fund and institutional account managed by MDTA is categorized as reflecting one of several designated "Strategies." The annual incentive amount is based on current calendar year asset-weighted composite investment performance of each Strategy, which is measured on a total return basis gross of fees and expenses vs. the Strategy's designated benchmark (i.e., with respect to the Fund's Strategy, Russell 2000 Growth Index). The portfolio managers are also part of investment teams for other accounts in addition to the Fund. Such other accounts may be categorized as reflecting different Strategies, which may have different benchmarks. Although the performance of each Strategy composite is considered in calculating the annual incentive amount, their relative weightings differ. The performance of one of the other Strategies (which does not include the Fund in its composite performance) represents a significant portion of the calculation. The remaining Strategies are divided into two groups, with each Strategy within a group receiving equal weighting. The Strategy to which the Fund is assigned and the other Strategies in the same group receive higher weighting than Strategies in the other group. As a separate matter, pursuant to the terms of a business acquisition agreement, the portfolio managers may receive additional consideration based on the achievement of specified revenue targets. (33) N/A (34) The compensation of American Century's portfolio managers is structured to align the interests of portfolio managers with those of the shareholders whose assets they manage. For the fiscal year ended May 31, 2008, it included the components described below, each of which is determined with reference to a number of factors, such as overall performance, market competition, and internal equity. Compensation is not directly tied to the value of assets held in client portfolios. Base Salary Portfolio managers receive base pay in the form of a fixed annual salary. Bonus A significant portion of portfolio manager compensation takes the form of an annual incentive bonus tied to performance. Bonus payments are determined by a combination of factors. One factor is fund investment performance. For most American Century mutual funds, investment performance is measured by a combination of one- and three- year pre-tax performance relative to various benchmarks and/or internally-customized peer groups. The performance comparison periods may be adjusted based on a fund's inception date or a portfolio manager's tenure on the fund. Custom peer groups are constructed using all the funds in appropriate Lipper or Morningstar categories as a starting point. Funds are then eliminated from the peer group that is both more stable over the long- term (i.e., has less peer turnover) and that more closely represents the fund's true peers based on internal investment mandates. Portfolio managers may have responsibility for multiple American Century mutual funds. In such cases, the performance of each is assigned a percentage weight appropriate for the portfolio manager's relative levels of responsibility. Portfolio managers also may have responsibility for portfolios that are managed in a fashion similar to that of other American Century mutual funds. This is the case for the Partners Small Cap Equity and Partners Aggressive Growth Funds. If the performance of a similarly managed account is considered for purposes of compensation, it is either measured in the same way as a comparable American Century mutual fund (i.e., relative to the performance of a benchmark and/or peer group) or relative to the performance of such mutual fund. Performance of Partners Small Cap Equity Fund is measured relative to the performance of a comparable American Century mutual fund. Performance of Partners Aggressive Growth Fund is not separately considered in determining portfolio manager compensation. A second factor in the bonus calculation relates to the performance of all American Century funds managed according to a particular investment style, such as U.S. growth or value. Performance is measured for each product individually as described above and then combined to create an overall composite for the product group. These composites may measure one-year performance (equal weighted) or a combination of one- and three-year performance (asset weighted) depending on the portfolio manager's responsibilities and products managed. This feature is designed to encourage Statement of Additional Information - Dec. 30, 2008 Page 126 effective teamwork among portfolio management teams in achieving long- term investment success for similarly styled portfolios. A portion of some portfolio managers' bonuses may be tied to individual performance goals, such as research projects and the development of new products. Restricted Stock Plans Portfolio managers are eligible for grants of restricted stock of ACC. These grants are discretionary, and eligibility and availability can vary from year to year. The size of an individual's grant is determined by individual and product performance as well as other product-specific considerations. Grants can appreciate/depreciate in value based on the performance of the ACC stock during the restriction period (generally three years). Deferred Compensation Plans Portfolio managers are eligible for grants of deferred compensation. These grants are used in very limited situations, primarily for retention purposes. Grants are fixed and can appreciate/depreciate in value based on the performance of the American Century mutual funds in which the portfolio manager chooses to invest them. (35) Mondrian has the following programs in place to retain key investment staff: 1. Competitive Salary -- All investment professionals are remunerated with a competitive base salary. 2. Profit Sharing Bonus Pool -- All Mondrian staff, including portfolio managers and senior officers, qualify for participation in an annual profit sharing pool determined by the company's profitability (approximately 30% of profits). 3. Equity Ownership -- Mondrian is ultimately controlled by a partnership of senior management and private equity funds sponsored by Hellman & Friedman LLC, an independent private equity firm. Mondrian is currently 61% owned by approximately 70 of its senior employees, including the majority of investment professionals, senior client service officers, and senior operations personnel, and 39% owned by private equity funds sponsored by Hellman & Friedman, LLC. The private equity funds sponsored by Hellman & Friedman LLC are passive, non-controlling minority investors in Mondrian and do not have day-to-day involvement in the management of Mondrian. Incentives (Bonus and Equity Programs) focus on the key areas of research quality, long-term and short-term stock performance, teamwork, client service and marketing. As an individual's ability to influence these factors depends on that individual's position and seniority within the firm, so the allocation of participation in these programs will reflect this. At Mondrian, the investment management of particular portfolios is not "star manager" based but uses a team system. This means that Mondrian's investment professionals are primarily assessed on their contribution to the team's effort and results, though with an important element of their assessment being focused on the quality of their individual research contribution. Compensation Committee In determining the amount of bonuses and equity awarded, Mondrian's Board of Directors consults with the company's Compensation Committee, who will make recommendations based on a number of factors including investment research, organization management, team work, client servicing and marketing. Defined Contribution Pension Plan All portfolio managers are members of the Mondrian defined contribution pension plan where Mondrian pays a regular monthly contribution and the member may pay additional voluntary contributions if they wish. The Plan is governed by Trustees who have responsibility for the trust fund and payments of benefits to members. In addition, the Plan provides death benefits for death in service and a spouse's or dependant's pension may also be payable. Mondrian believes that this compensation structure, coupled with the opportunities that exist within a successful and growing business, are adequate to attract and retain high caliber employees. (36) Jennison seeks to maintain a highly competitive compensation program designed to attract and retain outstanding investment professionals, which includes portfolio managers and research analysts, and to align the interests of its investment professionals with those of its clients and overall firm results. Overall firm profitability determines the total amount of incentive compensation pool that is available for investment professionals. Investment professionals are compensated with a combination of base salary and discretionary cash bonus. In general, the cash bonus comprises the majority of the compensation for investment professionals. Additionally, senior investment professionals, including portfolio managers and senior research analysts, are eligible to participate in a voluntary deferred compensation program where all or a portion of the discretionary cash bonus can be deferred. Participants in the deferred compensation plan are permitted to allocate the deferred amounts among various options that track the gross of fee pre- Statement of Additional Information - Dec. 30, 2008 Page 127 tax performance of various mutual funds, of which nearly all of the equity options are managed by Jennison, and composites of accounts managed by Jennison, which may include accounts managed for unregistered products. Investment professionals' total compensation is determined through a subjective process that evaluates numerous qualitative and quantitative factors. There is no particular weighting or formula for considering the factors. Some portfolio managers or analysts may manage or contribute ideas to more than one product strategy and are evaluated accordingly. The factors considered for an investment professional whose primary role is portfolio management will differ from an investment professional who is a portfolio manager with research analyst responsibilities. The following factors, listed in order of importance, will be reviewed for each portfolio manager: - One and three year pre-tax investment performance of groupings of accounts (a "Composite") relative to market conditions, pre-determined passive indices, such as the Russell 2000 Index, and industry peer group data for the product strategy (e.g., large cap growth, large cap value) for which the portfolio manager is responsible; - Historical and long-term business potential of the product strategies; - Qualitative factors such as teamwork and responsiveness; and Other factors such as experience and other responsibilities such as being a team leader or supervisor may also affect an investment professional's total compensation. (37) Kenneth Feinberg's compensation as a Davis Advisors employee consists of (i) a base salary, (ii) an annual bonus equal to a percentage of growth in Davis Advisors' profits, (iii) awards of equity ("Units") in Davis Advisors including Units, options on Units, and/or phantom Units, and (iv) an incentive plan whereby Davis Advisors purchases shares in selected funds managed by Davis Advisors. At the end of specified periods, generally five years following the date of purchase, some, all, or none of the fund shares will be registered in the employee's name based on fund performance after expenses on a pre-tax basis versus the S&P 500 Index and versus peer groups as defined by Morningstar or Lipper. Davis Advisors' portfolio managers are provided benefits packages including life insurance, health insurance, and participation in company 401(k) plan comparable to that received by other company employees. Christopher Davis's annual compensation as an employee of Davis Advisors consists of a base salary. Davis Advisors' portfolio managers are provided benefits packages including life insurance, health insurance, and participation in company 401(k) plan comparable to that received by other company employees. (38) Lord Abbett compensates its portfolio managers on the basis of salary, bonus and profit sharing plan contributions. The level of compensation takes into account the portfolio manager's experience, reputation and competitive market rates. Fiscal year-end bonuses, which can be a substantial percentage of base level compensation, are determined after an evaluation of various factors. These factors include the portfolio manager's investment results and style consistency, the dispersion among funds with similar objectives, the risk taken to achieve the fund returns, and similar factors. Investment results are evaluated based on an assessment of the portfolio manager's three- and five-year investment returns on a pre-tax basis vs. both the appropriate style benchmarks and the appropriate peer group rankings. Finally, there is a component of the bonus that reflects leadership and management of the investment team. The evaluation does not follow a formulaic approach, but rather is reached following a review of these factors. No part of the bonus payment is based on the portfolio manager's assets under management, the revenues generated by those assets, or the profitability of the portfolio manager's unit. Lord Abbett does not manage hedge funds. Lord Abbett may designate a bonus payment of a manager for participation in the firm's senior incentive compensation plan, which provides for a deferred payout over a five-year period. The plan's earnings are based on the overall asset growth of the firm as a whole. Lord Abbett believes this incentive focuses portfolio managers on the impact their fund's performance has on the overall reputation of the firm as a whole and encourages exchanges of investment ideas among investment professionals managing different mandates. Lord Abbett provides a 401(k) profit-sharing plan for all eligible employees. Contributions to a portfolio manager's profit-sharing account are based on a percentage of the portfolio manager's total base and bonus paid during the fiscal year, subject to a specified maximum amount. The assets of this profit-sharing plan are entirely invested in Lord Abbett-sponsored funds. (39) All employees at Donald Smith & Co., Inc. are compensated on incentive plans. The compensation for portfolio managers, analysts and traders at Donald Smith consists of a base salary, a partnership interest in the firm's profits, and possibly an additional, discretionary bonus. This discretionary bonus can exceed 100% of the base salary if performance for clients exceeds established benchmarks. The current benchmark utilized is the Russell 2000 Value Index. Additional distribution of firm ownership is a strong motivation for continued employment at Donald Smith & Co., Inc. Administrative personnel are also given a bonus as a function of their contribution and the profitability of the firm. Statement of Additional Information - Dec. 30, 2008 Page 128 (40) Tradewinds offers a highly competitive compensation structure with the purpose of attracting and retaining the most talented investment professionals. These professionals are rewarded through a combination of cash and long-term incentive compensation as determined by the firm's executive committee. Total cash compensation (TCC) consists of both a base salary and an annual bonus that can be a multiple of the base salary. The firm annually benchmarks TCC to prevailing industry norms with the objective of achieving competitive levels for all contributing professionals. Available bonus pool compensation is primarily a function of the firm's overall annual profitability. Individual bonuses are based primarily on the following: - Overall performance of client portfolios; - Objective review of stock recommendations and the quality of primary research; - Subjective review of the professional's contributions to portfolio strategy, teamwork, collaboration and work ethic. To further strengthen our incentive compensation package and to create an even stronger alignment to the long-term success of the firm, Tradewinds has made available to most investment professionals equity participation opportunities, the values of which are determined by the increase in profitability of Tradewinds over time. Finally, some of our investment professionals have received additional remuneration as consideration for signing employment agreements. These agreements range from retention agreements to long-term employment contracts with significant non-solicitation and, in some cases, non- compete clauses. (41) In addition to base salary, all portfolio managers and analysts at BHMS share in a bonus pool that is distributed semi- annually. Analysts and portfolio managers are rated on their value added to the team-oriented investment process. Overall compensation applies with respect to all accounts managed and compensation does not differ with respect to distinct accounts managed by a portfolio manager. Compensation is not tied to a published or private benchmark. It is important to understand that contributions to the overall investment process may include not recommending securities in an analyst's sector if there are no compelling opportunities in the industries covered by that analyst. The compensation of portfolio managers is not directly tied to fund performance or growth in assets for any fund or other account managed by a portfolio manager and portfolio managers are not compensated for bringing in new business. Of course, growth in assets from the appreciation of existing assets and/or growth in new assets will increase revenues and profit. The consistent, long-term growth in assets at any investment firm is to a great extent, dependent upon the success of the portfolio management team. The compensation of the portfolio management team at the Adviser will increase over time, if and when assets continue to grow through competitive performance. (42) MetWest Capital's compensation system is designed not only to attract and retain experienced, highly qualified investment personnel, but also to closely align employees' interests with clients' interests. Compensation for investment professionals consists of a base salary, bonus, and generous benefits. Benefits include a comprehensive insurance benefits program (medical, vision and dental), 401(k) plan with an employer-matched contribution. A material portion of each such professional's annual compensation is in the form of a bonus tied to results relative to clients' benchmarks and overall client satisfaction. Bonuses may range from 20% to over 100% of salary. MetWest Capital's compensation system is not determined on an account- specific basis. Rather, bonuses are tied to overall firm profitability and composite performance relative to the benchmark. The primary benchmark for the Small Cap Intrinsic Value strategy is the Russell 2000 Value Index. To reinforce long-term focus, performance is measured over MetWest Capital's investment horizon (typically two to four years). Analysts are encouraged to maintain a long-term focus and are not compensated for the number of their recommendations that are purchased in the portfolio. Rather, their bonuses are tied to overall strategy performance. Mr. Lisenbee is an owner of MetWest Capital. As such, his compensation consists of a fixed salary and participation in the firm's profits. (43) The portfolio manager's compensation as a Threadneedle Investments employee consists of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award. The annual bonus is paid from a bonus pool that is based on both mutual fund and institutional portfolio performance. Funding for the bonus pool is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and generally by the performance of the accounts compared to applicable benchmarks. Senior management of Threadneedle Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his/her performance as an employee subject to the total fund managers' bonus pool being within the overall Corporate bonus pool which is based on the profitability of Threadneedle. Threadneedle Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company pension plan, comparable to that received by other Threadneedle employees. (44) As of December 31, 2007, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management. P. Zachary Egan and Louis J. Mendes each received compensation in the form of salary and bonus. Typically, a high proportion of an analyst's or portfolio manager's bonus is paid in cash with a Statement of Additional Information - Dec. 30, 2008 Page 129 smaller proportion going into two separate incentive plans. The first plan is a notional investment based on the performance of certain Columbia Funds, including the Columbia Acorn Funds. The second plan consists of Bank of America restricted stock and/or options. Both plans vest over three years from the date of issuance. The CWAM total bonus pool, including cash and the two incentive plans, is based on a formula, with firm wide investment performance as the primary driver. Analysts and portfolio managers are positioned in a number of compensation tiers based on cumulative performance. Excellent performance results in advancement to a higher tier until the highest tier is reached. Higher tiers have higher base compensation levels and wider bonus ranges. While cumulative performance places analysts and managers in tiers, current year performance drives changes in bonus levels. Incentive bonuses vary by tier, and can range between a fraction of base pay to several times base pay; the objective being to provide very competitive total compensation for high performing analysts and portfolio managers. In addition, Mr. Egan received a final distribution on September 30, 2007 in connection with his association with the Advisor prior to its acquisition in September 2000 and the Advisor's performance through September 30, 2005. Mr. Mendes received a final distribution on September 30, 2007 from a supplemental pool for the Advisor's employees that was established in connection with the acquisition of CWAM and was based on the Advisor's performance through September 30, 2005. (45) Principal Global Investors offers all employees a competitive salary and incentive compensation plan that is evaluated annually. Percentages of base salary versus performance bonus vary by position but are based on nationally competitive market data and are consistent with industry standards. Total cash compensation is targeted at the median of the market and benefits are targeted slightly above median. The investment staff is compensated under a base salary plus variable annual bonus (incentive compensation). The incentive compensation plan for equity portfolio managers is 90% weighted to investment performance and 10% weighted to Principal Global Investors annual performance score. The incentive bonus for equity portfolio managers ranges from 150% to 300% of actual base earnings, depending on job level. - Investment performance is based on gross performance versus a benchmark, peer group or both, depending on the client mandate. - Performance versus peers is measured for a period up to three years (shorter if the portfolio manager has managed the respective portfolio for a period less than three years). - Versus the peer group, incentive payout starts at 54th percentile and reaches 100% at the 25th percentile for the 1, 2, and 3-year periods. 3.33% of incentive payout is achieved at 54th percentile. No payout is realized if performance is at or below 55th percentile. As a wholly owned subsidiary of Principal Financial Group, all Principal Global employees are eligible to participate in our Employee Stock Purchase Plan that allows them to purchase company stock at a 15% discount each quarter. In addition, through our 401(k) plan, employees are able to contribute to an Employee Stock Ownership Plan (ESOP) through which they can buy additional company stock. (46) AllianceBernstein's compensation program for investment professionals is designed to be competitive and effective in order to attract and retain the highest caliber employees. The compensation program for investment professionals is designed to reflect their ability to generate long-term investment success for our clients, including shareholders of the AllianceBernstein Mutual Funds. Investment professionals do not receive any direct compensation based upon the investment returns of any individual client account, nor is compensation tied directly to the level or change in the level of assets under management. Investment professionals' annual compensation is comprised of the following: (i) Fixed base salary: This is generally the smallest portion of compensation. The base salary is a relatively low, fixed salary within a similar range for all investment professionals. The base salary (determined at the outset of employment based on level of experience), does not change significantly from year-to-year, and hence, is not particularly sensitive to performance. (ii) Discretionary incentive compensation in the form of an annual cash bonus: AllianceBernstein's overall profitability determines the total amount of incentive compensation available to investment professionals. This portion of compensation is determined subjectively based on qualitative and quantitative factors. In evaluating this component of an investment professional's compensation, AllianceBernstein considers the contribution to his/her team or discipline as it relates to that team's overall contribution to the long-term investment success, business results and strategy of AllianceBernstein. Quantitative factors considered include, among other things, relative investment performance (e.g., by comparison to competitor or peer group funds or similar styles of investments, and appropriate, broad-based or specific market indices), and consistency of performance. There are no specific formulas used to determine this part of an investment professional's compensation and the compensation is not tied to any pre-determined or specified level of performance. AllianceBernstein also considers qualitative factors such as the complexity and risk of investment strategies involved in the style or type of assets managed by the investment Statement of Additional Information - Dec. 30, 2008 Page 130 professional; success of marketing/business development efforts and client servicing; seniority/length of service with the firm; management and supervisory responsibilities; and fulfillment of AllianceBernstein's leadership criteria. (iii) Discretionary incentive compensation in the form of awards under AllianceBernstein's Partners Compensation Plan ("deferred awards"): AllianceBernstein's overall profitability determines the total amount of deferred awards available to investment professionals. The deferred awards are allocated among investment professionals based on criteria similar to those used to determine the annual cash bonus. There is no fixed formula for determining these amounts. Deferred awards, for which there are various investment options, vest over a four-year period and are generally forfeited if the employee resigns or AllianceBernstein terminates his/her employment. Investment options under the deferred awards plan include many of the same AllianceBernstein Mutual Funds offered to mutual fund investors, thereby creating a close alignment between the financial interests of the investment professionals and those of AllianceBernstein's clients and mutual fund shareholders with respect to the performance of those mutual funds. AllianceBernstein also permits deferred award recipients to allocate up to 50% of their award to investments in AllianceBernstein's publicly traded equity securities (prior to 2002, investment professional compensation also included discretionary long-term incentive in the form of restricted grants of AllianceBernstein's Master Limited Partnership Units). (iv) Contributions under AllianceBernstein's Profit Sharing/401(k) Plan: The contributions are based on AllianceBernstein's overall profitability. The amount and allocation of the contributions are determined at the sole discretion of AllianceBernstein. (47) Compensation for AIGGIC portfolio managers has both a salary and a bonus component. The salary component is a fixed base salary, which is generally based upon several factors, including experience and market levels of salary for such position. The bonus component is based both on a portfolio manager's individual performance and the organizational performance of AIGGIC. The bonus component is generally calculated as follows: (1) 60% is linked to the management of a portfolio manager's funds; (2) 20% is based on AIGGIC's profitability; and (3) 20% is determined on a discretionary basis (including individual qualitative goals). For the 60% component, the measures for a portfolio manager may vary according to the day-to-day responsibilities of a particular portfolio manager. The measures comprise any combination of (a) total return measures, (b) benchmark measures and (c) peer group measures. Any long-term compensation may include stock options and restricted stock units, both having vesting schedules. (48) In addition to customary employee benefits (e.g., medical coverage), Batterymarch's compensation for investment professionals includes a combination of base salary, annual bonus and long-term incentive compensation, as well as a generous benefits package made available to all Batterymarch employees on a non-discretionary basis. Specifically, the package includes: - competitive base salaries; - individual performance-based bonuses based on the investment professionals' added value to the portfolios for which they are responsible measured on a one-, three- and five-year basis versus benchmarks and peer universes as well as their contributions to research, client service and new business development; - corporate profit-sharing; and - annual contribution to a non-qualified deferred compensation plan that has a cliff-vesting requirement (i.e., they must remain employed with the firm for at least 31 months to receive payment). Performance is evaluated on an aggregate product basis that the portfolio manager is responsible for and is generally not analyzed by any individual client portfolios. Portfolio manager compensation is not tied to, nor increased or decreased as the result of, any performance fees that may be earned by Batterymarch. Lastly, portfolio managers do not receive a percentage of the revenue earned on any of Batterymarch's client portfolios. (49) Ron Mushock and Kevin McCreesh are partners of the firm and co-Portfolio managers for the strategy. Employee-owners receive a fixed base salary and income distributions scaled to the company's profit margins and their respective individual ownership interests. Other investment professionals are compensated with both a competitive salary and an annual performance bonus determined by their contribution to our investment process and its results. Total compensation is influenced by Systematic's overall profitability and therefore is based in part on the aggregate performance of all of Systematic's portfolios, including the Partners Select Value Fund. Systematic's ability to offer equity ownership to senior professionals also provides a significant incentive for our investment team. Moreover, Messrs. Mushock and McCreesh are provided with a benefits package, including health insurance, and participation in a company 401(k) plan, comparable to that received by other Systematic employees. The co-Portfolio managers are not compensated based solely on the performance of, or the value of assets held in the Partners Select Value Fund or any other individual fund managed by Systematic. (50) WEDGE's incentive compensation has been structured to reward all professionals for their contribution to the growth and profitability of the firm. Compensation is not directly tied to fund performance or growth in assets for any fund or other account managed by a portfolio manager. General Partners are compensated via a percentage of the firm's net profitability following a peer review, which focuses on performance in their specific area of responsibility, as well as their contribution to the general management of the firm, and their importance to the firm in the future. Other investment professionals receive a competitive salary and bonus based on the firm's investment and business success and their specific contribution to that record. Statement of Additional Information - Dec. 30, 2008 Page 131 (51) For the year ended December 31, 2007, as compensation for his responsibilities, Mr. Voss received (i) a fixed base salary; (ii) a fixed minimum bonus; and (iii) a bonus based on the investment performance of the Fund and one other Seligman investment company for which Mr. Voss serves as portfolio manager (the "Voss Funds") as compared to the funds constituting the Lipper averages that include the Voss Funds. To reduce the amount of time the portfolio managers dedicate to marketing efforts and client services, the Fund's investment team has an experienced product manager that acts as the primary liaison between Seligman Advisors' marketing department and the investment team. (52) As compensation for their responsibilities, each of Messrs. Parower, Wick, Diwan and Lu and Ms. Shah received a base salary and bonus for the year ended December 31, 2007. The bonuses were allocated (as described below) from a bonus pool which is based upon (i) the weighted-average pre-tax investment performance of the Seligman funds and institutional accounts managed by Seligman's Technology Group (other than those attributable to funds in or contemplating liquidation) as compared with the investment results of a group of competitor funds over a rolling three-year period (ending November 30th); (ii) the annual revenues generated from such Seligman funds and accounts, and (iii) a portion of the management and performance fees generated for Seligman's privately offered pooled investment vehicles. The allocation of bonuses from the pool to each portfolio manager was based on numerous qualitative and quantitative factors relating to the particular portfolio manager, which included, among other things, an evaluation of: skills as a research analyst (i.e., quality of research); particular contributions to their investment team (as well as their contributions to other Seligman investment teams); ability to take initiative with respect to new roles/responsibilities; leadership abilities and potential for growth as a portfolio manager; ability to assimilate new concepts and ideas; ability to work within a team structure; and the competitive environment for the portfolio manager's services. Mr. Wick reviewed the allocations with the President of Seligman prior to the payment of bonuses. Mr. Wick retained the balance of the pool, after allocating to each of the above portfolio managers and other members of Seligman's Technology Group. To reduce the amount of time that Seligman's portfolio managers dedicate to marketing efforts and client services, its investment team has an experienced product manager that acts as the primary liaison between Seligman Advisors' marketing department and that investment team. (53) As compensation for their responsibilities, each of Messrs. Eigen and Rosen received a base salary and bonus for the year ended December 31, 2007. Bonuses are comprised of a discretionary component and a performance component based upon (i) the annual revenues generated from the accounts under management for the portfolio managers' investment team and (ii) the weighted-average pre-tax investment performance of such accounts in the following categories versus corresponding benchmarks over a rolling three-year period (ending November 30th for mutual funds and September 30th for all other accounts) as follows: Seligman large-cap value mutual funds -- Lipper Large-Cap Value Funds Average Seligman smaller-cap value mutual funds -- Lipper Small-Cap Value Funds Average Large-cap value institutional accounts -- Callan Large-Cap Value Universe Small-cap value institutional accounts -- Callan Small-Cap Value Universe Large-cap value wrap accounts -- Callan Large-Cap Value Universe Small-cap value wrap accounts -- Callan Small-cap Value Universe With respect to Mr. Eigen, the discretionary component was also based upon, among other factors, the competitive environment for Mr. Eigen's services. To reduce the amount of time the portfolio managers dedicate to marketing efforts and client services, the Funds' investment team has an experienced product manager that acts as the primary liaison between Seligman Advisors' marketing department and the investment team. Statement of Additional Information - Dec. 30, 2008 Page 132 ADMINISTRATIVE SERVICES Each fund listed in the table below has an Administrative Services Agreement with Ameriprise Financial. Under this agreement, the fund pays Ameriprise Financial for providing administration and accounting services. The fee is calculated as follows: TABLE 20. ADMINISTRATIVE SERVICES AGREEMENT FEE SCHEDULE
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------ $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 + ------------------------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 0.080% 0.075% 0.070% 0.060% 0.050% Absolute Return Currency and Income Disciplined International Equity Disciplined Small Cap Value Emerging Markets Bond Global Bond Partners International Select Growth Partners International Select Value Partners International Small Cap Partners Small Cap Equity Partners Small Cap Growth Partners Small Cap Value Small Cap Advantage Small Company Index Strategic Allocation Threadneedle Emerging Markets Threadneedle European Equity Threadneedle Global Equity Threadneedle Global Equity Income Threadneedle Global Extended Alpha Threadneedle International Opportunity ------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Diversified Bond Floating Rate High Yield Bond Income Opportunities Inflation Protected Intermediate Tax-Exempt Limited Duration Bond Minnesota Tax-Exempt New York Tax-Exempt Short Duration U.S. Government Strategic Income Allocation Tax-Exempt Bond Tax-Exempt High Income U.S. Government Mortgage ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 133
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------ $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 + ------------------------------------------------------------------------------------------------------------------------------ Balanced 0.060% 0.055% 0.050% 0.040% 0.030% Cash Management Disciplined Equity Disciplined Large Cap Growth Disciplined Large Cap Value Disciplined Small and Mid Cap Equity Diversified Equity Income Dividend Opportunity Equity Value Global Technology Growth Large Cap Equity Large Cap Value Mid Cap Growth Mid Cap Value Partners Aggressive Growth Partners Fundamental Value Partners Select Value Precious Metals and Mining Real Estate S&P 500 Index Tax-Exempt Money Market ------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 0.020% 0.020% 0.020% 0.020% 0.020% Income Builder Enhanced Income Income Builder Moderate Income Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 134 The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. Fees paid in each of the last three fiscal periods are shown in the table below. The table also shows the daily rate applied to each fund's net assets as of the last day of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 21. ADMINISTRATIVE FEES
----------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE ------------------------------------------------------------------------------------------- APPLIED TO FUND 2008 2007 2006 FUND ASSETS ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ------------------------------------------------------------------------------------------------------------ Income Builder Basic Income(a) $ 38,041 $ 25,671 $ 581(b) 0.020% ------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income(a) 45,848 37,153 1,226(b) 0.020 ------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income(a) 82,229 58,560 1,394(b) 0.020 ------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 110,897 86,301 51,235 0.020 ------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 26,665 24,051 17,895 0.020 ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 183,783 138,034 85,545 0.020 ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 223,400 172,602 104,658 0.020 ------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 62,617 50,763 34,371 0.020 ------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 101,924 76,312 41,435 0.020 ------------------------------------------------------------------------------------------------------------ S&P 500 Index 158,059 153,231 222,321 0.060 ------------------------------------------------------------------------------------------------------------ Small Company Index 738,676 867,030 861,455 0.078 ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ------------------------------------------------------------------------------------------------------------ Equity Value 680,124 674,042 558,514 0.057 ------------------------------------------------------------------------------------------------------------ Partners Small Cap Growth 159,051 173,239 180,537 0.080 ------------------------------------------------------------------------------------------------------------ Precious Metals and Mining 77,686 67,215 50,123 0.060 ------------------------------------------------------------------------------------------------------------ Small Cap Advantage 363,599 534,163 568,712 0.080 ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ------------------------------------------------------------------------------------------------------------ 120/20 Contrarian Equity 13,416(c) N/A N/A 0.080 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 3,623 1,779(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 5,483 1,861(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 7,572 2,961(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 7,280 2,293(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 7,160 2,579(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 4,249 1,548(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 4,915 2,928(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 1,670 586(d) N/A 0.020 ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ------------------------------------------------------------------------------------------------------------ High Yield Bond 1,069,014 1,259,292 1,328,295 0.065 ------------------------------------------------------------------------------------------------------------ Partners Aggressive Growth 350,088 334,364 130,418 0.059 ------------------------------------------------------------------------------------------------------------ Partners Fundamental Value 594,407 645,012 658,982 0.057 ------------------------------------------------------------------------------------------------------------ Partners Select Value 300,721 355,085 443,873 0.060 ------------------------------------------------------------------------------------------------------------ Partners Small Cap Equity 208,114 267,622 205,335 0.080 ------------------------------------------------------------------------------------------------------------ Partners Small Cap Value 565,329 754,675 858,118 0.080 ------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 541,748 623,283 821,082 0.068 ------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 285,601 196,713 172,175 0.070 ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ------------------------------------------------------------------------------------------------------------ Dividend Opportunity 1,033,158 884,333 658,242 0.055 ------------------------------------------------------------------------------------------------------------ Real Estate 132,646 153,117 91,341 0.060 ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 135
----------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE ------------------------------------------------------------------------------------------- APPLIED TO FUND 2008 2007 2006 FUND ASSETS ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ------------------------------------------------------------------------------------------------------------ Cash Management $2,507,729 $2,141,669 $1,741,492 0.048% ------------------------------------------------------------------------------------------------------------ Disciplined Equity 1,701,542 1,224,572 496,810 0.053 ------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 38,114 24,904 1,143(e) 0.060 ------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 30,592 20,681 4,615(f) 0.080 ------------------------------------------------------------------------------------------------------------ Floating Rate 398,924 378,190 46,916(f) 0.070 ------------------------------------------------------------------------------------------------------------ Growth 1,477,804 1,763,087 1,791,547 0.053 ------------------------------------------------------------------------------------------------------------ Income Opportunities 202,872 242,883 253,936 0.070 ------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 399,972 209,028 169,778 0.068 ------------------------------------------------------------------------------------------------------------ Large Cap Equity 2,524,199 3,245,953 2,119,930 0.049 ------------------------------------------------------------------------------------------------------------ Large Cap Value 45,929 60,574 78,248 0.060 ------------------------------------------------------------------------------------------------------------ Limited Duration Bond 115,529 105,993 133,102 0.070 ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ------------------------------------------------------------------------------------------------------------ California Tax-Exempt(g) 122,235 122,586 149,235 0.070 ------------------------------------------------------------------------------------------------------------ Diversified Bond 2,012,548 1,752,212 1,698,244 0.060 ------------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt(g) 215,249 234,353 286,050 0.070 ------------------------------------------------------------------------------------------------------------ New York Tax-Exempt(g) 41,455 47,710 57,973 0.070 ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ------------------------------------------------------------------------------------------------------------ Balanced 519,542 623,784 697,753 0.059 ------------------------------------------------------------------------------------------------------------ Disciplined Large Cap Growth 101,276 11,405(h) N/A 0.060 ------------------------------------------------------------------------------------------------------------ Disciplined Large Cap Value 662(i) N/A N/A 0.060 ------------------------------------------------------------------------------------------------------------ Diversified Equity Income 3,272,256 3,449,519 2,960,505 0.047 ------------------------------------------------------------------------------------------------------------ Mid Cap Value 1,335,281 1,196,773 854,082 0.053 ------------------------------------------------------------------------------------------------------------ Strategic Allocation 1,505,894 1,340,234 948,662 0.074 ------------------------------------------------------------------------------------------------------------ Strategic Income Allocation 115,139 21,493(h) N/A 0.070 ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 373,454 79,761 15,823(j) 0.079 ------------------------------------------------------------------------------------------------------------ Disciplined International Equity 549,173 209,295 14,739(k) 0.080 ------------------------------------------------------------------------------------------------------------ Emerging Markets Bond 131,334 78,549 21,248(l) 0.080 ------------------------------------------------------------------------------------------------------------ Global Bond 572,976 388,646 412,783 0.079 ------------------------------------------------------------------------------------------------------------ Global Technology 83,820 103,335 101,197 0.060 ------------------------------------------------------------------------------------------------------------ Partners International Select Growth 511,522 490,174 347,819 0.080 ------------------------------------------------------------------------------------------------------------ Partners International Select Value 1,395,090 1,759,221 1,306,775 0.078 ------------------------------------------------------------------------------------------------------------ Partners International Small Cap 79,183 92,062 83,383 0.080 ------------------------------------------------------------------------------------------------------------ Threadneedle Emerging Markets 498,019 503,279 406,991 0.080 ------------------------------------------------------------------------------------------------------------ Threadneedle European Equity 96,107 105,886 89,350 0.080 ------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity 549,601 611,621 532,772 0.080 ------------------------------------------------------------------------------------------------------------ Threadneedle Global Equity Income 1,528(m) N/A N/A 0.080 ------------------------------------------------------------------------------------------------------------ Threadneedle Global Extended Alpha 1,256(m) N/A N/A 0.080 ------------------------------------------------------------------------------------------------------------ Threadneedle International Opportunity 460,205 540,718 470,847 0.080 ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 57,618 74,912 64,053 0.070 ------------------------------------------------------------------------------------------------------------ Mid Cap Growth 652,889 946,943 1,023,124 0.057 ------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 525,515 544,894 321,037 0.069 ------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 1,823,812 2,064,819 1,505,060 0.063 ------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 136
----------------------------------------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE ------------------------------------------------------------------------------------------- APPLIED TO FUND 2007 2006 2005 FUND ASSETS ----------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market $ 73,957 $ 69,922 $ 42,768 0.060% ------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Third parties with which Ameriprise Financial contracts to provide services for the fund or its shareholders may pay a fee to Ameriprise Financial to help defray the cost of providing administrative and accounting services. The amount of any such fee is negotiated separately with each service provider and does not constitute compensation for investment advisory, distribution, or other services. Payment of any such fee neither increases nor reduces fees or expenses paid by shareholders of the fund. TRANSFER AGENCY SERVICES Each fund has a Transfer Agency Agreement with RiverSource Service Corporation (the "transfer agent") located at 734 Ameriprise Financial Center, Minneapolis, MN 55474. This agreement governs RiverSource Service Corporation's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the fund's shares. CLASS A, CLASS B, CLASS C AND CLASS D. For Class A, Class B, Class C and Class D, RiverSource Service Corporation will earn a fee from the fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The fund will pay on the basis of the relative percentage of net assets of each class of shares, first allocating the base fee (equal to Class A shares) across share classes, and then allocating the incremental per share class fee, based on the number of shareholder accounts. The fee varies depending on the investment category of the fund. You can find your fund's investment category in Table 1. BALANCED, EQUITY, FUNDS-OF-FUNDS - EQUITY FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C Class D ------- ------- ------- ------- $19.50 $20.50 $20.00 $19.50
FUNDS-OF-FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME, TAXABLE FIXED INCOME, TAX-EXEMPT FIXED INCOME FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C ------- ------- ------- $20.50 $21.50 $21.00
Statement of Additional Information - Dec. 30, 2008 Page 137 MONEY MARKET FUNDS For Cash Management Fund and Tax-Exempt Money Market Fund, the annual per account fee accrued daily and payable monthly, for the applicable classes is as follows. The fee for Tax-Exempt Money Market Fund, which does not have separate classes of shares, is the same as that applicable to Class A:
Class A Class B Class C ------- ------- ------- $22.00 $23.00 $22.50
CLASS E, CLASS R2, CLASS R3, CLASS R4, CLASS R5, CLASS W AND CLASS Y. For Class E, Class R2, Class R3, Class R4, Class R5, Class W and Class Y, RiverSource Service Corporation will earn a fee from the fund, accrued daily and payable monthly, determined by multiplying the average daily net assets of the applicable class by the annual rate shown below:
Class E Class R2 Class R3 Class R4 Class R5 Class W Class Y ------- -------- -------- -------- -------- ------- ------- 0.05% 0.05% 0.05% 0.05% 0.05% 0.20% 0.05%
In addition, an annual closed-account fee of $5.00 per inactive account is charged on a pro rata basis for 12 months from the date the account becomes inactive. The fees paid to RiverSource Service Corporation may be changed by the Board without shareholder approval. PLAN ADMINISTRATION SERVICES The funds* have a Plan Administration Services Agreement with the transfer agent. Under the agreement the fund pays for plan administration services, including services such as implementation and conversion services, account set- up and maintenance, reconciliation and account recordkeeping, education services and administration to various plan types, including 529 plans, retirement plans and Health Savings Accounts (HSAs). The fee for services is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class:
Class E Class R2 Class R3 Class R4 Class Y ------- -------- -------- -------- ------- 0.15% 0.25% 0.25% 0.25% 0.15%
The fees paid to the transfer agent may be changed by the Board without shareholder approval. * Currently, tax-exempt and state tax-exempt funds do not have classes of shares that are subject to this fee. DISTRIBUTION SERVICES RiverSource Distributors, Inc. (the "distributor"), 50611 Ameriprise Financial Center, Minneapolis, MN 55474, a wholly-owned subsidiary of Ameriprise Financial, Inc., and Seligman Advisors, Inc., 100 Park Avenue, New York, NY 10017, a wholly-owned subsidiary of RiverSource Investments, LLC (collectively the "distributor") serve as the funds' principal underwriters. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as principal underwriter and distributor to the funds. The fund's shares are offered on a continuous basis. Under a Distribution Agreement, sales charges deducted for distributing fund shares are paid to the distributor daily. The following table shows the sales charges paid to the distributor and the amount retained by the distributor after paying commissions and other expenses for each of the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 22. SALES CHARGES PAID TO DISTRIBUTOR
----------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES ----------------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ----------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income(a) $ 688,587 $ 1,155,448 $ 128,246(b)$ (56,086) $ 6,089 $ 25,697(b) ----------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced 831,981 1,678,918 326,707(b) 176,661 287,006 73,038(b) Income(a) ----------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate 1,279,681 2,955,938 437,903(b) 34,001 435,561 109,389(b) Income(a) ----------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 2,848,037 3,260,693 3,095,956 799,417 1,029,231 1,116,369 ----------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 384,348 455,765 577,821 4,989 94,296 105,590 ----------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 3,944,827 4,127,743 4,118,788 702,939 1,084,978 1,075,302 ----------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5,635,597 6,845,238 7,078,581 1,613,677 2,326,266 2,691,706 Aggressive ----------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 1,088,559 1,084,727 1,286,540 140,630 252,979 274,017 Conservative ----------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 2,257,735 2,414,356 1,845,156 471,536 594,766 518,093 -----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 138
----------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES ----------------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 ----------------------------------------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------------------------- Small Company Index $ 563,878 $ 973,579 $ 1,228,665 $ 117,897 $ 220,620 $ 337,031 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ----------------------------------------------------------------------------------------------------------------------------- Equity Value 496,313 928,630 645,442 16,594 86,064 116,536 ----------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 174,193 265,315 401,382 25,734 52,127 127,479 ----------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 192,503 178,460 104,779 50,572 33,944 21,277 ----------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 285,044 569,430 986,996 30,185 100,405 276,857 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ----------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity 149,480(c) N/A N/A 46,196(c) N/A N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 32,694 2,283(d) N/A 11,266 (6,048)(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 70,298 35,493(d) N/A 50,360 27,942(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 41,850 35,121(d) N/A 21,519 23,828(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 49,187 38,880(d) N/A 25,003 25,335(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 51,530 29,205(d) N/A 28,063 15,221(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 31,469 21,303(d) N/A 19,162 13,718(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 39,332 14,822(d) N/A 21,208 7,670(d) N/A ----------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 23,890 10,606(d) N/A 12,087 5,832(d) N/A ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ----------------------------------------------------------------------------------------------------------------------------- High Yield Bond 882,107 1,787,813 2,479,319 41,174 139,630 682,596 ----------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 390,356 359,329 217,559 83,271 63,452 44,653 ----------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 766,263 1,266,023 1,915,417 58,252 158,689 406,545 ----------------------------------------------------------------------------------------------------------------------------- Partners Select Value 314,511 518,110 945,839 25,291 61,797 213,839 ----------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 184,740 309,112 604,021 48,448 95,646 190,699 ----------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 607,350 1,147,620 1,616,642 117,005 249,915 478,093 ----------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 660,354 962,025 1,908,960 (152,827) (85,482) 482,228 ----------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 136,891 252,402 442,638 (116,397) (67,241) 61,137 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ----------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 1,648,530 2,653,148 1,665,096 206,622 266,495 207,486 ----------------------------------------------------------------------------------------------------------------------------- Real Estate 211,915 813,437 598,431 63,306 218,298 180,632 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ----------------------------------------------------------------------------------------------------------------------------- Cash Management 339,219 437,392 718,247 339,111 423,832 714,638 ----------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 412,821 661,751 322,731 85,890 140,529 67,609 ----------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap 26,228 55,865 1,760(e) 7,923 9,445 852(e) Equity ----------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 6,647 15,644 6,304(f) 1,943 1,960 1,708(f) ----------------------------------------------------------------------------------------------------------------------------- Floating Rate 380,143 1,282,342 364,914(f) (174,369) (554,729) (118,354)(f) ----------------------------------------------------------------------------------------------------------------------------- Growth 2,003,496 3,028,179 4,553,722 372,658 548,978 955,528 ----------------------------------------------------------------------------------------------------------------------------- Income Opportunities 135,655 320,351 486,593 (11,090) (6,952) 108,764 ----------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 407,706 105,703 326,780 51,044 18,732 47,098 ----------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 3,342,608 4,596,427 3,400,059 610,479 641,330 629,348 ----------------------------------------------------------------------------------------------------------------------------- Large Cap Value 64,134 102,472 123,212 20,999 26,452 37,908 ----------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 92,255 136,687 220,446 9,475 28,890 28,711 -----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 139
----------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES ----------------------------------------------------------------------------------------------------------------------------- FUND 2008 2007 2006 2008 2007 2006 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ----------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt $ 91,928 $ 150,760 $ 212,157(g)$ 5,945 $ 46,117 $ 77,373(g) ----------------------------------------------------------------------------------------------------------------------------- Diversified Bond 1,992,222 2,340,251 2,757,988 176,513 419,415 788,192 ----------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 463,447 338,160 480,402(g) 37,217 12,594 102,088(g) ----------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 29,401 43,518 89,560(g) 8,217 6,984 19,641(g) ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ----------------------------------------------------------------------------------------------------------------------------- Balanced 287,586 474,702 400,884 36,359 32,524 59,347 ----------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 87,685 20,834(h) N/A 30,621 5,197(h) N/A ----------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 0(i) N/A N/A 0(i) N/A N/A ----------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 6,331,545 9,553,810 12,904,884 1,204,186 1,407,616 2,114,315 ----------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 2,444,490 3,538,910 4,477,119 898,395 862,120 1,010,224 ----------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 5,371,458 8,570,846 3,667,041 1,321,113 1,738,063 739,852 ----------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 400,285 267,319(h) N/A 28,302 26,129(h) N/A ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ----------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and 288,047 10,519 0(j) 52,383 3,448 0(j) Income ----------------------------------------------------------------------------------------------------------------------------- Disciplined International 168,692 130,761 4,700(k) 36,899 14,894 434(k) Equity ----------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 41,906 25,743 11,348(l) 10,486 1,421 2,036(l) ----------------------------------------------------------------------------------------------------------------------------- Global Bond 391,577 314,002 447,007 118,930 215,442 320,724 ----------------------------------------------------------------------------------------------------------------------------- Global Technology 190,722 212,774 242,177 39,408 16,670 29,861 ----------------------------------------------------------------------------------------------------------------------------- Partners International Select 560,302 885,940 810,514 118,125 226,007 234,619 Growth ----------------------------------------------------------------------------------------------------------------------------- Partners International Select 1,584,444 4,085,674 3,895,267 235,164 641,699 815,331 Value ----------------------------------------------------------------------------------------------------------------------------- Partners International Small 88,479 164,026 173,659 20,053 19,649 37,954 Cap ----------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 780,872 886,062 1,075,586 (4,109,358) (7,004,024) (9,848,080) ----------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 124,828 226,464 107,816 35,391 90,745 29,463 ----------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 800,774 896,578 1,272,084 114,011 99,098 218,974 ----------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 18,558(m) N/A N/A 4,340(m) N/A N/A Income ----------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 1,795(m) N/A N/A 307(m) N/A N/A Alpha ----------------------------------------------------------------------------------------------------------------------------- Threadneedle International 319,850 501,090 563,174 49,744 56,669 107,305 Opportunity ----------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- FUND 2007 2006 2005 2007 2006 2005 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ----------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 62,985 115,280 176,349 (10,183) 29,590 40,451 ----------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 608,683 1,388,577 1,821,533 115,052 346,497 635,918 ----------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 313,115 346,932 371,626 (19,725) 79,024 107,815 ----------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,182,244 1,485,792 2,115,452 181,059 389,650 2,736,405 ----------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ----------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market N/A N/A N/A N/A N/A N/A -----------------------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31 to Jan. 31. For 2008, the information shown is for the period from June 1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period ended on May 31. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (d) For the period from May 18, 2006 (when shares became publicly available) to April 30, 2007. (e) For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. (f) For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. (g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For 2006, the information shown is for the period from July 1, 2005 through Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June 30. (h) For the period from May 17, 2007 (when shares became publicly available) to Sept. 30, 2007. (i) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (j) For the period from June 15, 2006 (when the Fund became available) to Oct. 31, 2006. (k) For the period from May 18, 2006 (when shares became publicly available) to Oct. 31, 2006. Statement of Additional Information - Dec. 30, 2008 Page 140 (l) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (m) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Part of the sales charge may be paid to selling dealers who have agreements with the distributor. The distributor will retain the balance of the sales charge. At times the entire sales charge may be paid to selling dealers. PLAN AND AGREEMENT OF DISTRIBUTION To help defray the cost of distribution and servicing not covered by the sales charges received under the Distribution Agreement, each fund listed in Table 24. 12b-1 Fees, approved a Plan of Distribution (the "Plan") and entered into an agreement under the Plan pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the type known as a reimbursement plan, the fund pays the distributor a fee up to actual expenses incurred at an annual rate as follows: FOR FUNDS OTHER THAN MONEY MARKET FUNDS: The fee is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class:
Class A Class B Class C Class D Class R2 Class R3 Class W ------- ------- ------- ------- -------- -------- ------- 0.25% 1.00% 1.00% 0.25% 0.50% 0.25% 0.25%
For Class B and Class C, up to 0.75% of the fee is reimbursed for distribution expenses. Up to an additional 0.25% is paid to the distributor to reimburse certain expenses incurred in connection with providing services to fund shareholders. For Class R2, up to 0.50% and for Class R3, up to 0.25% shall be reimbursed for distribution expenses. Of that amount, for Class R2, up to 0.25% may be reimbursed for shareholder servicing expenses. FOR MONEY MARKET FUNDS: The fee for services is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class. The fee for Tax-Exempt Money Market, which does not have separate classes of shares, is the same as that applicable to Class A:
Class A Class B Class C Class W ------- ------- ------- ------- 0.10% 0.85% 0.75% 0.10%
For Class B, up to 0.75% of the fee is reimbursed for distribution expenses. Up to an additional 0.10% is paid to the distributor to reimburse certain expenses incurred in connection with providing services to fund shareholders. The distributor has currently agreed not to be reimbursed by the Fund for distribution (12b-1) fees equal to 0.10% of the stated amount for Class B. FOR ALL FUNDS: Distribution and shareholder servicing expenses include payment of distribution and shareholder servicing fees to financial institutions that sell shares of the fund. Financial institutions may compensate their financial advisors with the distribution and shareholder servicing fees paid to them by the distributor. Payments under the Plan are intended to result in an increase in fund assets and thus potentially result in economies of scale and lower costs for all shareholders. Each class has exclusive voting rights on the Plan as it applies to that class. In addition, because Class B shares convert to Class A shares, Class B shareholders have the right to vote on any material increase to expenses charged under the Class A plan. Distribution expenses covered under this Plan include commissions to financial intermediaries, printing prospectuses and reports used for sales purposes, the preparation, printing and distribution of advertising and sales literature, personnel, travel, office expense and equipment, and other distribution-related expenses. Shareholder service expenses include costs of establishing and maintaining shareholder accounts and records, assisting with purchase, redemption and exchange requests, arranging for bank wires, monitoring dividend payments from the funds on behalf of shareholders, forwarding certain shareholder communications from funds to shareholders, receiving and responding to inquiries and answering questions regarding the funds, aiding in maintaining the investment of shareholders in the funds and other service-related expenses. A substantial portion of the expenses are not specifically identified to any one of the RiverSource funds. The fee is not allocated to any one service (such as advertising, compensation to financial intermediaries, or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. Statement of Additional Information - Dec. 30, 2008 Page 141 The Plan must be approved annually by the Board, including a majority of the disinterested Board members, if it is to continue for more than a year. At least quarterly, the Board reviews written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of Board members who are not interested persons of the fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the relevant class of shares or by the distributor. Any agreement related to the Plan will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the Board members, including a majority of the Board members who are not interested persons of the fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested Board members is the responsibility of the other disinterested Board members. No Board member who is not an interested person has any direct or indirect financial interest in the operation of the Plan or any related agreement. For its most recent fiscal period, each fund paid 12b-1 fees as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 23. 12B-1 FEES
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ------------------------------------------------------------------------------------------------------------------- Income Builder Basic $ 395,078 $ 253,523 $ 67,715 N/A N/A N/A N/A Income(a) ------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced 489,209 252,693 82,441 N/A N/A N/A N/A Income(a) ------------------------------------------------------------------------------------------------------------------- Income Builder Moderate 875,976 478,229 129,187 N/A N/A N/A N/A Income(a) ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 1,096,237 1,014,125 144,874 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Portfolio Builder 228,152 361,758 58,657 N/A N/A N/A N/A Conservative ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 1,723,291 1,975,620 319,534 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 2,192,065 2,083,589 310,922 N/A N/A N/A N/A Aggressive ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 563,053 734,653 143,621 N/A N/A N/A N/A Conservative ------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total 1,006,389 932,272 136,484 N/A N/A N/A N/A Equity ------------------------------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A $139,253 N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Small Company Index 1,897,269 1,844,630 N/A N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ------------------------------------------------------------------------------------------------------------------- Equity Value 2,578,435 1,585,388 63,308 N/A $ 26 $ 13 $ 13 ------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 262,998 382,183 44,120 N/A 24 12 N/A ------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining 273,178 179,634 21,128 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 891,269 920,220 70,397 N/A 19 10 N/A ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity(b) 27,941 6,806 2,020 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 4,890 N/A N/A N/A 24 12 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 8,361 N/A N/A N/A 24 13 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 7,167 N/A N/A N/A 24 13 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 5,406 N/A N/A N/A 25 13 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 5,279 N/A N/A N/A 25 15 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 2,921 N/A N/A N/A 24 13 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 2,156 N/A N/A N/A 24 13 N/A ------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 2,037 N/A N/A N/A 25 13 N/A -------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 142
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ------------------------------------------------------------------------------------------------------------------- High Yield Bond $ 3,139,852 $2,195,630 $ 211,821 N/A $ 27 $ 11 $ 140,313 ------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 989,015 834,358 23,191 N/A 190 15 N/A ------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value 1,820,164 1,938,445 170,196 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Partners Select Value 944,904 936,623 75,555 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity 557,309 310,825 26,458 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value 1,256,997 1,776,490 136,505 N/A 802 10 N/A ------------------------------------------------------------------------------------------------------------------- Short Duration U.S. 1,342,344 1,762,259 97,004 N/A N/A N/A 12 Government ------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 260,643 373,486 45,007 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 3,563,045 2,220,149 257,746 N/A N/A N/A 13 ------------------------------------------------------------------------------------------------------------------- Real Estate 276,727 189,408 17,500 N/A N/A N/A 9 ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ------------------------------------------------------------------------------------------------------------------- Cash Management 4,969,177 714,712 45,638 N/A N/A N/A 154,441 ------------------------------------------------------------------------------------------------------------------- Disciplined Equity 3,199,228 550,860 31,395 N/A 22 11 3,483,017 ------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid 44,049 12,319 1,632 N/A N/A N/A 54,372 Cap Equity ------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 31,837 4,226 546 N/A 20 11 N/A ------------------------------------------------------------------------------------------------------------------- Floating Rate 795,373 357,536 206,462 N/A N/A N/A 11 ------------------------------------------------------------------------------------------------------------------- Growth 5,186,203 3,166,050 179,547 N/A 24 12 12 ------------------------------------------------------------------------------------------------------------------- Income Opportunities 389,032 363,715 41,252 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Inflation Protected 319,398 259,775 51,658 N/A N/A N/A 205,664 Securities ------------------------------------------------------------------------------------------------------------------- Large Cap Equity 10,775,702 7,098,566 270,367 N/A 22 11 N/A ------------------------------------------------------------------------------------------------------------------- Large Cap Value 123,733 118,887 8,842 N/A 19 9 N/A ------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 155,586 94,180 16,366 N/A N/A N/A 14 ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 417,044 57,189 20,845 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Diversified Bond 4,896,633 3,027,276 237,190 N/A 36 18 1,101,584 ------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 705,661 176,620 75,716 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 135,961 41,064 7,302 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ------------------------------------------------------------------------------------------------------------------- Balanced 1,987,290 415,034 46,083 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 35,017 16,268 10,920 N/A 47 24 2 ------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap 32 29 16 N/A 8 4 4 Value(c) ------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 14,226,095 9,229,184 1,111,495 N/A 25,252 280,029 11 ------------------------------------------------------------------------------------------------------------------- Mid Cap Value 4,837,635 2,497,777 514,655 N/A 27,209 40,679 11 ------------------------------------------------------------------------------------------------------------------- Strategic Allocation 4,342,136 2,269,489 693,509 N/A 24 12 N/A ------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation 362,627 149,282 45,011 N/A 5 2 N/A -------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 143
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and 268,339 11,267 58,825 N/A N/A N/A 368,846 Income ------------------------------------------------------------------------------------------------------------------- Disciplined International 188,884 135,656 14,024 N/A 6 3 1,073,689 Equity ------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond 21,289 14,432 2,267 N/A N/A N/A 125,465 ------------------------------------------------------------------------------------------------------------------- Global Bond 704,343 522,781 40,466 N/A N/A N/A 442,005 ------------------------------------------------------------------------------------------------------------------- Global Technology 266,728 297,356 31,112 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Partners International 850,640 586,365 55,865 N/A N/A N/A N/A Select Growth ------------------------------------------------------------------------------------------------------------------- Partners International 3,573,831 2,701,274 272,384 N/A N/A N/A N/A Select Value ------------------------------------------------------------------------------------------------------------------- Partners International Small 157,129 124,919 9,633 N/A N/A N/A N/A Cap ------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging 1,283,814 701,567 62,513 N/A N/A N/A N/A Markets ------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 239,284 225,941 17,814 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,507,084 814,247 73,244 N/A 25 13 13 ------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,812 818 157 N/A 11 6 N/A Income(d) ------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 1,067 508 207 N/A 11 5 N/A Alpha(d) ------------------------------------------------------------------------------------------------------------------- Threadneedle International 1,036,236 541,184 30,802 N/A 25 12 N/A Opportunity ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt $ 176,543 $ 83,974 $ 32,953 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 2,325,844 1,652,668 75,602 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 1,823,472 352,820 53,497 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 6,999,748 1,047,672 155,358 N/A N/A N/A N/A ------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 123,262 N/A N/A N/A N/A N/A N/A -------------------------------------------------------------------------------------------------------------------
(a) The fund changed its fiscal year effective Jan. 31, 2008 from May 31 to Jan. 31. the information shown is for the period from June 1, 2007 through Jan. 31, 2008. (b) For the period from Oct. 18, 2007 (when shares became publicly available) to April 30, 2008. (c) For the period from Aug. 1, 2008 (when shares became publicly available) to Sept. 30, 2008. (d) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Statement of Additional Information - Dec. 30, 2008 Page 144 FOR FUNDS WITH CLASS B AND CLASS C SHARES: The following table provides the amount of distribution expenses, as a dollar amount and as a percentage of net assets, incurred by the distributor and not yet reimbursed ("unreimbursed expense") for Class B and Class C shares. These amounts are based on the most recent information available as of Oct. 31, 2008 and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. TABLE 24. UNREIMBURSED DISTRIBUTION EXPENSES
PERCENTAGE OF PERCENTAGE OF CLASS B CLASS C FUND CLASS B NET ASSETS CLASS C NET ASSETS ------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity $ 83,000 4.79% $ 14,000 1.40% ------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income 134,000 4.10% 45,000 0.48% ------------------------------------------------------------------------------------------------------- Balanced 888,000 3.99% 29,000 0.91% ------------------------------------------------------------------------------------------------------- California Tax-Exempt 103,000 2.54% 20,000 0.81% ------------------------------------------------------------------------------------------------------- Cash Management 6,209,000 5.03% 81,000 0.65% ------------------------------------------------------------------------------------------------------- Disciplined Equity 851,000 3.29% 23,000 1.06% ------------------------------------------------------------------------------------------------------- Disciplined International Equity 479,000 4.90% 13,000 1.15% ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth 146,000 5.41% 14,000 0.83% ------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value 1,000 5.01% -- 0.00% ------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 47,000 6.36% 1,000 0.88% ------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 16,000 4.85% 1,000 1.73% ------------------------------------------------------------------------------------------------------- Diversified Bond 7,164,000 3.11% 228,000 0.73% ------------------------------------------------------------------------------------------------------- Diversified Equity Income 20,262,000 4.09% 675,000 0.92% ------------------------------------------------------------------------------------------------------- Dividend Opportunity 3,575,000 3.59% 130,000 0.90% ------------------------------------------------------------------------------------------------------- Emerging Markets Bond 62,000 5.26% 20,000 10.47% ------------------------------------------------------------------------------------------------------- Equity Value 1,874,000 2.83% 45,000 1.15% ------------------------------------------------------------------------------------------------------- Floating Rate 1,054,000 6.59% 90,000 0.66% ------------------------------------------------------------------------------------------------------- Global Bond 1,404,000 3.31% 36,000 0.84% ------------------------------------------------------------------------------------------------------- Global Technology 482,000 3.19% 24,000 1.22% ------------------------------------------------------------------------------------------------------- Growth 5,102,000 4.11% 117,000 1.41% ------------------------------------------------------------------------------------------------------- High Yield Bond 3,630,000 3.68% 123,000 0.98% ------------------------------------------------------------------------------------------------------- Income Builder Basic Income 1,889,000 6.14% 55,000 0.55% ------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 1,380,000 6.54% 51,000 0.58% ------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 2,772,000 6.06% 76,000 0.48% ------------------------------------------------------------------------------------------------------- Income Opportunities 826,000 4.24% 34,000 1.11% ------------------------------------------------------------------------------------------------------- Inflation Protected Securities 1,460,000 3.99% 90,000 0.81% ------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 131,000 2.71% 20,000 0.90% ------------------------------------------------------------------------------------------------------- Large Cap Equity 12,345,000 4.10% 168,000 1.16% ------------------------------------------------------------------------------------------------------- Large Cap Value 210,000 4.00% 5,000 0.98% ------------------------------------------------------------------------------------------------------- Limited Duration Bond 279,000 3.96% 12,000 0.78% ------------------------------------------------------------------------------------------------------- Mid Cap Growth 1,902,000 3.67% 30,000 0.98% ------------------------------------------------------------------------------------------------------- Mid Cap Value 5,633,000 4.53% 380,000 0.92% ------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 283,000 2.21% 63,000 0.82% ------------------------------------------------------------------------------------------------------- New York Tax-Exempt 68,000 2.12% 5,000 0.76% ------------------------------------------------------------------------------------------------------- Partners Aggressive Growth 1,041,000 2.99% 21,000 1.06% ------------------------------------------------------------------------------------------------------- Partners Fundamental Value 3,180,000 3.72% 103,000 1.07% ------------------------------------------------------------------------------------------------------- Partners International Select Growth 1,237,000 4.17% 37,000 1.15% ------------------------------------------------------------------------------------------------------- Partners International Select Value 5,226,000 4.63% 154,000 1.22% ------------------------------------------------------------------------------------------------------- Partners International Small Cap 273,000 5.49% 6,000 1.33% ------------------------------------------------------------------------------------------------------- Partners Select Value 1,567,000 3.88% 39,000 0.94% -------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 145
PERCENTAGE OF PERCENTAGE OF CLASS B CLASS C FUND CLASS B NET ASSETS CLASS C NET ASSETS ------------------------------------------------------------------------------------------------------- Partners Small Cap Equity $ 554,000 3.88% $ 17,000 1.24% ------------------------------------------------------------------------------------------------------- Partners Small Cap Growth 540,000 3.29% 24,000 1.11% ------------------------------------------------------------------------------------------------------- Partners Small Cap Value 2,345,000 3.25% 73,000 1.15% ------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 3,345,000 5.34% 109,000 0.89% ------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 2,090,000 4.85% 98,000 0.89% ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 7,925,000 5.22% 300,000 0.87% ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 7,298,000 5.20% 239,000 0.86% ------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 3,270,000 5.08% 131,000 0.82% ------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 2,862,000 5.53% 98,000 0.96% ------------------------------------------------------------------------------------------------------- Precious Metals and Mining 384,000 4.89% 13,000 0.99% ------------------------------------------------------------------------------------------------------- Real Estate 491,000 5.51% 10,000 1.02% ------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 4,413,000 3.35% 93,000 0.83% ------------------------------------------------------------------------------------------------------- Small Cap Advantage 928,000 3.61% 30,000 1.00% ------------------------------------------------------------------------------------------------------- Small Company Index 1,951,000 2.92% N/A N/A ------------------------------------------------------------------------------------------------------- Strategic Allocation 7,801,000 5.42% 346,000 0.69% ------------------------------------------------------------------------------------------------------- Strategic Income Allocation 727,000 4.56% 33,000 0.63% ------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 443,000 2.27% 40,000 0.73% ------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 1,304,000 2.37% 114,000 0.90% ------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 1,077,000 3.82% 38,000 1.20% ------------------------------------------------------------------------------------------------------- Threadneedle European Equity 226,000 2.24% 11,000 1.16% ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 1,733,000 4.11% 58,000 1.23% ------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income 38,000 6.02% 1,000 1.73% ------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha 26,000 10.90% 1,000 1.07% ------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity 968,000 3.65% 26,000 1.34% ------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 990,000 3.76% 33,000 0.83% -------------------------------------------------------------------------------------------------------
PAYMENTS TO FINANCIAL INSTITUTIONS The distributor and its affiliates make or support additional cash payments out of their own resources (including profits earned from providing services to the funds) to financial institutions, including inter-company allocation of resources or payment to affiliated broker-dealers, in connection with agreements between the distributor and financial institutions pursuant to which these financial institutions sell fund shares and provide services to their clients who are shareholders of the funds. These payments and intercompany allocations (collectively, "payments") do not change the price paid by investors and fund shareholders for the purchase or ownership of shares of the funds, and these payments are not reflected in the fees and expenses of the funds, as they are not paid by the funds. These payments are in addition to fees paid by the funds to the distributor under 12b-1 plans, which fees may be used to compensate financial institutions for the distribution of fund shares and the servicing of fund shareholders, or paid by the funds to the transfer agent under the transfer agent agreement or plan administration agreement, which fees may be used to support networking or servicing fees to compensate financial institutions for supporting shareholder account maintenance, sub-accounting, plan recordkeeping or other services provided directly by the financial institution to shareholders or plans and plan participants, including retirement plans, 529 plans, Health Savings Account plans, or other plans, where participants beneficially own shares of the funds. These payments are typically made pursuant to an agreement between the distributor and the financial institution, and are typically made in support of marketing and sales support efforts or program and shareholder servicing, as further described below. These payments are usually calculated based on a percentage of fund assets owned through the financial institution and/or as a percentage of fund sales attributable to the financial institution. Certain financial institutions require flat fees instead of or in addition to these asset-based fees as compensation for including or maintaining funds on their platforms, and, in certain situations, may require the reimbursement of ticket or operational charges -- fees that a financial institution charges its representatives for effecting transactions in the funds. The amount of payment varies by financial institution, and often is significant. In addition, the amount of payments may differ based upon the type of fund sold or maintained; for instance, the amount of payments for an equity fund may differ from payments for a money-market or fixed income fund. Statement of Additional Information - Dec. 30, 2008 Page 146 Asset-based payments generally will be made in a range of up to 0.25% of assets or 0.25% of sales or some combination thereof. Exceptions to these general ranges will be considered on a case-by-case basis. Flat fees or annual minimum fees required by a financial institution in addition to such asset-based fees, are considered on a case-by-case basis. MARKETING AND SALES SUPPORT Payments may be paid in support of retail, institutional, plan or other fee- based advisory program distribution efforts. These payments are typically made by the distributor in its efforts to advertise to and/or educate the financial institution's personnel, including its registered representatives, about the fund. As a result of these payments, the distributor may obtain a higher profile and greater visibility for the fund within the financial institution's organization, including placement of the fund on the financial institution's preferred or recommended list. The distributor may also obtain greater access to sales meetings, sales representatives, and management representatives of the financial institution, including potentially having increased opportunity for fund representatives to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and their clients and other events sponsored by the financial institution. PROGRAM AND SHAREHOLDER SERVICING Payments may be made in support of recordkeeping, reporting, transaction processing, and other plan administration services provided by a financial institution to or through retirement plans, 529 plans, Health Savings Account plans, or other plans or fee-based advisory programs but may also be made in support of certain retail advisory programs, including wrap programs. A financial institution may perform program services itself or may arrange with a third party to perform program services. These payments may also include services rendered in connection with fund selection and monitoring, employee enrollment and education, plan balance rollover or separation, or other similar services. OTHER PAYMENTS The distributor and its affiliates may separately pay financial institutions in order to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other financial institution employees, client and investor events and other financial institution-sponsored events, and for travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, asset retention and due diligence trips. The amount of these payments varies depending upon the nature of the event. The distributor and its affiliates make payments for such events as they deem appropriate, subject to internal guidelines and applicable law. From time to time, to the extent permitted by SEC and NASD rules and by other applicable laws and regulations, the distributor and its affiliates may make other reimbursements or payment to financial institutions or their registered representatives, including non-cash compensation, in the form of gifts of nominal value, occasional meals, tickets, or other entertainment, support for due diligence trips, training and educational meetings or conference sponsorships, support for recognition programs, and other forms of non-cash compensation permissible under regulations to which these financial institutions and their representatives are subject. To the extent these are made as payments instead of reimbursement, they may provide profit to the financial institution to the extent the cost of such services was less than the actual expense of the service. FINANCIAL INSTITUTION ARRANGEMENTS The financial institution through which you are purchasing or own shares of funds has been authorized directly or indirectly by the distributor to sell funds and/or to provide services to you as a shareholder of funds. Investors and current shareholders may wish to take such payment arrangements into account when considering and evaluating any recommendations they receive relating to fund shares. If you have questions regarding the specific details regarding the payments your financial institution may receive from the distributor or its affiliates related to your purchase or ownership of funds, please contact your financial institution. CUSTODIAN SERVICES The funds' securities and cash are held pursuant to a custodian agreement with JPMorgan Chase Bank, N.A. (JPMorgan), 1 Chase Manhattan Plaza, 19th Floor, New York, NY 10005. The custodian is permitted to deposit some or all of their securities in central depository systems as allowed by federal law. For its services, each fund pays its custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of JPMorgan or in other financial institutions as permitted by law and by the fund's custodian agreement. Statement of Additional Information - Dec. 30, 2008 Page 147 BOARD SERVICES CORPORATION The funds have an agreement with Board Services Corporation (Board Services) located at 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402. This agreement sets forth the terms of Board Services' responsibility to serve as an agent of the funds for purposes of administering the payment of compensation to each independent Board member, to provide office space for use by the funds and their boards, and to provide any other services to the boards or the independent members, as may be reasonably requested. ORGANIZATIONAL INFORMATION Each fund is an open-end management investment company. The fund's headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268. SHARES The shares of a fund represent an interest in that fund's assets only (and profits or losses), and, in the event of liquidation, each share of a fund would have the same rights to dividends and assets as every other share of that fund. VOTING RIGHTS As a shareholder in a fund, you have voting rights over the fund's management and fundamental policies. You are entitled to vote based on your total dollar interest in the fund. Each class, if applicable, has exclusive voting rights with respect to matters for which separate class voting is appropriate under applicable law. All shares have cumulative voting rights with respect to the election of Board members. This means that you have as many votes as the dollar amount you own, including the fractional amount, multiplied by the number of members to be elected. DIVIDEND RIGHTS Dividends paid by a fund, if any, with respect to each applicable class of shares will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except for differences resulting from differences in fee structures. SHAREHOLDER LIABILITY For funds organized as Massachusetts business trusts, under Massachusetts law, shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable as partners for its obligation. However, the Declaration of Trust that establishes a trust, a copy of which, together with all amendments thereto (the "Declaration of Trust"), is on file with the office of the Secretary of the Commonwealth of Massachusetts for each applicable fund, contains an express disclaimer of shareholder liability for acts or obligations of the Trust, or of any fund in the Trust. The Declaration of Trust provides that, if any shareholder (or former shareholder) of a fund in the Trust is charged or held to be personally liable for any obligation or liability of the Trust, or of any fund in the Trust, solely by reason of being or having been a shareholder and not because of such shareholder's acts or omissions or for some other reason, the Trust (upon request of the shareholder) shall assume the defense against such charge and satisfy any judgment thereon, and the shareholder or former shareholder (or the heirs, executors, administrators or other legal representatives thereof, or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled (but solely out of the assets of the fund of which such shareholder or former shareholder is or was the holder of shares) to be held harmless from and indemnified against all loss and expense arising from such liability. The Declaration of Trust also provides that the Trust may maintain appropriate insurance (for example, fidelity bond and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations. The Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually, but only upon the assets and property of the Trust, and that the Trustees will not be liable for any action or failure to act, errors of judgment, or mistakes of fact or law, but nothing in the Declaration of Trust or other agreement with a Trustee protects a Trustee against any liability to which he or she would otherwise be subject by reason of his or her willful bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. By becoming a shareholder of the Statement of Additional Information - Dec. 30, 2008 Page 148 fund, each shareholder shall be expressly held to have assented to and agreed to be bound by the provisions of the Declaration of Trust. TABLE 25. FUND HISTORY TABLE FOR RIVERSOURCE FUNDS
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE BOND SERIES, 4/29/81, 6/13/86(1) Corporation NV/MN 7/31 INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Floating Rate 2/16/06 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Income 6/19/03 Yes Opportunities Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Inflation 3/4/04 No Protected Securities Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Limited Duration 6/19/03 Yes Bond Fund ----------------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business Trust MA 8/31(10) ----------------------------------------------------------------------------------------------------------------------- RiverSource California Tax- 8/18/86 No Exempt Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE DIMENSIONS SERIES, 2/20/68, 6/13/86(1) Corporation NV/MN 7/31 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Small 5/18/06 Yes and Mid Cap Equity Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Small 2/16/06 Yes Cap Value Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED INCOME 6/27/74, 6/31/86(1) Corporation NV/MN 8/31 SERIES, INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Diversified Bond 10/3/74 Yes Fund(3) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE EQUITY SERIES, 3/18/57, 6/13/86(1) Corporation NV/MN 11/30 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Mid Cap Growth 6/4/57 Yes Fund(4) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE GLOBAL SERIES, 10/28/88 Corporation MN 10/31 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Absolute Return 6/15/06 No Currency and Income Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Emerging Markets 2/16/06 No Bond Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Global Bond Fund 3/20/89 No ----------------------------------------------------------------------------------------------------------------------- RiverSource Global Technology 11/13/96 Yes Fund ----------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets 11/13/96 Yes Fund(4),(5),(11) ----------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 5/29/90 Yes Fund(5),(6),(11) ----------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity 8/1/08 Yes Income Fund ----------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended 8/1/08 Yes Alpha Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE GOVERNMENT INCOME 3/12/85 Corporation MN 5/31 SERIES, INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Short Duration 8/19/85 Yes U.S. Government Fund(3) ----------------------------------------------------------------------------------------------------------------------- RiverSource U.S. Government 2/14/02 Yes Mortgage Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD INCOME 8/17/83 Corporation MN 5/31 SERIES, INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource High Yield Bond 12/8/83 Yes Fund(3) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME SERIES, 2/10/45; 6/13/86(1) Corporation NV/MN 1/31 INC.(7) ----------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 No Basic Income Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 No Enhanced Income Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder 2/16/06 No Moderate Income Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INTERNATIONAL 5/9/01 Corporation MN 10/31 MANAGERS SERIES, INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners 9/28/01 Yes International Select Growth Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners 9/28/01 Yes International Select Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners 10/3/02 Yes International Small Cap Fund(11) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INTERNATIONAL 7/18/84 Corporation MN 10/31 SERIES, INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined 5/18/06 Yes International Equity Fund ----------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity 6/26/00 Yes Fund(5),(11) ----------------------------------------------------------------------------------------------------------------------- Threadneedle International 11/15/84 Yes Opportunity Fund(4),(5),(11) -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 149
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INVESTMENT SERIES, 1/18/40; 6/13/86(1) Corporation NV/MN 9/30 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Balanced Fund(4) 4/16/40 Yes ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Large 5/17/07 Yes Cap Growth Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined Large 8/1/08 Yes Cap Value Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Diversified 10/15/90 Yes Equity Income Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Mid Cap Value 2/14/02 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE LARGE CAP SERIES, 5/21/70, 6/13/86(1) Corporation NV/MN 7/31 INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Disciplined 4/24/03 Yes Equity Fund(4) ----------------------------------------------------------------------------------------------------------------------- RiverSource Growth Fund 3/1/72 Yes ----------------------------------------------------------------------------------------------------------------------- RiverSource Large Cap Equity 3/28/02 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Large Cap Value 6/27/02 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE MANAGERS SERIES, 3/20/01 Corporation MN 5/31 INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners 4/24/03 Yes Aggressive Growth Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners 6/18/01 Yes Fundamental Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Select 3/8/02 Yes Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 3/8/02 Yes Cap Equity Fund(4),(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 6/18/01 Yes Cap Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE MARKET ADVANTAGE 8/25/89 Corporation MN 1/31 SERIES, INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Conservative Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Moderate Conservative Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Moderate Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Moderate Aggressive Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Aggressive Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Portfolio Builder 3/4/04 Yes Total Equity Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource S&P 500 Index 10/25/99 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Small Company 8/19/96 Yes Index Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE MONEY MARKET 8/22/75; 6/13/86(1) Corporation NV/MN 7/31 SERIES, INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Cash Management 10/6/75 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SECTOR SERIES, 3/25/88 Corporation MN 6/30 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Dividend 8/1/88 Yes Opportunity Fund(8) ----------------------------------------------------------------------------------------------------------------------- RiverSource Real Estate Fund 3/4/04 Yes ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SELECTED SERIES, 10/5/84 Corporation MN 3/31 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Precious Metals 4/22/85 No and Mining Fund(9) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SERIES TRUST(14) 1/27/06 Business Trust MA 4/30 ----------------------------------------------------------------------------------------------------------------------- RiverSource 120/20 Contrarian 10/18/07 Yes Equity Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2010 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2015 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2020 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2025 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2030 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2035 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2040 Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Retirement Plus 5/18/06 No 2045 Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SHORT TERM 4/23/68, 6/13/86(1) Corporation NV/MN 7/31 INVESTMENTS SERIES, INC.(15) ----------------------------------------------------------------------------------------------------------------------- RiverSource Short-Term Cash 9/26/06 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE SPECIAL TAX-EXEMPT 4/7/86 Business Trust MA 8/31(10) SERIES TRUST ----------------------------------------------------------------------------------------------------------------------- RiverSource Minnesota Tax- 8/18/86 No Exempt Fund -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 150
FISCAL DATE OF DATE BEGAN FORM OF STATE OF YEAR FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED** ----------------------------------------------------------------------------------------------------------------------- RiverSource New York Tax- 8/18/86 No Exempt Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE STRATEGIC 10/9/84 Corporation MN 9/30 ALLOCATION SERIES, INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Strategic 1/23/85 Yes Allocation Fund(4) ----------------------------------------------------------------------------------------------------------------------- RiverSource Strategic Income 5/17/07 Yes Allocation Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE STRATEGY SERIES, 1/24/84 Corporation MN 3/31 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Equity Value Fund 5/14/84 Yes ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Small 1/24/01 Yes Cap Growth Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Small Cap 5/4/99 Yes Advantage Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT INCOME 12/21/78; 6/13/86(1) Corporation NV/MN 11/30 SERIES, INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Tax-Exempt High 5/7/79 Yes Income Fund(4) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT MONEY 2/29/80, 6/13/86(1) Corporation NV/MN 12/31 MARKET SERIES, INC.(2) ----------------------------------------------------------------------------------------------------------------------- RiverSource Tax-Exempt Money 8/5/80 Yes Market Fund(4) ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE TAX-EXEMPT SERIES, 9/30/76, 6/13/86(1) Corporation NV/MN 11/30 INC. ----------------------------------------------------------------------------------------------------------------------- RiverSource Intermediate Tax- 11/13/96 Yes Exempt Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Tax-Exempt Bond 11/24/76 Yes Fund ----------------------------------------------------------------------------------------------------------------------- RIVERSOURCE VARIABLE SERIES 9/07 Business Trust MA 12/31 TRUST(12) ----------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Aggressive ----------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Conservative ----------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Moderate ----------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Moderately Aggressive ----------------------------------------------------------------------------------------------------------------------- Disciplined Asset Allocation 5/1/08 Yes Portfolios - Moderately Conservative ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Variable 5/1/06 Yes Portfolio - Fundamental Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Variable 2/4/04 Yes Portfolio - Select Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Partners Variable 8/14/01 Yes Portfolio - Small Cap Value Fund(11) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 4/30/86 Yes Portfolio - Balanced Fund(4) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/31/81 Yes Portfolio - Cash Management Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/10/04 Yes Portfolio - Core Equity Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/13/81 Yes Portfolio - Diversified Bond Fund(3) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Diversified Equity Income Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/96 No Portfolio - Global Bond Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/13/04 No Portfolio - Global Inflation Protected Securities Fund(13) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Growth Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/96 Yes Portfolio - High Yield Bond Fund(3) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 6/1/04 Yes Portfolio - Income Opportunities Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 10/13/81 Yes Portfolio - Large Cap Equity Fund(5) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 02/4/04 Yes Portfolio - Large Cap Value Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/01 Yes Portfolio - Mid Cap Growth Fund(4) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/2/05 Yes Portfolio - Mid Cap Value Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 5/1/00 Yes Portfolio - S&P 500 Index Fund ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Short Duration U.S. Government Fund(3) ----------------------------------------------------------------------------------------------------------------------- RiverSource Variable 9/15/99 Yes Portfolio - Small Cap Advantage Fund ----------------------------------------------------------------------------------------------------------------------- Threadneedle Variable 5/1/00 Yes Portfolio - Emerging Markets Fund(4),(5),(11) ----------------------------------------------------------------------------------------------------------------------- Threadneedle Variable 1/13/92 Yes Portfolio - International Opportunity Fund(4),(5),(11) -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 151 * Effective Oct. 1, 2005 American Express Funds changed its name to RiverSource funds and the names Threadneedle and Partners were removed from fund names. ** If a Non-diversified fund is managed as if it were a diversified fund for a period of three years, its status under the 1940 Act will convert automatically from Non-diversified to diversified. A diversified fund may convert to Non-diversified status only with shareholder approval. (1) Date merged into a Minnesota corporation incorporated on April 7, 1986. (2) Effective April 21, 2006, AXP Discovery Series, Inc. changed its name to RiverSource Bond Series, Inc.; AXP Fixed Income Series, Inc. changed its name to RiverSource Diversified Income Series, Inc.; AXP Growth Series, Inc. changed its name to RiverSource Large Cap Series, Inc.; AXP High Yield Tax-Exempt Series, Inc. changed its name to RiverSource Tax-Exempt Income Series, Inc.; AXP Managed Series, Inc. changed its name to RiverSource Strategic Allocation Series, Inc.; AXP Partners International Series, Inc. changed its name to RiverSource International Managers Series, Inc.; AXP Partners Series, Inc. changed its name to RiverSource Managers Series, Inc.; AXP Tax-Free Money Series, Inc. changed its name to RiverSource Tax-Exempt Money Market Series, Inc.; and for all other corporations and business trusts, AXP was replaced with RiverSource in the registrant name. (3) Effective June 27, 2003, Bond Fund changed its name to Diversified Bond Fund, Federal Income Fund changed its name to Short Duration U.S. Government Fund and Extra Income Fund changed its name to High Yield Bond Fund, Variable Portfolio - Bond Fund changed its name to Variable Portfolio - Diversified Bond Fund, Variable Portfolio - Extra Income Fund changed its name to Variable Portfolio - High Yield Bond Fund and Variable Portfolio - Federal Income Fund changed its name to Variable Portfolio - Short Duration U.S. Government Fund. (4) Effective Oct. 1, 2005, Equity Select Fund changed its name to Mid Cap Growth Fund, High Yield Tax-Exempt Fund changed its name to Tax-Exempt High Income Fund, Managed Allocation Fund changed its name to Strategic Allocation Fund, Mutual changed its name to Balanced Fund, Partners Growth Fund changed its name to Fundamental Growth Fund, Partners International Core Fund changed its name to International Equity Fund, Partners Small Cap Core Fund changed its name to Small Cap Equity Fund, Quantitative Large Cap Equity Fund changed its name to Disciplined Equity Fund, Tax-Free Money Fund changed its name to Tax-Exempt Money Market Fund, and Threadneedle International Fund changed its name to International Opportunity Fund. Variable Portfolio - Equity Select Fund changed its name to Variable Portfolio - Mid Cap Growth Fund, Variable Portfolio - Threadneedle Emerging Markets Fund changed its name to Variable Portfolio - Emerging Markets Fund, Variable Portfolio - Threadneedle International Fund changed its name to Variable Portfolio - International Opportunity Fund, and Variable Portfolio - Managed Fund changed its name to Variable Portfolio - Balanced Fund. (5) Effective July 9, 2004, Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund, European Equity Fund changed its name to Threadneedle European Equity Fund, Global Equity Fund changed its name to Threadneedle Global Equity Fund, and International Fund changed its name to Threadneedle International Fund, Variable Portfolio - Capital Resource Fund changed its name to Variable Portfolio - Large Cap Equity Fund, Variable Portfolio - Emerging Markets Fund changed its name to Variable Portfolio - Threadneedle Emerging Markets Fund and Variable Portfolio - International Fund changed its name to Variable Portfolio - Threadneedle International Fund. (6) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global Equity Fund. (7) Effective Jan. 31, 2008, the fiscal year end was changed from May 31 to Jan. 31. (8) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend Opportunity Fund. (9) Effective Nov. 1, 2006, Precious Metals Fund changed its name to Precious Metals and Mining Fund. (10) Effective April 13, 2006, the fiscal year end was changed from June 30 to Aug. 31. (11) Effective March 31, 2008, RiverSource Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund; RiverSource Global Equity Fund changed its name to Threadneedle Global Equity Fund; RiverSource European Equity Fund changed its name to Threadneedle European Equity Fund; RiverSource International Opportunity Fund changed its name to Threadneedle International Opportunity Fund; RiverSource International Aggressive Growth Fund changed its name to RiverSource Partners International Select Growth Fund; RiverSource International Select Value Fund changed its name to RiverSource Partners International Select Value Fund; RiverSource International Small Cap Fund changed its name to RiverSource Partners International Small Cap Fund; RiverSource Aggressive Growth Fund changed its name to RiverSource Partners Aggressive Growth Fund; RiverSource Fundamental Value Fund changed its name to RiverSource Partners Fundamental Value Fund; RiverSource Select Value Fund changed its name to RiverSource Partners Select Value Fund; RiverSource Small Cap Equity Fund changed its name to RiverSource Partners Small Cap Equity Fund; RiverSource Small Cap Value Fund changed its name to RiverSource Partners Small Cap Value Fund; RiverSource Small Cap Growth Fund changed its name to RiverSource Partners Small Cap Growth Fund; RiverSource Variable Portfolio - Fundamental Value Fund changed its name to RiverSource Partners Variable Portfolio - Fundamental Value Fund; RiverSource Variable Portfolio - Select Value Fund changed its name to RiverSource Partners Variable Portfolio - Select Value Fund; and RiverSource Variable Portfolio - Small Cap Value Fund changed its name to RiverSource Partners Variable Portfolio - Small Cap Value Fund. (12) Prior to January 2008, the assets of the funds in RiverSource Variable Series Trust were held by funds organized under six separate Minnesota Corporations. (13) Effective June 8, 2005, Variable Portfolio - Inflation Protected Securities Fund changed its name to Variable Portfolio - Global Inflation Protected Securities Fund. (14) Prior to September 11, 2007, RiverSource Series Trust was known as RiverSource Retirement Series Trust. (15) Prior to April 21, 2006, RiverSource Short Term Investments Series, Inc. was known as AXP Stock Series, Inc. Statement of Additional Information - Dec. 30, 2008 Page 152 BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees a fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of each fund's Board members. The RiverSource complex of funds each member oversees consists of 162 funds, which includes 104 RiverSource funds and 58 Seligman funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. TABLE 26. BOARD MEMBERS INDEPENDENT BOARD MEMBERS
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS ---------------------------------------------------------------------------------------------------------------------- Kathleen Blatz 901 S. Board member Chief Justice, Minnesota None Board Governance, Marquette Ave. since 2006 Supreme Court, 1998-2006; Compliance, Minneapolis, MN 55402 Attorney Investment Review, Age 54 Joint Audit ---------------------------------------------------------------------------------------------------------------------- Arne H. Carlson 901 S. Board member Chair, RiverSource Funds, 1999- None Board Governance, Marquette Ave. since 1999 2006; former Governor of Compliance, Minneapolis, MN 55402 Minnesota Contracts, Age 74 Executive, Investment Review ---------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton 901 Board member President, Springboard-Partners None Distribution, S. Marquette Ave. since 2007 in Cross Cultural Leadership Investment Review, Minneapolis, MN 55402 (consulting company) Joint Audit Age 54 ---------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn 901 Board member Trustee Professor of Economics None Board Governance, S. Marquette Ave. since 2004 and Management, Bentley Contracts, Minneapolis, MN 55402 College; former Dean, McCallum Investment Review Age 57 Graduate School of Business, Bentley College ---------------------------------------------------------------------------------------------------------------------- Anne P. Jones 901 S. Board member Attorney and Consultant None Board Governance, Marquette Ave. since 1985 Compliance, Minneapolis, MN 55402 Executive, Age 73 Investment Review, Joint Audit ---------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, American Progressive Distribution, 901 S. Marquette Ave. since 2005 Shikiar Asset Management Insurance Investment Review, Minneapolis, MN 55402 Joint Audit Age 73 ---------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Chair of the President Emeritus and Valmont Industries, Board Governance, 901 S. Marquette Ave. Board since Professor of Economics, Inc. (manufactures Compliance, Minneapolis, MN 55402 2007, Board Carleton College irrigation systems) Contracts, Age 69 member since Executive, 2002 Investment Review ---------------------------------------------------------------------------------------------------------------------- John F. Maher Board member Retired President and Chief None Distribution, 901 S. Marquette Ave. since 2008 Executive Officer and former Investment Review, Minneapolis, MN 55402 Director, Great Western Joint Audit Age 64 Financial Corporation (bank holding company) and its principal subsidiary, Great Western Bank (federal savings bank) ---------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None Compliance, 901 S. Marquette Ave. since 2004 Management, Inc. (private real Contracts, Minneapolis, MN 55402 estate and asset management Distribution, Age 56 company) Executive, Investment Review ----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 153
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS ---------------------------------------------------------------------------------------------------------------------- Leroy C. Richie Board member Counsel, Lewis & Munday, P.C.; Lead Outside Director, Contracts, 901 S. Marquette Ave. since 2008 Director, Vibration Control Digital Ally, Inc. Distribution, Minneapolis, MN 55402 Technologies, LLC (auto (digital imaging); and Investment Review Age 66 vibration technology); Director Infinity, Inc. (oil and Chairman, Highland Park and gas exploration Michigan Economic Development and production); Corp; and Chairman, Detroit Director, OGE Energy Public Schools Foundation. Corp. (energy and Formerly, Chairman and Chief energy services Executive Officer, Q Standards provider offering Worldwide, Inc. (library of physical delivery and technical standards); Director, related services for Kerr-McGee Corporation both electricity and (diversified energy and natural gas). chemical company); Trustee, New York University Law Center Foundation; Vice Chairman, Detroit Medical Center and Detroit Economic Growth Corp. ---------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer and Idera Pharmaceuticals, Contracts, 901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Inc. (biotechnology); Distribution, Minneapolis, MN 55402 2003 (biotechnology); former Healthways, Inc. Executive, Age 64 President, Forester Biotech (health management Investment Review programs) ----------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION COMMITTEE NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS MEMBERSHIPS -------------------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member President - U.S. Asset Management and None Investment 53600 Ameriprise Financial since 2001, Vice Chief Investment Officer, Ameriprise Review Center President since Financial, Inc. and President, Chairman Minneapolis, MN 55474 2002 of the Board and Chief Investment Age 48 Officer, RiverSource Investments, LLC since 2005; Director, President and Chief Executive Officer, Ameriprise Certificate Company and Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 --------------------------------------------------------------------------------------------------------------------------------
* 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 27. FUND OFFICERS
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS -------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since Director and Senior Vice President - Asset 172 Ameriprise Financial Center 2006 Management, Products and Marketing, Minneapolis, MN 55474 RiverSource Investments, LLC and; Director and Age 42 Vice President - Asset Management, Products and Marketing, RiverSource Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 --------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 154
POSITION HELD WITH FUNDS AND LENGTH OF PRINCIPAL OCCUPATION NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS -------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed 172 Ameriprise Financial Center since 2004 Income, Ameriprise Financial, Inc. and Minneapolis, MN 55474 RiverSource Investments, LLC since 2006; Vice Age 44 President - Investments, Ameriprise Certificate Company since 2003; Senior Vice President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 -------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President Vice President - Asset Management and Trust 5228 Ameriprise Financial Center since 2006 Company Services, RiverSource Investments, LLC Minneapolis, MN 55474 since 2006; Vice President - Operations and Age 42 Compliance, RiverSource Investments, LLC, 2004-2006; Director of Product Development - Mutual Funds, Ameriprise Financial, Inc., 2001-2004 -------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer since Vice President - Investment Accounting, 105 Ameriprise Financial Center 2002 Ameriprise Financial, Inc. since 2002; Chief Minneapolis, MN 55474 Financial Officer, RiverSource Distributors, Age 53 Inc. since 2006 -------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, Vice President and Chief Counsel - Asset 5228 Ameriprise Financial Center General Counsel Management, Ameriprise Financial, Inc. since Minneapolis, MN 55474 and Secretary 2005; Chief Counsel, RiverSource Distributors, Age 49 since 2006 Inc. and Chief Legal Officer and Assistant Secretary, RiverSource Investments, LLC since 2006; Vice President, General Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President - Asset Management Compliance, Ameriprise Financial, Inc., 2004- 2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 -------------------------------------------------------------------------------------------------- Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Financial Center Officer since Officer, RiverSource Investments, LLC since Minneapolis, MN 55474 2006 2006; Director - Mutual Funds, Voyageur Asset Age 47 Management, 2003-2006; Director of Finance, Voyageur Asset Management, 2000-2003 -------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering 2934 Ameriprise Financial Center Prevention Officer, Ameriprise Financial, Inc. since Minneapolis, MN 55474 Officer since 2004; Manager Anti-Money Laundering, Age 44 2004 Ameriprise Financial, Inc., 2003-2004; Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 --------------------------------------------------------------------------------------------------
RESPONSIBILITIES OF BOARD WITH RESPECT TO FUND MANAGEMENT The Board initially approves an Investment Management Services Agreement and other contracts with the investment manager and its affiliates, and other service providers. Once the contracts are approved, the Board monitors the level and quality of services including commitments of service providers to achieve expected levels of investment performance and shareholder services. In addition, the Board oversees that processes are in place to assure compliance with applicable rules, regulations and investment policies and addresses possible conflicts of interest. Annually, the Board evaluates the services received under the contracts by receiving reports covering investment performance, shareholder services, marketing, and the investment manager's profitability in order to determine whether to continue existing contracts or negotiate new contracts. SEVERAL COMMITTEES FACILITATE ITS WORK BOARD GOVERNANCE COMMITTEE -- Recommends to the Board the size, structure and composition of the Board and its committees; the compensation to be paid to members of the Board; and a process for evaluating the Board's performance. The committee also reviews candidates for Board membership including candidates recommended by shareholders. To be considered, recommendations must include a curriculum vitae and be mailed to the Chairman of the Board, RiverSource Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. The committee also makes recommendations to the Board regarding responsibilities and duties of the Board, oversees proxy voting and supports the work of the Board Chair in relation to furthering the interests of the Funds and their shareholders on external matters. Statement of Additional Information - Dec. 30, 2008 Page 155 COMPLIANCE COMMITTEE -- Supports the Funds' maintenance of a strong compliance program by providing a forum for independent Board members to consider compliance matters impacting the Funds or their key service providers; developing and implementing, in coordination with the Funds' Chief Compliance Officer (CCO), a process for the review and consideration of compliance reports that are provided to the Boards; and providing a designated forum for the Funds' CCO to meet with independent Board members on a regular basis to discuss compliance matters. CONTRACTS COMMITTEE -- Reviews and oversees the contractual relationships with service providers. Receives and analyzes reports covering the level and quality of services provided under contracts with the fund and advises the Board regarding actions taken on these contracts during the annual review process. DISTRIBUTION COMMITTEE -- Reviews and supports product development, marketing, sales activity and practices related to the funds and will report to the Board as appropriate. EXECUTIVE COMMITTEE -- Acts for the Board between meetings of the Board. INVESTMENT REVIEW COMMITTEE -- Reviews and oversees the management of the Funds' assets. Considers investment management policies and strategies; investment performance; risk management techniques; and securities trading practices and reports areas of concern to the Board. JOINT AUDIT COMMITTEE -- Oversees the accounting and financial reporting processes of the Funds and internal controls over financial reporting. Oversees the quality and integrity of the Funds' financial statements and independent audits as well as the Funds' compliance with legal and regulatory requirements relating to the Funds' accounting and financial reporting, internal controls over financial reporting and independent audits. The committee also makes recommendations regarding the selection of the Funds' independent auditor and reviews and evaluates the qualifications, independence and performance of the auditor. This table shows the number of times the committees met during each fund's most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 28. COMMITTEE MEETINGS
BOARD INVESTMENT JOINT GOVERNANCE COMPLIANCE CONTRACTS DISTRIBUTION EXECUTIVE REVIEW AUDIT FISCAL PERIOD COMMITTEE COMMITTEE COMMITTEE COMMITTEE* COMMITTEE COMMITTEE COMMITTEE ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 0 5 7 January 31 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 5 1 6 N/A 2 5 6 March 31 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 6 April 30 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 0 1 5 5 May 31 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 7 6 7 1 1 6 6 June 30 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 1 1 5 5 July 31 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 1 1 5 5 August 31 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 2 1 5 5 September 30 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 2 2 5 5 October 31 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 7 November 30 ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending 6 5 6 N/A 1 5 7 December 31 -----------------------------------------------------------------------------------------------------------------------
* Committee established April 2008. Statement of Additional Information - Dec. 30, 2008 Page 156 BOARD MEMBER HOLDINGS The following table shows the Board members' dollar range of equity securities beneficially owned on Dec. 31, 2007 of each individual fund owned by a Board member, and the aggregate dollar range of equity securities of all RiverSource funds overseen by the Board members. TABLE 29A. BOARD MEMBER HOLDINGS Based on net asset values as of Dec. 31, 2007:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER --------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Disciplined International Equity $1-$10,000 Over $100,000 ------------------------------------------------------------------------ Diversified Equity Income $1-$10,000 ------------------------------------------------------------------------ Equity Value Over $100,000 ------------------------------------------------------------------------ Global Equity Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $10,001-$50,000 ------------------------------------------------------------------------ Precious Metals & Mining $1-$10,000 ------------------------------------------------------------------------ Real Estate $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Over $100,000 --------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Cash Management $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Disciplined Equity $10,001-$50,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Global Technology $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Value $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Moderate $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 --------------------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton None N/A None --------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Growth* $50,001-$100,000 Over $100,000** ------------------------------------------------------------------------ Portfolio Builder Total Equity* $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation* Over $100,000 --------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Disciplined Equity $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Diversified Bond $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $50,001-$100,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Growth $50,001-$100,000 ------------------------------------------------------------------------ High Yield Bond Over $100,000 ------------------------------------------------------------------------ Short Duration U.S. Government Over $100,000 ------------------------------------------------------------------------ Small Company Index Over $100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity $50,001-$100,000 --------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind None N/A None ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 157
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER --------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Absolute Return Currency & Income* Over $100,000 Over $100,000** ------------------------------------------------------------------------ Cash Management* $10,001-$50,000 ------------------------------------------------------------------------ Disciplined International Equity* $50,001-$100,000 ------------------------------------------------------------------------ Diversified Equity Income* Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Growth* $1-$10,000 ------------------------------------------------------------------------ Mid Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Total Equity* $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets* $50,001-$100,000 --------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Disciplined Equity* $50,001-$100,000 Over $100,000** ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Global Equity* Over $100,000 ------------------------------------------------------------------------ Growth $10,001-$50,000 ------------------------------------------------------------------------ Small Cap Advantage* $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 --------------------------------------------------------------------------------------------------------------------------------- Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency & Income $10,001-$50,000 ------------------------------------------------------------------------ Cash Management $1-$10,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Growth Over $100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over $100,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Select Value Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets Over $100,000 ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 158
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER --------------------------------------------------------------------------------------------------------------------------------- William F. Truscott 120/20 Contrarian Equity $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ Disciplined Equity Over $100,000 ------------------------------------------------------------------------ Disciplined International Equity Over $100,000 ------------------------------------------------------------------------ Disciplined Small Cap Equity $10,001-$50,000 ------------------------------------------------------------------------ Diversified Bond Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Emerging Markets Bond $1-$10,000 ------------------------------------------------------------------------ Global Bond Fund Over $100,000 ------------------------------------------------------------------------ Global Technology $50,001-$100,000 ------------------------------------------------------------------------ Growth Over $100,000 ------------------------------------------------------------------------ High Yield Bond $10,001-$50,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over $100,000 ------------------------------------------------------------------------ Income Opportunities $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Value Over $100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Select Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Small Cap Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Equity Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Value Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Over $100,000 ------------------------------------------------------------------------ Real Estate $50,001-$100,000 ------------------------------------------------------------------------ Retirement Plus 2035 $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Strategic Income Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 ---------------------------------------------------------------------------------------------------------------------------------
(a) Mr. Richie and Mr. Maher were not Board members as of Dec. 31, 2007, and therefore are not included in the table. * Deferred compensation invested in share equivalents: A. Flynn Growth............................... $50,001-$100,000 Portfolio Builder Aggressive......... $10,001-$50,000 Strategic Allocation................. Over $100,000 B. Lewis Absolute Return Currency & Income.... Over $100,000 Cash Management...................... $1-$10,000 Disciplined International Equity..... $50,001-$100,000 Diversified Equity Income............ $50,001-$100,000 Growth Fund.......................... $1-$10,000 Portfolio Builder Total Equity....... $50,001-$100,000 Threadneedle Emerging Markets........ $50,001-$100,000 C. Paglia Disciplined Equity................... $50,001-$100,000 Small Cap Advantage.................. $50,001-$100,000 Threadneedle Global Equity........... Over $100,000
** Total includes deferred compensation invested in share equivalents. Statement of Additional Information - Dec. 30, 2008 Page 159 This table shows the Board members' dollar range of equity securities beneficially owned on Sept. 30, 2008 of each individual fund owned by a Board member, and the aggregate dollar range of equity securities of all RiverSource funds overseen by the Board member. TABLE 29B. BOARD MEMBER HOLDINGS -- AS OF QUARTER END Based on net asset values as of Sept. 30, 2008:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER RANGE --------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Absolute Return Currency and Income $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Partners Small Cap Value $10,001-$50,000 ------------------------------------------------------------------------ Precious Metals and Mining $10,001-$50,000 ------------------------------------------------------------------------ Real Estate $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle International Opportunity $50,001-$100,000 --------------------------------------------------------------------------------------------------------------------------------- Arne Carlson Cash Management $50,001-$100,000 Over $100,000 ------------------------------------------------------------------------ Disciplined Equity $10,001-$50,000 ------------------------------------------------------------------------ Disciplined International Equity $10,001-$50,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Partners International Select Value $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Moderate $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 --------------------------------------------------------------------------------------------------------------------------------- Pamela Carlton Absolute Return Currency and Income $0-$10,000 $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $0-$10,000 ------------------------------------------------------------------------ Threadneedle Global Equity $0-$10,000 --------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Growth* $50,000-$100,000 Over $100,000** ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive* $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation* Over $100,000 --------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Disciplined Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Diversified Bond $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Growth $10,001-$50,000 ------------------------------------------------------------------------ High Yield Bond Over $100,000 ------------------------------------------------------------------------ Short Duration U.S. Government Over $100,000 ------------------------------------------------------------------------ Small Company Index Over $100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Global Equity $10,001-$50,000 --------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Cash Management Over $100,000 Over $100,000 ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 160
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER RANGE --------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 120/20 Contrarian Equity $1-$10,000 Over $100,000** ------------------------------------------------------------------------ Absolute Return Currency and Income* Over $100,000 ------------------------------------------------------------------------ Disciplined Large Cap Growth* $10,001-$50,000 ------------------------------------------------------------------------ Diversified Equity Income* $50,001-$100,000 ------------------------------------------------------------------------ Dividend Opportunity $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Growth $10,001-$50,000 ------------------------------------------------------------------------ Portfolio Builder Total Equity* $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets* $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle International Opportunity* $50,001-$100,000 --------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Threadneedle Global Equity* Over $100,000 Over $100,000** --------------------------------------------------------------------------------------------------------------------------------- Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $10,001-$50,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ Diversified Equity Income $10,001-$50,000 ------------------------------------------------------------------------ Growth $50,001-$100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income Over 100,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Growth $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Value $50,001-$100,000 ------------------------------------------------------------------------ Partners Small Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Strategic Allocation $50,001-$100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $50,001-$100,000 ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 161
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL DOLLAR RANGE OF EQUITY RIVERSOURCE FUNDS OVERSEEN BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER RANGE --------------------------------------------------------------------------------------------------------------------------------- William F. Truscott 120/20 Contrarian Equity $10,001-$50,000 Over $100,000 ------------------------------------------------------------------------ Absolute Return Currency and Income $50,001-$100,000 ------------------------------------------------------------------------ Cash Management Over $100,000 ------------------------------------------------------------------------ Disciplined Equity Over $100,000 ------------------------------------------------------------------------ Disciplined International Equity Over $100,000 ------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity $0-$10,000 ------------------------------------------------------------------------ Diversified Bond Over $100,000 ------------------------------------------------------------------------ Dividend Opportunity Over $100,000 ------------------------------------------------------------------------ Floating Rate $10,001-$50,000 ------------------------------------------------------------------------ Global Bond Over $100,000 ------------------------------------------------------------------------ Global Technology $10,001-$50,000 ------------------------------------------------------------------------ Growth Over $100,000 ------------------------------------------------------------------------ Income Builder Enhanced Income $50,001- $100,000 ------------------------------------------------------------------------ Income Opportunities $10,001-$50,000 ------------------------------------------------------------------------ Inflation Protected Securities $10,001-$50,000 ------------------------------------------------------------------------ International Select Value $10,001-$50,000 ------------------------------------------------------------------------ Mid Cap Value $50,001-$100,000 ------------------------------------------------------------------------ Partners International Select Growth Over $100,000 ------------------------------------------------------------------------ Partners International Small Cap Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Equity Over $100,000 ------------------------------------------------------------------------ Partners Small Cap Value Over $100,000 ------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive $50,001-$100,000 ------------------------------------------------------------------------ Retirement Plus 2035 $10,001-$50,000 ------------------------------------------------------------------------ Strategic Allocation Over $100,000 ------------------------------------------------------------------------ Strategic Income Allocation Over $100,000 ------------------------------------------------------------------------ Threadneedle Emerging Markets $10,001-$50,000 ------------------------------------------------------------------------ Threadneedle Global Equity Over $100,000 ---------------------------------------------------------------------------------------------------------------------------------
(a) Mr. Richie and Mr. Maher were not Board members as of Sept. 30, 2008, and therefore are not included in the table. * Deferred compensation invested in share equivalents: A. Flynn Growth............................... $50,001-$100,000 Portfolio Builder Moderate $10,001-$50,000 Aggressive........................... Strategic Allocation................. Over $100,000 B. Lewis Absolute Return Currency and Income.. $50,001-$100,000 Disciplined Large Cap Growth......... $10,001-$50,000 Diversified Equity Income............ $50,001-$100,000 Portfolio Builder Total Equity....... $10,001-$50,000 Threadneedle Emerging Markets........ $10,001-$50,000 Threadneedle International $50,001-$100,000 Opportunity.......................... C. Paglia Threadneedle Global Equity........... Over $100,000
** Total includes deferred compensation invested in share equivalents. As of 30 days prior to the date of this SAI, the Board members and officers as a group owned less than 1% of the outstanding shares of any class of any fund. Statement of Additional Information - Dec. 30, 2008 Page 162 COMPENSATION OF BOARD MEMBERS TOTAL COMPENSATION. The following table shows the total compensation paid to independent Board members from all the RiverSource funds in the last fiscal period. TABLE 30. BOARD MEMBER COMPENSATION - ALL FUNDS
TOTAL CASH COMPENSATION FROM RIVERSOURCE BOARD MEMBER(a) FUNDS PAID TO BOARD MEMBER ---------------------------------------------------------------------------------------------- Kathleen Blatz $175,000 ---------------------------------------------------------------------------------------------- Arne H. Carlson 175,000 ---------------------------------------------------------------------------------------------- Pamela G. Carlton 162,500 ---------------------------------------------------------------------------------------------- Patricia M. Flynn 167,500(b) ---------------------------------------------------------------------------------------------- Anne P. Jones 172,500 ---------------------------------------------------------------------------------------------- Jeffrey Laikind 162,500 ---------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 397,500(b) ---------------------------------------------------------------------------------------------- Catherine James Paglia 167,500(b) ---------------------------------------------------------------------------------------------- Alison Taunton-Rigby 165,000 ----------------------------------------------------------------------------------------------
(a) Board member compensation is a combination of a base fee and meeting fees, with the exception of the Chair of the Board, who receives a base annual compensation. Payment of compensation is administered by a company providing limited administrative services to the funds and to the Board. Mr. Richie and Mr. Maher were not Board members as of the last fiscal period, and therefore are not included in the table. (b) Ms. Flynn, Mr. Lewis and Ms. Paglia elected to defer a portion of the total cash compensation payable during the period in the amount of $80,667, $69,250 and $167,500, respectively. Amount deferred by fund is set forth in Table 31. Additional information regarding the deferred compensation plan is described below. The independent Board members determine the amount of compensation that they receive, including the amount paid to the Chair of the Board. In determining compensation for the independent Board members, the independent Board members take into account a variety of factors including, among other things, their collective significant work experience (e.g., in business and finance, government or academia). The independent Board members also recognize that these individuals' advice and counsel are in demand by other organizations, that these individuals may reject other opportunities because the time demands of their duties as independent Board members, and that they undertake significant legal responsibilities. The independent Board members also consider the compensation paid to independent board members of other mutual fund complexes of comparable size. In determining the compensation paid to the Chair, the independent Board members take into account, among other things, the Chair's significant additional responsibilities (e.g., setting the agenda for Board meetings, communicating or meeting regularly with the Funds' Chief Compliance Officer, Counsel to the independent Board members, and the Funds' service providers) which result in a significantly greater time commitment required of the Board Chair. The Chair's compensation, therefore, has generally been set at a level between 2.5 and 3 times the level of compensation paid to other independent Board members. Effective Jan. 1, 2008, independent Board members will be paid an annual retainer of $95,000. Committee and sub- committee Chairs will each receive an additional annual retainer of $5,000. In addition, independent Board members will be paid the following fees for attending Board and committee meetings: $5,000 per day of in-person Board meetings and $2,500 per day of in-person committee or sub-committee meetings (if such meetings are not held on the same day as a Board meeting). Independent Board members are not paid for special telephonic meetings. In 2008, the Board's Chair will receive total annual cash compensation of $400,000. The independent Board members may elect to defer payment of up to 100% of the compensation they receive in accordance with a Deferred Compensation Plan (the Deferred Plan). Under the Deferred Plan, a Board member may elect to have his or her deferred compensation treated as if they had been invested in shares of one or more RiverSource funds and the amount paid to the Board member under the Deferred Plan will be determined based on the performance of such investments. Distributions may be taken in a lump sum or over a period of years. The Deferred Plan will remain unfunded for federal income tax purposes under the Internal Revenue Code of 1986, as amended. It is anticipated that deferral of Board member compensation in accordance with the Deferred Plan will have, at most, a negligible impact on Fund assets and liabilities. Statement of Additional Information - Dec. 30, 2008 Page 163 COMPENSATION FROM EACH FUND. The following table shows the compensation paid to independent Board members from each fund during its last fiscal period. TABLE 31. BOARD MEMBER(A) COMPENSATION -- INDIVIDUAL FUNDS
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 ------------------------------------------------------------------------------------------------------------------------- Income Builder Basic * * * * * * * * * Income ------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced * * * * * * * * * Income ------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate * * * * * * * * * Income ------------------------------------------------------------------------------------------------------------------------- Portfolio Builder * * * * * * * * * Aggressive ------------------------------------------------------------------------------------------------------------------------- Portfolio Builder * * * * * * * * * Conservative ------------------------------------------------------------------------------------------------------------------------- Portfolio Builder * * * * * * * * * Moderate ------------------------------------------------------------------------------------------------------------------------- Portfolio Builder * * * * * * * * * Moderate Aggressive ------------------------------------------------------------------------------------------------------------------------- Portfolio Builder * * * * * * * * * Moderate Conservative ------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total * * * * * * * * * Equity ------------------------------------------------------------------------------------------------------------------------- S&P 500 Index -- total $ 468 $ 437 $ 262 $ 454 $ 445 $ 439 $ 1,178 $ 460 $ 431 Amount deferred 0 0 0 186 0 0 341 460 0 ------------------------------------------------------------------------------------------------------------------------- Small Company Index -- total 1,675 1,565 925 1,625 1,592 1,571 4,235 1,647 1,543 Amount deferred 0 0 0 666 0 0 1,227 1,647 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 ------------------------------------------------------------------------------------------------------------------------- Equity Value -- total 2,226 2,074 1,485 2,150 2,118 2,085 5,423 2,182 2,042 Amount deferred 0 0 0 906 0 0 1,436 2,182 0 ------------------------------------------------------------------------------------------------------------------------- Partners Small Cap 365 340 244 352 347 341 891 358 335 Growth -- total Amount deferred 0 0 0 149 0 0 235 358 0 ------------------------------------------------------------------------------------------------------------------------- Precious Metals and 238 225 167 231 228 223 590 235 221 Mining -- total Amount deferred 0 0 0 99 0 0 151 235 0 ------------------------------------------------------------------------------------------------------------------------- Small Cap 826 760 515 793 783 773 1,992 802 750 Advantage -- total Amount deferred 0 0 0 331 0 0 541 802 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 ------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian 38 39 35 37 38 35 91 39 36 Equity -- total Amount deferred 0 0 0 17 0 0 17 39 0 ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 * * * * * * * * * ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 ------------------------------------------------------------------------------------------------------------------------- High Yield 3,058 2,945 2,563 2,957 2,957 2,867 7,494 3,047 2,856 Bond -- total Amount deferred 0 0 0 1,292 0 0 1,811 3,047 0 ------------------------------------------------------------------------------------------------------------------------- Partners Aggressive 1,110 1,075 944 1,075 1,075 1,040 2,740 1,110 1,040 Growth -- total Amount deferred 0 0 0 474 0 0 645 1,110 0 ------------------------------------------------------------------------------------------------------------------------- Partners Fundamental $ 1,939 $ 1,870 $ 1,629 $ 1,875 $ 1,876 $ 1,817 $ 4,759 $ 1,933 $ 1,811 Value -- total Amount deferred 0 0 0 822 0 0 1,139 1,933 0 -------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 164
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY ------------------------------------------------------------------------------------------------------------------------- Partners Select 929 893 776 898 898 871 2,278 925 867 Value -- total Amount deferred 0 0 0 392 0 0 554 925 0 ------------------------------------------------------------------------------------------------------------------------- Partners Small Cap 479 460 399 462 462 449 1,175 476 447 Equity -- total Amount deferred 0 0 0 202 0 0 286 476 0 ------------------------------------------------------------------------------------------------------------------------- Partners Small Cap 1,311 1,254 1,079 1,267 1,265 1,231 3,207 1,301 1,220 Value -- total Amount deferred 0 0 0 548 0 0 796 1,301 0 ------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government -- total 1,483 1,441 1,262 1,437 1,438 1,389 3,670 1,486 1,392 Amount deferred 0 0 0 637 0 0 851 1,486 0 ------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage -- total 764 740 647 740 739 715 1,879 764 716 Amount deferred 0 0 0 326 0 0 442 764 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 ------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity -- total 3,796 3,733 3,404 3,690 3,679 3,520 8,773 3,652 3,573 Amount deferred 0 0 0 1,647 0 0 1,990 3,652 0 ------------------------------------------------------------------------------------------------------------------------- Real Estate -- total 441 433 394 428 428 409 1,011 420 414 Amount deferred 0 0 0 191 0 0 230 420 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 ------------------------------------------------------------------------------------------------------------------------- Cash 9,805 9,820 9,158 9,484 9,649 9,158 25,060 9,340 9,328 Management -- total Amount deferred 0 0 0 4,371 0 0 5,222 9,340 0 ------------------------------------------------------------------------------------------------------------------------- Disciplined 6,153 6,157 5,746 5,947 6,054 5,746 15,698 5,862 5,849 Equity -- total Amount deferred 0 0 0 2,740 0 0 3,272 5,862 0 ------------------------------------------------------------------------------------------------------------------------- Disciplined Small and 105 104 99 103 103 99 275 101 100 Mid Cap Equity -- total Amount deferred 0 0 0 45 0 0 65 101 0 ------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap 70 70 65 68 69 65 180 67 66 Value -- total Amount deferred 0 0 0 31 0 0 38 67 0 ------------------------------------------------------------------------------------------------------------------------- Floating Rate -- total 1,044 1,041 976 1,009 1,025 976 2,660 988 991 Amount deferred 0 0 0 461 0 0 572 988 0 ------------------------------------------------------------------------------------------------------------------------- Growth -- total 5,085 5,077 4,763 4,936 4,995 4,763 13,062 4,879 4,846 Amount deferred 0 0 0 2,246 0 0 2,836 4,879 0 ------------------------------------------------------------------------------------------------------------------------- Income 528 529 494 511 520 494 1,349 502 503 Opportunities -- total Amount deferred 0 0 0 234 0 0 286 502 0 ------------------------------------------------------------------------------------------------------------------------- Inflation Protected 1,126 1,138 1,049 1,085 1,114 1,049 2,926 1,043 1,073 Securities -- total Amount deferred 0 0 0 515 0 0 549 1,043 0 ------------------------------------------------------------------------------------------------------------------------- Large Cap 9,660 9,637 9,051 9,370 9,489 9,050 24,802 9,269 9,199 Equity -- total Amount deferred 0 0 0 4,259 0 0 5,411 9,269 0 ------------------------------------------------------------------------------------------------------------------------- Large Cap 136 136 128 132 134 128 351 131 130 Value -- total Amount deferred 0 0 0 60 0 0 78 131 0 ------------------------------------------------------------------------------------------------------------------------- Limited Duration 307 308 286 296 302 287 787 290 292 Bond -- total Amount deferred 0 0 0 137 0 0 161 290 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 ------------------------------------------------------------------------------------------------------------------------- California Tax- Exempt -- total 339 340 318 329 335 318 839 322 324 Amount deferred 0 0 0 154 0 0 163 322 0 ------------------------------------------------------------------------------------------------------------------------- Diversified Bond -- total 6,444 6,465 6,040 6,237 6,356 6,040 16,009 6,093 6,149 Amount deferred 0 0 0 2,931 0 0 3,064 6,093 0 ------------------------------------------------------------------------------------------------------------------------- Minnesota Tax- Exempt -- total $ 595 $ 596 $ 558 $ 577 $ 586 $ 558 $ 1,470 $ 566 $ 568 Amount deferred 0 0 0 269 0 0 289 566 0 -------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 165
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY ------------------------------------------------------------------------------------------------------------------------- New York Tax- Exempt -- total 114 114 107 110 112 107 281 109 109 Amount deferred 0 0 0 51 0 0 56 109 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 ------------------------------------------------------------------------------------------------------------------------- Balanced -- total 1,763 1,761 1,628 1,684 1,734 1,628 4,277 1,688 1,656 Amount deferred 0 0 0 799 0 0 806 1,688 0 ------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap 354 356 327 335 350 327 848 334 332 Growth -- total Amount deferred 0 0 0 162 0 0 147 334 0 ------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap 4 3 3 3 4 3 7 3 3 Value -- total Amount deferred 0 0 0 2 0 0 1 3 0 ------------------------------------------------------------------------------------------------------------------------- Diversified Equity 14,237 14,230 13,153 13,595 14,013 13,153 34,529 13,599 13,370 Income -- total Amount deferred 0 0 0 6,460 0 0 6,484 13,599 0 ------------------------------------------------------------------------------------------------------------------------- Mid Cap Value -- total 5,051 5,051 4,667 4,811 4,979 4,666 12,194 4,804 4,739 Amount deferred 0 0 0 2,296 0 0 2,251 4,804 0 ------------------------------------------------------------------------------------------------------------------------- Strategic 4,049 4,048 3,740 3,865 3,986 3,740 9,812 3,866 3,802 Allocation -- total Amount deferred 0 0 0 1,838 0 0 1,836 3,866 0 ------------------------------------------------------------------------------------------------------------------------- Strategic Income 340 342 314 324 336 314 817 324 320 Allocation -- total Amount deferred 0 0 0 156 0 0 147 324 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 ------------------------------------------------------------------------------------------------------------------------- Absolute Return 1,151 1,164 1,080 1,102 1,147 1,080 2,634 1,104 1,097 Currency and Income -- total Amount deferred 0 0 0 544 0 0 417 1,104 0 ------------------------------------------------------------------------------------------------------------------------- Disciplined 1,523 1,530 1,413 1,457 1,504 1,413 3,511 1,447 1,439 International Equity -- total Amount deferred 0 0 0 705 0 0 599 1,447 0 ------------------------------------------------------------------------------------------------------------------------- Emerging Markets 386 385 360 369 381 360 856 374 364 Bond -- total Amount deferred 0 0 0 178 0 0 149 374 0 ------------------------------------------------------------------------------------------------------------------------- Global Bond -- total 1,646 1,654 1,532 1,571 1,630 1,531 3,754 1,563 1,555 Amount deferred 0 0 0 765 0 0 626 1,563 0 ------------------------------------------------------------------------------------------------------------------------- Global 299 299 278 287 294 278 682 286 282 Technology -- total Amount deferred 0 0 0 137 0 0 121 286 0 ------------------------------------------------------------------------------------------------------------------------- Partners International 1,405 1,405 1,303 1,344 1,384 1,303 3,222 1,338 1,323 Select Growth -- total Amount deferred 0 0 0 646 0 0 564 1,338 0 ------------------------------------------------------------------------------------------------------------------------- Partners International 3,980 3,969 3,683 3,815 3,909 3,683 9,121 3,815 3,744 Select Value -- total Amount deferred 0 0 0 1,821 0 0 1,637 3,815 0 ------------------------------------------------------------------------------------------------------------------------- Partners International 210 209 194 201 206 194 482 201 198 Small Cap -- total Amount deferred 0 0 0 96 0 0 86 201 0 ------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging 1,338 1,337 1,239 1,280 1,317 1,238 3,080 1,271 1,259 Markets -- total Amount deferred 0 0 0 0 0 0 545 1,271 0 ------------------------------------------------------------------------------------------------------------------------- Threadneedle European 258 258 239 248 254 239 592 247 243 Equity -- total Amount deferred 0 0 0 119 0 0 104 247 0 ------------------------------------------------------------------------------------------------------------------------- Threadneedle Global 1,514 1,514 1,404 1,450 1,491 1,404 3,461 1,448 1,427 Equity -- total Amount deferred 0 0 0 696 0 0 608 1,448 0 ------------------------------------------------------------------------------------------------------------------------- Threadneedle Global 7 7 7 6 7 6 13 7 6 Equity Income -- total Amount deferred 0 0 0 3 0 0 2 7 0 ------------------------------------------------------------------------------------------------------------------------- Threadneedle Global 5 5 5 5 5 5 10 5 4 Extended Alpha -- total Amount deferred 0 0 0 2 0 0 1 5 0 -------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 166
AGGREGATE COMPENSATION FROM FUND ------------------------------------------------------------------------------------------------ TAUNTON- FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY ------------------------------------------------------------------------------------------------------------------------- Threadneedle International Opportunity -- total $ 1,258 $ 1,256 $ 1,166 $ 1,204 $ 1,238 $ 1,166 $ 2,874 $ 1,202 $ 1,184 Amount deferred 0 0 0 578 0 0 507 1,202 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 ------------------------------------------------------------------------------------------------------------------------- Intermediate Tax- 147 163 55 145 143 143 351 145 135 Exempt -- total Amount deferred 0 0 0 59 0 0 105 145 0 ------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth -- total 2,083 2,367 795 2,051 2,032 2,032 4,957 2,050 1,916 Amount deferred 0 0 0 838 0 0 1,474 2,050 0 ------------------------------------------------------------------------------------------------------------------------- Tax-Exempt 1,376 1,509 531 1,356 1,330 1,330 3,293 1,356 1,265 Bond -- total Amount deferred 0 0 0 552 0 0 981 1,356 0 ------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High 5,211 5,715 1,998 5,132 5,038 5,038 12,467 5,132 4,789 Income -- total Amount deferred 0 0 0 2,090 0 0 3,713 5,132 0 ------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 ------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market -- total 226 208 114 222 211 211 556 222 208 Amount deferred 0 0 0 89 0 0 167 222 0 -------------------------------------------------------------------------------------------------------------------------
(a) Mr. Richie and Mr. Maher were not Board members as of the last fiscal period, and therefore are not included in the table. * Funds-of-Funds do not pay additional compensation to the Board members for attending meetings. Compensation is paid directly from the underlying funds in which each Fund-of-Funds invests. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES The following table identifies those investors who, as of 30 days after the end of the fund's fiscal period, owned 5% or more of any class of a fund's shares and those investors who owned 25% or more of a fund's shares (all share classes taken together). Investors who own more than 25% of a fund's shares are presumed to control the fund and would be able to determine the outcome of most issues that are submitted to shareholders for vote. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 32. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of 30 days after the end of the fund's fiscal period:
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 -------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Charles Schwab & Co., Inc. (Charles Class A 37.17% -- Schwab) a brokerage firm in San Class R4 69.59% Francisco, CA ------------------------------------------------------------------------------------------ RiverSource Investments, LLC Class R4 30.41% -- (RiverSource Investments), Minneapolis, MN -------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Charles Schwab Class A 40.95% -- Class R4 81.85% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 18.15% -- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 167
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Charles Schwab Class A 40.97% -- Class R4 52.46% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 47.54% -- -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Charles Schwab Class R4 92.45% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 7.55% -- -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class A 8.26% -- Conservative Class R4 58.40% ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 41.60% -- -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Charles Schwab Class R4 90.06% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 9.94% -- -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 84.04% -- Moderate Aggressive ------------------------------------------------------------------------------------------ Fifth Third Bank TTEE, Cincinnati, OH Class R4 14.66% -- -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 64.07% -- Moderate Conservative ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 35.93% -- -------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab Class R4 93.54% -- Total Equity ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 6.46% -- -------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Charles Schwab Class D 100.00% -- Class E 18.11% ------------------------------------------------------------------------------------------ Wachovia Bank NA (Wachovia Bank), Class E 81.89% 63.64% Charlotte, NC -------------------------------------------------------------------------------------------------------------------------------- Small Company Index Charles Schwab Class A 7.91% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc. (GWFS Equities), Class R4 7.21% -- Greenwood Village, CO ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 88.29% -- -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MARCH 31 -------------------------------------------------------------------------------------------------------------------------------- Equity Value Charles Schwab Class A 8.14% -- ------------------------------------------------------------------------------------------ John C. Mullarkey, Willowbrook, IL Class C 5.00% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 96.77% -- Class R4 98.43% -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Growth Charles Schwab Class A 9.73% -- Class R4 98.42% ------------------------------------------------------------------------------------------ RiverSource Investments Class R2 100.00% 30.92%(a) Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.83% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 21.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.92% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.96% -- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 168
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Precious Metals and Mining Charles Schwab Class A 14.27% -- Class R4 98.39% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ John E. Bridgman, Minneapolis, MN Class C 6.51% -- ------------------------------------------------------------------------------------------ Richard L. Venable and Susan Angela Class C 7.76% -- Venable, Argyle, TX -------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Charles Schwab Class A 9.73% -- Class R4 97.75% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R5 100.00% -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING APRIL 30 -------------------------------------------------------------------------------------------------------------------------------- 120/20 Contrarian Equity Charles Schwab Class A 52.74% -- ------------------------------------------------------------------------------------------ Donald W. and Donna M. Hardeman, Miami, Class B 4.51% -- FL ------------------------------------------------------------------------------------------ Jeffrey and Karen E. Leopardi, Boca Class C 6.00% -- Raton, FL ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R5 100.00% -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.40% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 98.55% -- ------------------------------------------------------------------------------------------ In-Core, Decatur, GA Class A 12.42% -- ------------------------------------------------------------------------------------------ Jagdish N. and Madhuri J. Sheth, Class A 12.19% -- Atlanta, GA -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ In-Core, Decatur, GA Class A 7.58% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.31% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.20% -- -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.37% -- -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.43% -- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 169
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 99.37% -- ------------------------------------------------------------------------------------------ John C. Bukowski, Suffern, NY Class A 17.47% -- ------------------------------------------------------------------------------------------ Stephen T. and Teresa T. Bockian, Class A 5.27% -- Orlando, FL -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 98.51% -- ------------------------------------------------------------------------------------------ Gary L. and Karen L. Fournier, Class A 11.08% -- Vicksburg, MS ------------------------------------------------------------------------------------------ Richard and Stefanie A. Nelson, Hot Class A 7.93% -- Springs, SD ------------------------------------------------------------------------------------------ William Crossen, Tuckahoe, NY Class A 6.53% -- -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 97.06% -- -------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 97.29% -- ------------------------------------------------------------------------------------------ Anthony D. And Rebecca H. Marken, Class A 5.96% -- Lexington, MA -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MAY 31 -------------------------------------------------------------------------------------------------------------------------------- High Yield Bond RiverSource Investments Class R2 52.98% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.94% -- Inc. (American Enterprise Investment Services) Minneapolis, MN ------------------------------------------------------------------------------------------ Charles Schwab Class A 9.51% -- Class R4 79.90% ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R4 20.05% -- ------------------------------------------------------------------------------------------ ING Life Insurance and Annuity (ING), Class R2 47.02% -- Hartford, CT ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 11.04% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 42.91% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 42.52% -- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 170
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Partners Aggressive Growth RiverSource Investments Class R2 5.96% -- Class R3 100.00% Class R4 12.33% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class R4 82.97% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R2 94.04% -- ------------------------------------------------------------------------------------------ MLP Fenner & Smith, Inc. (MLP Fenner & Class C 11.01% -- Smith), Jacksonville, FL ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.74% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.86% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.83% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.77% -- -------------------------------------------------------------------------------------------------------------------------------- Partners Fundamental Value Charles Schwab Class A 14.29% -- Class R4 98.39% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.73% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.30% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.87% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.86% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.69% -- -------------------------------------------------------------------------------------------------------------------------------- Partners Select Value RiverSource Investments Class R4 14.56% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.07% -- Class R4 85.44% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.74% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.84% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.86% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.76% -- -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Equity RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.52% -- Class R4 8.69% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.97% -- -------------------------------------------------------------------------------------------------------------------------------- Partners Small Cap Value Charles Schwab Class A 14.80% -- Class R4 93.84% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.62% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.13% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 32.04% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.79% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R3 56.42% -- ------------------------------------------------------------------------------------------ Hartford Life Insurance Company Class R2 99.11% -- (Hartford Life), Weatogue, CT Class R3 43.58% ------------------------------------------------------------------------------------------ JPMorgan Chase Bank, Kansas City, MO Class R5 99.96% -- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 171
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Charles Schwab Class A 11.76% -- ------------------------------------------------------------------------------------------ Government GWFS Equities Class R4 17.39% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 29.71% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 15.82% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate aggressive Class I 22.71% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 31.76% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 81.54% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- -------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Charles Schwab Class A 18.44% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 38.42% 56.31%(a) ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 12.55% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 49.03% -- ------------------------------------------------------------------------------------------ Wells Fargo Bank, Minneapolis, MN Class R4 99.88% -- -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JUNE 30 -------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.09% -- Class R4 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 13.95% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 14.25% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 34.77% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.91% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 8.28% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 11.66% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 7.46% -- -------------------------------------------------------------------------------------------------------------------------------- Real Estate RiverSource Investments Class R4 10.36% 53.84% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.17% -- Class R4 89.64% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 7.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 13.20% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 25.18% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 27.58% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.33% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 11.69% -- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 172
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 -------------------------------------------------------------------------------------------------------------------------------- Cash Management Charles Schwab Class A 5.96% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R5 100.00% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.94% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 33.15% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 27.47% -- ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 12.00% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 11.40% -- Fund ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.65% -- ------------------------------------------------------------------------------------------ Russell P. and Janice K. Costanza, Class C 6.42% -- Sodus, MI ------------------------------------------------------------------------------------------ Wachovia Bank Class Y 94.86% -- ------------------------------------------------------------------------------------------ GWFS Equities Class Y 5.14% -- -------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.99% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 7.06% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 10.50% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.53% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 16.15% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.23% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.44% -- -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and RiverSource Investments Class A 45.76% 57.55%(a) Mid Cap Equity Class R4 83.04% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 11.38% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 13.93% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 19.04% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 12.18% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2025 Class I 6.06% -- ------------------------------------------------------------------------------------------ Retirement Plus Fund 2030 Class I 5.69% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.79% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.42% -- Class R4 16.96% ------------------------------------------------------------------------------------------ Deanna L. Rose, Punta Gorda, Fl Class C 8.49% -- ------------------------------------------------------------------------------------------ William E. and MaryLou K. Carroll, Punta Class C 11.48% -- Gorda, Fl ------------------------------------------------------------------------------------------ Mary Ruth Neal, Sacramento, CA Class C 5.38% -- ------------------------------------------------------------------------------------------ Don M. and Barbara A. Warner, Fair Oaks, Class C 5.06% -- CA ------------------------------------------------------------------------------------------ Antim G. and Sonal A Shah, Springfield, Class C 5.01% -- VA --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Dec. 30, 2008 Page 173
FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value RiverSource Investments Class A 67.37% 86.60% Class C 9.20% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Joanne and David J. Thorpe, Lakeville, Class B 8.77% -- MA ------------------------------------------------------------------------------------------ John A. and Dawn M. Gettman, Beaumont, Class B 7.50% -- CA ------------------------------------------------------------------------------------------ Neil Van Slyke, Rochester, NY Class B 5.08% -- ------------------------------------------------------------------------------------------ Sanford A. Greentree, Westlake VLG, CA Class C 28.37% -- ------------------------------------------------------------------------------------------ Keith and Sandra Crowell, Huntersville, Class C 19.41% -- NC ------------------------------------------------------------------------------------------ Bea Vande Merwe, Salt Lake City, UT Class C 12.96% -- ------------------------------------------------------------------------------------------ Richard T. Castiano, Fort Myers, FL Class C 11.18% -- ------------------------------------------------------------------------------------------ Matthew M. Harrison, Richmond, IN Class C 6.92% -- ------------------------------------------------------------------------------------------ Timothy E. Releford, New York, NY Class C 6.06% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 34.91% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 26.71% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 38.34% -- -------------------------------------------------------------------------------------------------------------------------------- Floating Rate RiverSource Investments Class W 100.00% 37.41%(a) Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 11.75% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 29.59% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 47.73% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 46.63% -- Class R4 95.13% ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 6.46% -- -------------------------------------------------------------------------------------------------------------------------------- Growth RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 5.99% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.62% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.40% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.53% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.78% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.08% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 42.87% -- ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R4 51.99% -- -------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Charles Schwab Class A 14.09% -- Class R4 93.46% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 14.67% 25.94%(a) ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 41.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 35.94% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.21% -- Fund ------------------------------------------------------------------------------------------ RiverSource Life Insurance Company Class R4 6.54% -- --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities RiverSource Life Insurance Company Class R4 26.67% 42.88%(a) ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 11.24% -- ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 5.50% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 6.68% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 26.84% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 29.28% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.17% -- Fund ------------------------------------------------------------------------------------------ Charles Schwab Class A 35.37% -- Class R4 26.55% ------------------------------------------------------------------------------------------ GWFS Equities Class R4 5.02% -- ------------------------------------------------------------------------------------------ Matrix Capital Bank MSCS (Matrix Class R4 41.76% -- Capital), Denver, Co ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.98% -- -------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.58% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.41% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.61% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.77% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.03% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.85% -- -------------------------------------------------------------------------------------------------------------------------------- Large Cap Value RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 39.10% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.18% -- Class R4 60.90% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.52% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.76% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.69% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.77% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.56% -- ------------------------------------------------------------------------------------------ Patricia J. King Graham, Lakeview, AR Class C 5.11% -- ------------------------------------------------------------------------------------------ Columbia 529 Plan, Boston, MA Class A 5.07% -- -------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond RiverSource Investments Class R4 100.00% 60.07%(a) Class W 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 56.50% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Conservative Fund Class I 43.50% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 18.86% -- ------------------------------------------------------------------------------------------ John W. and Cecelia E. Kramar, Hacienda Class C 17.03% -- Heights, CA ------------------------------------------------------------------------------------------ Mary Loretta Jacobsmeyer, Riverside, CA Class C 7.78% -- ------------------------------------------------------------------------------------------ Michael N. Stanley, Palm Springs, CA Class C 8.16% -- ------------------------------------------------------------------------------------------ Rita R. and Lawrence E. Dale, Barstow, Class C 6.50% -- CA ------------------------------------------------------------------------------------------ Bernard C. and Denise M. Asbell, Class C 5.70% -- Riverside, CA --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 -------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Linda A. Wochnik, Sierra Madre, CA Class B 5.01% -- -------------------------------------------------------------------------------------------------------------------------------- Diversified Bond RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ American Enterprise Investment Services Class W 99.97% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 7.72% -- ------------------------------------------------------------------------------------------ Citigroup Global Markets, Owings Mills, Class C 26.98% -- MD ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 5.92% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 40.79% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.02% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 12.46% -- Fund ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 96.96% -- -------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None None N/A -- -------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Charles Schwab Class A 8.47% -- ------------------------------------------------------------------------------------------ Joan Sabbatini, E. Northport, NY Class B 8.19% -- ------------------------------------------------------------------------------------------ Ena S. Ryan, Brooklyn, NY Class C 8.64% -- ------------------------------------------------------------------------------------------ Ottoviano Asarese, Buffalo, NY Class C 6.00% -- -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 -------------------------------------------------------------------------------------------------------------------------------- Balanced MLP Fenner & Smith Class C 9.91% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 99.96% -- -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Growth RiverSource Investments Class R2 100.00% 84.96% Class R3 100.00% Class R4 34.24% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 16.76% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.85% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 27.61% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.59% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.18% -- ------------------------------------------------------------------------------------------ Matrix Capital Class R4 65.76% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 8.85% -- ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 66.35% -- --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Disciplined Large Cap Value RiverSource Investments Class B 36.84% 98.09 Class C 100.00% Class I 17.75% Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 30.20% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 29.87% -- ------------------------------------------------------------------------------------------ Disciplined Asset Allocation Portfolios Class I 6.06% -- Moderate ------------------------------------------------------------------------------------------ Paul W. Eastman, Dublin, OH Class A 25.80% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 23.18% -- ------------------------------------------------------------------------------------------ Ronald E. and Patricia S. Leithe, Cary, Class A 12.12% -- NC ------------------------------------------------------------------------------------------ Josph E. and Sonya M. Landholm, Sedona, Class A 10.08% -- AZ ------------------------------------------------------------------------------------------ Ralph and Carol Sievert, Appleton, WI Class A 7.62% -- ------------------------------------------------------------------------------------------ Tseng-Yen Yen, Fullerton, CA Class B 42.60% -- ------------------------------------------------------------------------------------------ Rita S. Mall, Wyncote, PA Class B 20.56% -- -------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Charles Schwab Class A 25.97% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.19% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.08% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.33% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.07% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.37% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 74.50% -- ------------------------------------------------------------------------------------------ Hartford Securities Distribution Company Class R2 6.00% -- Inc., Hartford, CT ------------------------------------------------------------------------------------------ GWFS Equities Class R3 84.53% -- Class R4 11.39% ------------------------------------------------------------------------------------------ Wachovia Bank Class R2 13.87% -- Class R3 8.11% Class R4 35.07% Class R5 22.97% ------------------------------------------------------------------------------------------ Wells Fargo Bank Class R4 27.91% -- ------------------------------------------------------------------------------------------ American Century Investments, Kansas Class R4 6.24% -- City, MO ------------------------------------------------------------------------------------------ ING Class R4 13.19% -- Class R5 39.87% ------------------------------------------------------------------------------------------ Ameriprise Trust Company Class R5 11.76% -- ------------------------------------------------------------------------------------------ Taynik & Co., Boston, MA Class R5 9.07% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Charles Schwab Class A 34.32% -- Class R5 8.42% ------------------------------------------------------------------------------------------ Prudential Investment Management Class A 12.85% -- Services LLC, Newark, NJ ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 18.24% -- ------------------------------------------------------------------------------------------ Citigroup Global Markets, Owings Mills, Class C 5.56% -- MD ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.10% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.36% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.01% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 6.14% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.35% -- ------------------------------------------------------------------------------------------ Hartford Life Class R2 81.55% -- Class R3 12.83% ------------------------------------------------------------------------------------------ JP Morgan Chase Bank, New York NY Class R3 15.80% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R3 34.97% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R3 9.90% -- Class R4 18.81% ------------------------------------------------------------------------------------------ ING Class R3 8.27% -- Class R4 20.24% Class R5 17.33% ------------------------------------------------------------------------------------------ John Hancock Life Insurance Company, Class R4 25.79% -- Buffalo, NY ------------------------------------------------------------------------------------------ NFS LLC FEBO, Chicago, IL Class R5 28.65% -- ------------------------------------------------------------------------------------------ PIMS/Prudential Retirement, Greenville, Class R5 16.80% -- SC ------------------------------------------------------------------------------------------ Standard Insurance Company, Portland, OR Class R5 10.61% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class W 100.00% -- -------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Charles Schwab Class A 11.51% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R2 100.00% Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 59.42% -- ------------------------------------------------------------------------------------------ Charles Schwab Class R4 39.07% -- -------------------------------------------------------------------------------------------------------------------------------- Strategic Income Allocation Charles Schwab Class A 26.98% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class A 14.28% -- Class R2 100.00% Class R3 100.00% Class R4 100.00% Class R5 100.00% --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 -------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency Income RiverSource Investments Class R4 46.97% 28.54% Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 8.72% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.93% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 21.85% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 21.69% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 8.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 8.61% -- Fund ------------------------------------------------------------------------------------------ American Enterprise Class W 99.96% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 70.04% -- Class R4 53.03% ------------------------------------------------------------------------------------------ MLP Fenner & Smith Class C 5.79% -- -------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity RiverSource Investments Class R2 100.00% -- Class R3 100.00% Class R4 8.27% Class R5 100.00% ------------------------------------------------------------------------------------------ Income Builder Enhanced Income Class I 9.01% -- ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 10.16% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 9.80% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 11.96% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 16.42% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 10.56% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.96% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.93% -- Class R4 91.73% ------------------------------------------------------------------------------------------ Daniel and Linda Miklovic, St. Louis, MO Class C 5.17% -- -------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Income Builder Enhanced Income Class I 34.35% 35.11% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 35.29% -- ------------------------------------------------------------------------------------------ Income Builder Basic Income Class I 9.81% -- ------------------------------------------------------------------------------------------ RiverSource Investments Class R4 46.85% -- ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.98% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.44% -- Class R4 27.12% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 26.03% -- ------------------------------------------------------------------------------------------ Muhammad A. Ali, Twn and Cntry, MO Class C 6.62% -- ------------------------------------------------------------------------------------------ Brenda L. Ruiz, Lake Mary, FL Class C 5.77% -- -------------------------------------------------------------------------------------------------------------------------------- Global Bond Income Builder Enhanced Income Class I 5.55% 32.63% ------------------------------------------------------------------------------------------ Income Builder Moderate Income Class I 5.64% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 34.08% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 30.07% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 9.23% -- Fund ------------------------------------------------------------------------------------------ American Enterprise Investment Services, Class W 99.94% -- Inc. ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.23% -- Class R4 100.00% --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Global Technology RiverSource Investments Class I 100.00% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.08% -- Class R4 99.65% -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Growth Charles Schwab Class A 15.31% 41.23% Class R4 82.82% ------------------------------------------------------------------------------------------ New York Life Trust Company Class R4 13.64% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.58% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.88% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.47% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.57% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.79% -- -------------------------------------------------------------------------------------------------------------------------------- Partners International Select Value Charles Schwab Class A 17.27% -- Class R4 99.14% ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.71% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.73% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.10% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.64% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 20.12% -- -------------------------------------------------------------------------------------------------------------------------------- Partners International Small Cap Portfolio Builder Aggressive Fund Class I 19.06% 30.16% ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 23.14% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.63% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 18.64% -- ------------------------------------------------------------------------------------------ Charles Schwab Class A 13.66% ------------------------------------------------------------------------------------------ Massachesetts Mutual Life Insurance Co. Class R4 96.79% -- Springfield, MA -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Emerging Markets Charles Schwab Class A 13.95% -- Class R4 87.24% ------------------------------------------------------------------------------------------ RiverSource Investments Class I 100.00% -- Class R5 100.00% ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 12.76% -- -------------------------------------------------------------------------------------------------------------------------------- Threadneedle European Equity RiverSource Investments Class I 100.00% -- Class R4 17.97% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.98% -- Class R4 82.03% ------------------------------------------------------------------------------------------ Marilyn O. Mattthews, Pasadena, CA Class C 5.31% -- -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity RiverSource Investments Class I 100.00% -- Class R2 98.46% Class R3 100.00% Class R5 100.00% Class W 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 12.95% -- ------------------------------------------------------------------------------------------ GWFS Equities Inc. Class R4 5.35% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 90.82% -- --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Equity Income RiverSource Investments Class C 6.40% 29.58% Class I 100.00% Class R2 100.00% Class R3 100.00% Class R4 83.38% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 20.16% -- Class R4 16.62% ------------------------------------------------------------------------------------------ Janet K. Zimmer, Warsaw, IN Class C 24.03% -- ------------------------------------------------------------------------------------------ Michael A. Streiber, Mount Airy, MD Class C 11.24% -- ------------------------------------------------------------------------------------------ Alfred T. Hockenmaier, North Hills, CA Class C 9.72% -- ------------------------------------------------------------------------------------------ Sandra H. Norene, Rio Oso, CA Class C 7.99% -- ------------------------------------------------------------------------------------------ Steven A. and Melissa D. Stiles, Class C 7.05% -- Roanoke, VA ------------------------------------------------------------------------------------------ Louis M. and Shirli A. Nagy, Ventura, CA Class C 5.93% -- -------------------------------------------------------------------------------------------------------------------------------- Threadneedle Global Extended Alpha RiverSource Investments Class C 7.38% 57.92% Class I 100.00% Class R2 100.00% Class R3 100.00% Class R4 30.07% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 66.08% -- Class R4 69.93% ------------------------------------------------------------------------------------------ Michael and Marissa Jenkinson, Burke, VA Class C 17.59% -- ------------------------------------------------------------------------------------------ Michael Selig, Arlington, VA Class C 11.38% -- ------------------------------------------------------------------------------------------ Poonam and Pradeep Singh, McLean, VA Class C 10.72% -- ------------------------------------------------------------------------------------------ Michael and Kristin L. Elder, Class C 9.76% -- Alexandria, VA ------------------------------------------------------------------------------------------ Steven R. and Wendy L. Person, Atlanta, Class C 9.53% -- GA ------------------------------------------------------------------------------------------ Jennifer S. Carter, Washington, D.C. Class C 8.76% -- -------------------------------------------------------------------------------------------------------------------------------- Threadneedle International RiverSource Investments Class R2 100.00% -- Opportunity Class R3 100.00% Class R5 100.00% ------------------------------------------------------------------------------------------ Charles Schwab Class A 10.09% -- Class R4 84.55% ------------------------------------------------------------------------------------------ Matrix Capital Class R4 14.22% -- ------------------------------------------------------------------------------------------ Portfolio Builder Aggressive Fund Class I 18.90% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 22.66% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.25% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.81% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 19.70% -- --------------------------------------------------------------------------------------------------------------------------------
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FUND SHARES --------------------- SHARE PERCENT OF FUND FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%) -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 -------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Charles Schwab Class A 8.27% -- ------------------------------------------------------------------------------------------ John T. and Robin L. Lawrence, Beverly, Class B 5.63% -- MA ------------------------------------------------------------------------------------------ Jesse M. Annoye, Germantown, WI Class C 6.71% -- -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Portfolio Builder Aggressive Fund Class I 19.39% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Fund Class I 20.43% -- ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive Class I 31.65% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative Class I 5.28% -- Fund ------------------------------------------------------------------------------------------ Portfolio Builder Total Equity Fund Class I 21.93% -- ------------------------------------------------------------------------------------------ Wachovia Bank Class R4 69.55% -- ------------------------------------------------------------------------------------------ GWFS Equities Class R4 25.26% -- -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond J. Haley Stephens, Calhoun, GA Class C 8.84% -- -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None -- -- -- -------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Lawrence Garner, Woodstock, GA and Class A 6.32% -- Ronald J. Garner, Wyckoff, NJ --------------------------------------------------------------------------------------------------------------------------------
(a) Combination of all share classes of RiverSource Investments initial capital and affiliated funds-of-funds' investments in Class I shares. A fund may serve as an underlying investment of funds-of-funds that principally invest in shares of other RiverSource funds (the underlying funds). The underlying funds and the funds-of-funds share the same officers, Board members, and investment manager, RiverSource Investments. The funds-of-funds do not invest in an underlying fund for the purpose of exercising management or control; however, from time to time, investments by the funds-of-funds in a fund may represent a significant portion of a fund. Because the funds-of-funds may own a substantial portion of the shares of a fund, procedures have been put into place to assure that public shareholders will determine the outcome of all actions taken at underlying fund shareholder meetings. In proxy voting, the funds-of-funds will vote on each proposal in the same proportion that other shareholders vote on the proposal. In addition, RiverSource Investments or an affiliate may own shares of a fund as a result of an initial capital investment at the inception of the fund or class. To the extent RiverSource Investments, as manager of the funds-of-funds, may be deemed a beneficial owner of the shares of an underlying fund held by the funds- of-funds, and such shares, together with any initial capital investment by RiverSource Investments or an affiliate, represent more than 25% of a fund, RiverSource Investments and its affiliated companies may be deemed to control the fund. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendant's motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on Aug. 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a Statement of Additional Information - Dec. 30, 2008 Page 182 result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Board of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J.&W. Seligman & Co., Inc. ("Seligman"). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the "Seligman Funds"); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York ("NYAG"). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. Statement of Additional Information - Dec. 30, 2008 Page 183 There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements for the fiscal years ended July 31, 2007 or later contained in a fund's Annual Report were audited by the independent registered public accounting firm, Ernst & Young LLP, 220 South 6th Street, Suite 1400, Minneapolis, MN 55402. The information for periods ended on or before June 30, 2007 was audited by other auditors. The independent registered public accounting firm also provides other accounting and tax-related services as requested by the funds. Statement of Additional Information - Dec. 30, 2008 Page 184 APPENDIX A DESCRIPTION OF RATINGS STANDARD & POOR'S LONG-TERM DEBT RATINGS. A Standard & Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell, or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of such information or based on other circumstances. The ratings are based, in varying degrees, on the following considerations: - Likelihood of default capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation. - Nature of and provisions of the obligation. - Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. INVESTMENT GRADE Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. SPECULATIVE GRADE Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category also is used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. Debt rated CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. Debt rated C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Statement of Additional Information - Dec. 30, 2008 A-1 Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. MOODY'S LONG-TERM DEBT RATINGS Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements - their future cannot be considered as well- assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. FITCH'S LONG-TERM DEBT RATINGS Fitch's bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. INVESTMENT GRADE AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Statement of Additional Information - Dec. 30, 2008 A-2 AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. SPECULATIVE GRADE BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements. B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C: Bonds are in imminent default in payment of interest or principal. DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery. SHORT-TERM RATINGS STANDARD & POOR'S COMMERCIAL PAPER RATINGS A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. STANDARD & POOR'S MUNI BOND AND NOTE RATINGS An S&P municipal bond or note rating reflects the liquidity factors and market- access risks unique to these instruments. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Statement of Additional Information - Dec. 30, 2008 A-3 Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Municipal bond rating symbols and definitions are as follows: Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest. Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest. MOODY'S SHORT-TERM RATINGS Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. MOODY'S SHORT-TERM MUNI BONDS AND NOTES Short-term municipal bonds and notes are rated by Moody's. The ratings reflect the liquidity concerns and market access risks unique to notes. Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group. Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. FITCH'S SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The Statement of Additional Information - Dec. 30, 2008 A-4 short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned F-1+ and F-1 ratings. F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade. F-S: Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D: Default. Issues assigned this rating are in actual or imminent payment default. Statement of Additional Information - Dec. 30, 2008 A-5 APPENDIX B STATE TAX-EXEMPT FUNDS STATE RISK FACTORS California Tax-Exempt Fund, Minnesota Tax-Exempt Fund and New York Tax-Exempt Fund invest primarily in the municipal securities issued by a single state and political sub-divisions that state. Each Fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax- exempt investments will be significantly greater than that of more geographically diversified funds, which may result in greater losses and volatility. Because of the relatively small number of issuers of tax-exempt securities, the Fund may invest a higher percentage of assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the Fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. In addition, a Fund may concentrate in a segment of the tax-exempt debt market, such as revenue bonds for health care facilities, housing or airports. These investments may cause the value of a fund's shares to change more than the values of funds' shares that invest in more diversified investments. The yields on the securities in which the Fund invests generally are dependent on a variety of factors, including the financial condition of the issuer or other obligor, the revenue source from which the debt service is payable, general economic and monetary conditions, conditions in the relevant market, the size of a particular issue, the maturity of the obligation, and the rating of the issue. In addition to such factors, geographically concentrated securities will experience particular sensitivity to local conditions, including political and economic changes, adverse conditions to an industry significant to the area, and other developments within a particular locality. Because many tax-exempt bonds may be revenue or general obligations of local governments or authorities, ratings on tax-exempt bonds may be different from the ratings given to the general obligation bonds of a particular state. Certain events may adversely affect all investments within a particular market segment of the market. Examples include litigation, legislation or court decisions, concerns about pending or contemplated litigation, legislation or court decisions, or lower demand for the services or products provided by a particular market segment. Investing mostly in state-specific tax-exempt investments makes the Fund more vulnerable to that state's economy and to factors affecting tax-exempt issuers in that state than would be true for more geographically diversified funds. These risks include, among others: - the inability or perceived inability of a government authority to collect sufficient tax or other revenues to meet its payment obligations; - natural disasters and ecological or environmental concerns; - the introduction of constitutional or statutory limits on a tax-exempt issuer's ability to raise revenues or increase taxes; - the inability of an issuer to pay interest on or repay principal or securities in which the funds invest during recessionary periods; and - economic or demographic factors that may cause a decrease in tax or other revenues for a government authority or for private operators of publicly financed facilities. More information about state specific risks may be available from official state resources. Statement of Additional Information - Dec. 30, 2008 B-1 APPENDIX C S&P 500 INDEX FUND ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX The fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund's shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of Fund shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Statement of Additional Information - Dec. 30, 2008 C-1 APPENDIX D SELIGMAN FUNDS SELIGMAN CAPITAL FUND, INC. SELIGMAN CASH MANAGEMENT FUND, INC. SELIGMAN COMMON STOCK FUND, INC. SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. SELIGMAN CORE FIXED INCOME FUND, INC. SELIGMAN FRONTIER FUND, INC. SELIGMAN GLOBAL FUND SERIES, INC. Seligman Emerging Markets Fund Seligman Global Smaller Companies Fund Seligman Global Growth Fund Seligman Global Technology Fund Seligman International Growth Fund SELIGMAN GROWTH FUND, INC. SELIGMAN HIGH INCOME FUND SERIES Seligman U.S. Government Securities Fund Seligman High-Yield Fund SELIGMAN INCOME AND GROWTH FUND, INC. SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC. Seligman LaSalle Global Real Estate Fund Seligman LaSalle Monthly Dividend Real Estate Fund SELIGMAN MUNICIPAL FUND SERIES, INC. Seligman National Municipal Class Seligman Colorado Municipal Class Seligman Georgia Municipal Class Seligman Louisiana Municipal Class Seligman Maryland Municipal Class Seligman Massachusetts Municipal Class Seligman Michigan Municipal Class Seligman Minnesota Municipal Class Seligman Missouri Municipal Class Seligman New York Municipal Class Seligman Ohio Municipal Class Seligman Oregon Municipal Class Seligman South Carolina Municipal Class SELIGMAN MUNICIPAL SERIES TRUST Seligman California Municipal High Yield Series Seligman California Municipal Quality Series Seligman Florida Municipal Series Seligman North Carolina Municipal Series SELIGMAN NEW JERSEY MUNICIPAL FUND, INC. SELIGMAN PENNSYLVANIA MUNICIPAL FUND SERIES SELIGMAN PORTFOLIOS, INC. Seligman Capital Portfolio Seligman Cash Management Portfolio Seligman Common Stock Portfolio Seligman Communications and Information Portfolio Seligman Global Technology Portfolio Seligman International Growth Portfolio Seligman Investment Grade Fixed Income Portfolio Seligman Large-Cap Value Portfolio Seligman Smaller-Cap Value Portfolio SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC. Seligman TargETFund 2045 Seligman TargETFund 2035 Seligman TargETFund 2025 Seligman TargETFund 2015 Seligman TargETFund Core SELIGMAN ASSET ALLOCATION SERIES, INC. Seligman Asset Allocation Aggressive Growth Fund Seligman Asset Allocation Balanced Fund Seligman Asset Allocation Growth Fund Seligman Asset Allocation Moderate Growth Fund SELIGMAN VALUE FUND SERIES, INC. Seligman Large-Cap Value Fund Seligman Smaller-Cap Value Fund SELIGMAN LASALLE INTERNATIONAL REAL ESTATE FUND, INC. SELIGMAN SELECT MUNICIPAL FUND, INC. TRI-CONTINENTAL CORPORATION
S-6500 AS (12/08) Statement of Additional Information - Dec. 30, 2008 D-1 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (9.9%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ASSET-BACKED (3.1%) Capital Auto Receivables Asset Trust Series 2006-SN1A Cl A4B 03-20-10 4.39% $1,500,000(d,g) $1,477,434 Capital Auto Receivables Asset Trust Series 2007-SN2 Cl A2 01-15-10 5.34 1,131,067(d,g) 1,109,507 Citibank Credit Card Issuance Trust Series 2003-A9 Cl A9 11-22-10 2.89 455,000(g) 453,836 Citibank Credit Card Issuance Trust Series 2007-A1 Cl A1 03-22-12 3.19 1,000,000(g) 938,594 College Loan Corp Trust Series 2003-2 Cl A3 07-25-13 3.73 370,863(g) 367,966 College Loan Corp Trust Series 2004-1 Cl A2 04-25-16 3.64 1,596,091(g) 1,583,136 Countrywide Asset-backed Ctfs Series 2007-7 Cl 2A2 10-25-37 3.42 1,000,000(g) 784,063 Countrywide Home Equity Loan Trust Series 2005-H Cl 2A (FGIC) 12-15-35 4.80 179,349(e,g) 73,421 Ford Credit Floorplan Master Owner Trust Series 2006-3 Cl A 06-15-11 4.74 900,000(g) 868,738 Keycorp Student Loan Trust Series 2003-A Cl 2A2 (MBIA) 10-25-25 3.85 561,206(e,g) 535,163 Northstar Education Finance Series 2007-1 Cl A2 01-29-46 3.54 750,000(g) 708,516 Providian Master Note Trust Series 2006-A1A Cl A 01-15-13 4.59 1,000,000(d,g) 971,094 SLC Student Loan Trust Series 2006-A Cl A4 01-15-19 4.87 1,800,000(g) 1,712,530 SLM Student Loan Trust Series 2003-10A Cl A2 12-16-19 3.57 1,000,000(d,g) 999,219 SLM Student Loan Trust Series 2004-3 Cl A3 04-25-16 3.63 351,317(g) 350,632 SLM Student Loan Trust Series 2005-5 Cl A1 01-25-18 3.54 33,077(g) 33,021 SLM Student Loan Trust Series 2005-5 Cl A2 10-25-21 3.62 1,000,000(g) 933,281 SLM Student Loan Trust Series 2005-8 Cl A2 07-25-22 3.63 1,500,000(g) 1,439,866 SLM Student Loan Trust Series 2005-B Cl A1 12-16-19 2.86 430,007(g) 418,383 SLM Student Loan Trust Series 2006-2 Cl A2 01-25-17 3.54 58,526(g) 58,342 SLM Student Loan Trust Series 2006-5 Cl A2 07-25-17 3.53 480,366(g) 473,536 SLM Student Loan Trust Series 2006-A Cl A1 03-16-20 2.84 1,463,516(g) 1,426,045 SLM Student Loan Trust Series 2006-A Cl A2 12-15-20 2.90 2,000,000(g) 1,794,164 SLM Student Loan Trust Series 2006-C Cl A2 09-15-20 2.87 1,000,000(g) 946,719 SLM Student Loan Trust Series 2007-2 Cl A2 07-25-17 3.54 1,000,000(g) 900,469 --------------- Total 21,357,675 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 14 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) COMMERCIAL MORTGAGE-BACKED (0.8%)(F) Commercial Mtge Acceptance Series 1999-C1 Cl A2 06-15-31 7.03% $1,351,511 $1,345,789 GS Mtge Securities II Series 2007-EOP Cl A2 03-06-20 4.18 1,200,000(d,g) 1,018,931 GS Mtge Securities II Series 2007-EOP Cl A3 03-06-20 4.22 1,770,000(d,g) 1,502,196 JP Morgan Chase Commercial Mtge Securities Series 2005-LDP1 Cl A1 03-15-46 4.12 859,115 849,854 Morgan Stanley Dean Witter Capital I Series 2002-TOP7 Cl A1 01-15-39 5.38 1,189,450 1,167,921 --------------- Total 5,884,691 ------------------------------------------------------------------------------------- MORTGAGE-BACKED (0.2%)(F) Deutsche Bank Alternate Mtge Loan Trust Collateralized Mtge Obligation Series 2006-AR6 Cl A3 02-25-37 3.35 314,914(g) 307,890 Downey Savings & Loan Assn Mtge Loan Trust Collateralized Mtge Obligation Series 2006-AR2 Cl 2AB1 11-19-37 4.37 500,542(b) 369,406 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2006-12 Cl 2A11 01-19-38 4.37 518,075(b) 476,048 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2006-8 Cl 2A1B 08-21-36 4.43 948,226(b) 387,729 --------------- Total 1,541,073 ------------------------------------------------------------------------------------- AUTOMOTIVE (0.4%) American Honda Finance 02-05-10 3.19 2,500,000(d,g) 2,465,046 ------------------------------------------------------------------------------------- BANKING (1.2%) ANZ Natl Intl Bank Guaranteed 08-07-09 2.84 750,000(c,d,g) 748,917 Bank of America Sr Unsecured 02-17-09 2.96 640,000(g) 639,718 Bank of New York Mellon Sr Unsecured 02-05-10 3.19 3,000,000(g) 2,941,197 Citigroup Sr Unsecured 06-09-09 2.95 640,000(g) 619,416 Credit Suisse First Boston USA 12-09-08 2.94 640,000(g) 636,727 Rabobank Nederland Sr Nts 01-15-09 4.77 600,000(c,d,g) 601,512 US Bancorp Sr Unsecured 02-04-10 3.19 1,250,000(g) 1,240,048 Wachovia Mtge FSB Sr Unsecured 03-02-09 2.94 400,000(g) 393,689 --------------- Total 7,821,224 ------------------------------------------------------------------------------------- BROKERAGE (0.2%) Bear Stearns Companies Sr Unsecured 03-30-09 3.85 750,000(g) 745,926 Lehman Brothers Holdings Sr Unsecured 10-22-09 0.00 640,000(k,l) 75,200 Morgan Stanley Sr Unsecured 02-09-09 2.91 640,000(g) 633,832 --------------- Total 1,454,958 ------------------------------------------------------------------------------------- CONSTRUCTION MACHINERY (0.9%) Caterpillar Financial Services Sr Unsecured 02-08-10 3.25 2,000,000(g) 1,883,486 John Deere Capital Sr Unsecured 01-18-11 5.20 4,500,000(g) 4,143,259 --------------- Total 6,026,745 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 15 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ELECTRIC (0.4%) Dominion Resources Sr Unsecured Series B 11-14-08 2.98% $3,000,000(g) $2,999,292 ------------------------------------------------------------------------------------- FOOD AND BEVERAGE (0.2%) Diageo Capital 11-10-08 2.90 1,640,000(c,g) 1,639,970 ------------------------------------------------------------------------------------- HEALTH CARE (0.3%) Cardinal Health Sr Unsecured 10-02-09 4.32 2,080,000(g) 2,050,999 ------------------------------------------------------------------------------------- HEALTH CARE INSURANCE (0.3%) UnitedHealth Group Sr Unsecured 03-02-09 2.89 750,000(g) 745,169 06-21-10 3.38 1,500,000(g) 1,386,540 --------------- Total 2,131,709 ------------------------------------------------------------------------------------- INDEPENDENT ENERGY (0.4%) Anadarko Petroleum Sr Unsecured 09-15-09 3.22 3,000,000(g) 2,833,893 ------------------------------------------------------------------------------------- LIFE INSURANCE (0.4%) Lincoln Natl Sr Unsecured 04-06-09 4.32 2,275,000(g) 2,261,589 Pacific Life Global Funding 11-13-08 2.89 400,000(d,g) 400,001 Pricoa Global Funding I 12-15-09 2.87 400,000(d,g) 383,514 --------------- Total 3,045,104 ------------------------------------------------------------------------------------- MEDIA CABLE (0.4%) Comcast 07-14-09 5.12 2,920,000(g) 2,797,553 ------------------------------------------------------------------------------------- NON CAPTIVE DIVERSIFIED (0.1%) General Electric Capital Sr Unsecured 12-01-08 2.96 640,000(g) 638,961 ------------------------------------------------------------------------------------- RETAILERS (0.1%) Home Depot Sr Unsecured 12-16-09 2.94 750,000(g) 683,079 ------------------------------------------------------------------------------------- TRANSPORTATION SERVICES (0.1%) ERAC USA Finance 04-30-09 3.72 825,000(d,g) 763,271 ------------------------------------------------------------------------------------- WIRELINES (0.4%) Telefonica Emisiones 06-19-09 3.50 3,190,000(c,g) 3,071,948 ------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $73,242,396) $69,207,191 -------------------------------------------------------------------------------------
MONEY MARKET FUND (83.9%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 1.60% 582,511,480(h) $582,511,480 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $582,511,480) $582,511,480 -------------------------------------------------------------------------------------
SHORT-TERM SECURITIES (3.2%) AMOUNT EFFECTIVE PAYABLE AT ISSUER YIELD MATURITY VALUE(a) U.S. GOVERNMENT AGENCIES (2.9%) Federal Home Loan Bank Disc Nts 11-06-08 2.42% $10,000,000 $9,996,018 Federal Home Loan Mtge Corp Disc Nts 11-03-08 2.48 10,000,000 9,997,959 ----------- Total 19,993,977 ------------------------------------------------------------------------------------- ASSET-BACKED (0.3%) WhistleJacket Capital LLC 02-25-08 3.76 2,307,639(d,i,j,m) 1,913,033 ------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $22,303,477) $21,907,010 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $678,057,353)(n) $673,625,681 =====================================================================================
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 16 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- INVESTMENTS IN DERIVATIVES FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION -------------------------------------------------------------------------------------------- Nov. 5, 2008 245,650,000 148,806,282 $-- $(14,338,030) Australian Dollar U.S. Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 46,495,000 65,783,783 6,547,312 -- European Monetary Unit U.S. Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 5,167,000 6,437,193 -- (145,770) European Monetary Unit U.S. Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 659,589,000 105,119,450 7,145,563 -- Norwegian Krone U.S. Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 4,070,000 585,949 -- (18,600) Norwegian Krone U.S. Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 8,233,066 5,319,000 325,752 -- U.S. Dollar British Pound -------------------------------------------------------------------------------------------- Nov. 5, 2008 60,402,978 35,243,000 -- (3,693,368) U.S. Dollar British Pound -------------------------------------------------------------------------------------------- Nov. 5, 2008 82,322,956 106,141,000 5,761,230 -- U.S. Dollar Canadian Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 83,811,614 97,062,000 -- (3,261,898) U.S. Dollar Canadian Dollar -------------------------------------------------------------------------------------------- Nov. 5, 2008 101,112,656 114,284,000 -- (2,579,083) U.S. Dollar Swiss Franc -------------------------------------------------------------------------------------------- Total $19,779,857 $(24,036,749) --------------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Oct. 31, 2008. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. At Oct. 31, 2008, the value of foreign securities represented 0.9% of net assets. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Oct. 31, 2008, the value of these securities amounted to $14,353,675 or 2.1% of net assets. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (e) The following abbreviations are used in the portfolio security descriptions to identify the insurer of the issue: FGIC -- Financial Guaranty Insurance Company MBIA -- MBIA Insurance Corporation
(f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Oct. 31, 2008. (h) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (i) Denotes investments in structured investment vehicles ("SIVS"). See Note 7 to the financial statements. (j) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Oct. 31, 2008, is as follows:
ACQUISITION SECURITY DATES COST ---------------------------------------------------------------- WhistleJacket Capital LLC(*) 3.76% Commercial Paper 2008 03-23-07 $2,307,541
* Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. (k) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (l) On Sept. 15, 2008, Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. (m) Security valued by management at fair value according to procedures approved, in good faith, by the Board. (n) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $678,057,353 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1.886 Unrealized depreciation (4,433,558) ----------------------------------------------------------- Net unrealized depreciation $(4,431,672) -----------------------------------------------------------
-------------------------------------------------------------------------------- 18 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 19 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $95,545,873) $ 91,114,201 Affiliated money market fund (identified cost $582,511,480) 582,511,480 ------------------------------------------------------------------------------- Total investments in securities (identified cost $678,057,353) 673,625,681 Capital shares receivable 4,908,176 Dividends and accrued interest receivable 384,869 Receivable for investment securities sold 47,800,603 Unrealized appreciation on forward foreign currency contracts 19,779,857 ------------------------------------------------------------------------------- Total assets 746,499,186 ------------------------------------------------------------------------------- LIABILITIES Disbursements in excess of cash 22,294 Capital shares payable 3,426,762 Payable for investment securities purchased 24,431,150 Unrealized depreciation on forward foreign currency contracts 24,036,749 Accrued investment management services fees 16,730 Accrued distribution fees 3,586 Accrued transfer agency fees 2,159 Accrued administrative services fees 1,478 Other accrued expenses 97,212 ------------------------------------------------------------------------------- Total liabilities 52,038,120 ------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $694,461,066 ------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 696,549 Additional paid-in capital 694,398,595 Undistributed net investment income 24,074 Accumulated net realized gain (loss) 8,030,412 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (8,688,564) ------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $694,461,066 -------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $175,659,037 17,625,597 $9.97(1) Class B $ 3,268,605 328,166 $9.96 Class C $ 9,463,358 951,266 $9.95 Class I $202,106,353 20,252,851 $9.98 Class R4 $ 21,219 2,128 $9.97 Class R5 $ 9,399 942 $9.98 Class W $303,933,095 30,493,927 $9.97 -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $10.28. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 3.00%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 20 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED OCT. 31, 2008
INVESTMENT INCOME Income: Interest $ 5,327,568 Income distributions from affiliated money market fund 8,322,692 Less foreign taxes withheld (14,107) ------------------------------------------------------------------------------ Total income 13,636,153 ------------------------------------------------------------------------------ Expenses: Investment management services fees 4,188,137 Distribution fees Class A 268,339 Class B 11,267 Class C 58,825 Class W 368,846 Transfer agency fees Class A 108,179 Class B 1,247 Class C 6,122 Class R4 26 Class R5 4 Class W 295,077 Administrative services fees 373,454 Plan administration services fees -- Class R4 130 Compensation of board members 11,559 Custodian fees 15,235 Printing and postage 54,950 Registration fees 161,246 Professional fees 44,291 Other 27,474 ------------------------------------------------------------------------------ Total expenses 5,994,408 Expenses waived/reimbursed by the Investment Manager and its affiliates (130) Earnings and bank fee credits on cash balances (748) ------------------------------------------------------------------------------ Total net expenses 5,993,530 ------------------------------------------------------------------------------ Investment income (loss) -- net 7,642,623 ------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (2,060,002) Foreign currency transactions 10,255,723 ------------------------------------------------------------------------------ Net realized gain (loss) on investments 8,195,721 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (8,644,591) ------------------------------------------------------------------------------ Net gain (loss) on investments and foreign currencies (448,870) ------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $ 7,193,753 ------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 21 STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 7,642,623 $ 4,270,377 Net realized gain (loss) on investments 8,195,721 5,699,827 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (8,644,591) (119,494) ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 7,193,753 9,850,710 ----------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,692,140) (203,734) Class B (6,719) (336) Class C (44,738) (605) Class I (4,161,402) (4,073,834) Class R4 (1,188) (464) Class R5 (203) (35) Class W (1,798,725) (179) Net realized gain Class A (1,516,443) (98,464) Class B (355) (99) Class C (52,812) (99) Class I (4,183,105) (704,931) Class R4 (1,945) (99) Class R5 (334) -- Class W (175) (49) ----------------------------------------------------------------------------------------- Total distributions (13,460,284) (5,082,928) -----------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 22 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 218,918,102 $ 8,607,654 Class B shares 4,089,168 -- Class C shares 10,433,303 209,110 Class I shares 296,949,913 46,377,881 Class R4 shares 48,000 28,800 Class R5 shares -- 10,000 Class W shares 339,484,475 5,000 Reinvestment of distributions at net asset value Class A shares 3,137,018 20,454 Class B shares 6,562 -- Class C shares 87,221 261 Class I shares 8,343,932 4,778,225 Class R4 shares 2,560 44 Class W shares 1,650,890 -- Payments for redemptions Class A shares (53,765,268) (10,093,640) Class B shares (877,774) -- Class C shares (1,255,226) -- Class I shares (219,491,271) (1,818,898) Class R4 shares (64,521) -- Class W shares (38,075,600) -- ----------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 569,621,484 48,124,891 ----------------------------------------------------------------------------------------- Total increase (decrease) in net assets 563,354,953 52,892,673 Net assets at beginning of year 131,106,113 78,213,440 ----------------------------------------------------------------------------------------- Net assets at end of year $ 694,461,066 $131,106,113 ----------------------------------------------------------------------------------------- Undistributed net investment income $ 24,074 $ 86,566 -----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 23 FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.58 $10.09 $9.98 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .41(c) .12 Net gains (losses) (both realized and unrealized) (.22) .57 .11 ------------------------------------------------------------------------------------ Total from investment operations (.07) .98 .23 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.39) (.12) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.54) (.49) (.12) ------------------------------------------------------------------------------------ Net asset value, end of period $9.97 $10.58 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $176 $9 $10 ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.39% 1.36% 1.59%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.39% 1.36% 1.37%(f) ------------------------------------------------------------------------------------ Net investment income (loss) 1.50% 3.98% 3.89%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return(i) (.57%) 9.96%(j) 2.37%(k) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (k) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 24 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.58 $10.09 $9.97 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04(c) .34(c) .09 Net gains (losses) (both realized and unrealized) (.18) .59 .12 ------------------------------------------------------------------------------------ Total from investment operations (.14) .93 .21 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.34) (.09) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.48) (.44) (.09) ------------------------------------------------------------------------------------ Net asset value, end of period $9.96 $10.58 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $-- $-- ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 2.16% 2.10% 2.38%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 2.16% 2.10% 2.16%(f) ------------------------------------------------------------------------------------ Net investment income (loss) .38% 3.26% 3.11%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return(i) (1.35%) 9.38%(j) 2.16%(k) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (k) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 25 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.57 $10.09 $9.97 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06(c) .34(c) .09 Net gains (losses) (both realized and unrealized) (.20) .58 .12 ------------------------------------------------------------------------------------ Total from investment operations (.14) .92 .21 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.34) (.09) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.48) (.44) (.09) ------------------------------------------------------------------------------------ Net asset value, end of period $9.95 $10.57 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $9 $-- $-- ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 2.15% 2.12% 2.38%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 2.15% 2.12% 2.16%(f) ------------------------------------------------------------------------------------ Net investment income (loss) .66% 3.42% 3.11%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return(i) (1.31%) 9.37%(j) 2.16%(k) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (k) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.59 $10.10 $9.98 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(c) .44(c) .13 Net gains (losses) (both realized and unrealized) (.24) .59 .12 ------------------------------------------------------------------------------------ Total from investment operations (.03) 1.03 .25 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.44) (.13) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.58) (.54) (.13) ------------------------------------------------------------------------------------ Net asset value, end of period $9.98 $10.59 $10.10 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $202 $122 $68 ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.03% 1.07% 1.34%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.03% 1.07% 1.12%(f) ------------------------------------------------------------------------------------ Net investment income (loss) 2.10% 4.30% 4.37%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return (.25%) 10.49%(i) 2.56%(j) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 27 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.58 $10.09 $9.98 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(c) .42(c) .13 Net gains (losses) (both realized and unrealized) (.26) .59 .11 ------------------------------------------------------------------------------------ Total from investment operations (.04) 1.01 .24 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.42) (.13) Distributions from realized gains (.36) (.10) -- ------------------------------------------------------------------------------------ Total distributions (.57) (.52) (.13) ------------------------------------------------------------------------------------ Net asset value, end of period $9.97 $10.58 $10.09 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- ------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(d),(e) 1.34% 1.36% 1.45%(f) ------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(e),(g),(h) 1.09% 1.31% 1.23%(f) ------------------------------------------------------------------------------------ Net investment income (loss) 2.27% 4.13% 4.04%(f) ------------------------------------------------------------------------------------ Portfolio turnover rate 39% 36% 12% ------------------------------------------------------------------------------------ Total return (.26%) 10.27%(i) 2.42%(j) ------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 15, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct 31, 2008 2007(b) Net asset value, beginning of period $10.59 $10.58 ----------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .22 .02 Net gains (losses) (both realized and unrealized) (.26) .03 ----------------------------------------------------------------------- Total from investment operations (.04) .05 ----------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.04) Distributions from realized gains (.36) -- ----------------------------------------------------------------------- Total distributions (.57) (.04) ----------------------------------------------------------------------- Net asset value, end of period $9.98 $10.59 ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- ----------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.07% 1.06%(f) ----------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.07% 1.06%(f) ----------------------------------------------------------------------- Net investment income (loss) 2.23% 4.43%(f) ----------------------------------------------------------------------- Portfolio turnover rate 39% 36% ----------------------------------------------------------------------- Total return (.30%) .44%(i),(j) -----------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Oct. 18, 2007 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 29 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct 31, 2008 2007(b) Net asset value, beginning of period $10.58 $10.13 ----------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .11 .36 Net gains (losses) (both realized and unrealized) (.19) .55 ----------------------------------------------------------------------- Total from investment operations (.08) .91 ----------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.36) Distributions from realized gains (.36) (.10) ----------------------------------------------------------------------- Total distributions (.53) (.46) ----------------------------------------------------------------------- Net asset value, end of period $9.97 $10.58 ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $304 $-- ----------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.50% 1.54%(f) ----------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.50% 1.54%(f) ----------------------------------------------------------------------- Net investment income (loss) 1.09% 3.88%(f) ----------------------------------------------------------------------- Portfolio turnover rate 39% 36% ----------------------------------------------------------------------- Total return (.66%) 9.21%(i),(j) -----------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) During the year ended Oct. 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return figures would have been lower by 0.05%. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 30 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Absolute Return Currency and Income Fund (the Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in short-term debt obligations and forward foreign currency contracts. The Fund offers Class A, Class B, Class C, Class I, Class R4, Class R5 and Class W shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. Class B shares are currently closed to investors for new purchases. - Class I, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares, and the Investment Manager owned 100% of Class R5 shares. At Oct. 31, 2008, the Investment Manager and the RiverSource affiliated funds-of- funds owned approximately 29% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 31 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. ILLIQUID SECURITIES At Oct. 31, 2008, investments in securities included issues that are illiquid which the Fund currently limits to 15% of net assets, at market value, at the time of -------------------------------------------------------------------------------- 32 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- purchase. The aggregate value of such securities at Oct. 31, 2008 was $1,913,033 representing 0.28% of net assets. According to Board guidelines, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward- commitments. At Oct. 31, 2008, the Fund had no outstanding forward-commitments. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund will enter into forward foreign currency exchange contracts to produce incremental earnings. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. -------------------------------------------------------------------------------- 34 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of recognition of unrealized appreciation (depreciation) for certain derivative investments. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED OCT. 31, 2008 2007(*) ---------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income..................... $2,303,090 $ 243,304 Long-term capital gain.............. 905,493 58,894 CLASS B Distributions paid from: Ordinary income..................... 6,862 376 Long-term capital gain.............. 212 59 CLASS C Distributions paid from: Ordinary income..................... 66,015 645 Long-term capital gain.............. 31,535 59 CLASS I Distributions paid from: Ordinary income..................... 5,846,707 4,357,132 Long-term capital gain.............. 2,497,800 421,633 CLASS R4 Distributions paid from: Ordinary income..................... 1,971 504 Long-term capital gain.............. 1,162 59 CLASS R5 Distributions paid from: Ordinary income..................... 338 35 Long-term capital gain.............. 199 -- CLASS W Distributions paid from: Ordinary income..................... 1,798,796 199 Long-term capital gain.............. 104 29
* Class R5 is for the period from Oct. 18, 2007 (inception date) to Oct. 31, 2007. Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $ 1,050,555 Undistributed accumulated long-term gain....... $ 2,756,390 Accumulated realized loss...................... $ -- Unrealized appreciation (depreciation)......... $(4,441,023)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging -------------------------------------------------------------------------------- 36 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.89% to -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 0.70% annually as the Fund's assets increase. The management fee for the year ended Oct. 31, 2008 was 0.89% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended Oct. 31, 2008, there were no expenses incurred for these particular items. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 and Class R5 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. -------------------------------------------------------------------------------- 38 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class W shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $134,000 and $45,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $281,486 for Class A, $314 for Class B and $6,247 for Class C for the year ended Oct. 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class R4............................................ 1.09%
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4........................................... $130
Under an agreement which was effective until Oct. 31, 2008, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- such that net expenses (excluding fees and expenses of acquired funds*), would not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.47% Class B............................................. 2.23 Class C............................................. 2.22 Class I............................................. 1.17 Class R4............................................ 1.35 Class R5............................................ 1.22 Class W............................................. 1.62
Effective Nov. 1, 2008, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), will not exceed the following percentage of the Fund's average daily net assets: Class R4............................................ 1.35%
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended Oct. 31, 2008, the Fund's custodian and transfer agency fees were reduced by $748 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $54,980,317 and $28,832,380, respectively, for the year ended Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. -------------------------------------------------------------------------------- 40 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED OCT. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 21,957,179 315,740 (5,483,597) 16,789,322 Class B 416,595 671 (90,100) 327,166 Class C 1,050,240 8,774 (128,574) 930,440 Class I 30,071,137 837,081 (22,170,858) 8,737,360 Class R4 4,723 256 (6,584) (1,605) Class W 34,206,023 168,788 (3,881,378) 30,493,433 ---------------------------------------------------------------------------------- YEAR ENDED OCT. 31, 2007* ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 815,101 1,939 (976,765) (159,725) Class C 19,801 25 -- 19,826 Class I 4,483,439 462,890 (173,987) 4,772,342 Class R 2,729 4 -- 2,733 Class R5 942 -- -- 942 Class W 494 -- -- 494 ----------------------------------------------------------------------------------
* Class R5 is for the period from Oct. 18, 2007 (inception date) to Oct. 31, 2007. Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $1,033,652,214 and $511,047,214, respectively, for the year ended Oct. 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. INVESTMENTS IN STRUCTURED INVESTMENT VEHICLES In 2007 structured investment vehicles ("SIVs") generally experienced a significant decrease in liquidity as a result of the reduction in demand for asset-backed commercial paper as well as the lack of liquidity and overall volatility in the markets for the collateral underlying these investment structures. As of Oct. 31, 2008, the Fund's only remaining SIV position was WhistleJacket Capital LLC (WJC). As of Oct. 31, 2008, the Fund valued WJC at $1.9 million, representing 0.3% of the Fund's net assets. -------------------------------------------------------------------------------- 42 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- WJC breached a financial covenant on Feb. 11, 2008 relating to the market value of its underlying collateral, resulting in the occurrence of an "enforcement event." This resulted in the appointment of receivers on Feb. 12, 2008. On Feb. 15, 2008, the receivers declared WJC to be insolvent. The Fund's holding in WJC defaulted as of its Feb. 25, 2008 maturity date ($3 million). On Oct. 27, 2008, the Fund received a partial payment of $0.7 million from WJC, reducing the remaining WJC outstanding principal amount to $2.3 million. The receivers continue to develop a restructuring plan which will likely result in the Fund receiving less than full payment on its investment. Accordingly, this holding has been determined to be illiquid. As of Dec. 16, 2008 the remaining position of WJC has been fair valued at $1.9 million. With the exception of Cheyne Finance (Cheyne), all other SIVs held by the Fund during the year ended Oct. 31, 2008 have matured and all interest and principal payments were received on a timely basis as follows:
MATURITY PRINCIPAL DATE ($ IN MILLIONS) ------------------------------------------------------------------- Cullinan Finance 11/21/2007 $ 4 Sigma Finance 11/29/2007 3.5
On Aug. 28, 2007, Cheyne breached a financial covenant relating to the market value of its underlying collateral, resulting in the occurrence of an "enforcement event." This led to the appointment of receivers on Sept. 4, 2007. On Oct. 17, 2007, the receivers declared Cheyne to be insolvent. The Fund's holdings in Cheyne defaulted as of their respective maturity dates, Nov. 20, 2007 ($2 million) and Dec. 11, 2007 ($2 million). On April 17, 2008, the Fund received a partial payment from Cheyne of $0.7 million, reducing the Fund's total remaining outstanding principal to $3.3 million. On July 24, 2008, the Fund elected to receive cash in the amount of $1.8 million as one of the available options in accordance with the plan of liquidation of the Cheyne obligations. The resulting recognized loss of $1.5 million is reported in the Fund's Statement of Operations. 8. RISKS RELATING TO CERTAIN INVESTMENTS DIVERSIFICATION RISK The Fund is non-diversified. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. The Fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 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. 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. 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. 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of -------------------------------------------------------------------------------- 44 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. -------------------------------------------------------------------------------- 46 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. 10. SUBSEQUENT EVENT Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 47 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Absolute Return Currency and Income Fund (the Fund) (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the period presented through October 31, 2006, were audited by other auditors whose report dated December 20, 2006, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. -------------------------------------------------------------------------------- 48 RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Absolute Return Currency and Income Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- RIVERSOURCE ABSOLUTE RETURN CURRENCY AND INCOME FUND -- 2008 ANNUAL REPORT 49 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (81.4%)(c) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ARGENTINA (1.0%) Banco Hipotecario Sr Unsecured 04-27-16 9.75% 975,000(d) $292,500 Industrias Metalurgicas Pescarmona Sr Unsecured 10-22-14 11.25 1,750,000(d) 735,000 Republic of Argentina 09-12-13 7.00 1,000,000 220,000 Republic of Argentina Sr Unsecured 12-15-35 0.00 12,950,000(b) 518,000 ---------- Total 1,765,500 ------------------------------------------------------------------------------------------------ BRAZIL (14.3%) Banco Nacional de Desenvolvimento Economico e Social Sr Unsecured 06-16-18 6.37 6,350,000(d) 5,016,500 Bertin Ltda Sr Unsecured 10-05-16 10.25 580,000(d) 261,000 Federative Republic of Brazil 01-20-34 8.25 1,200,000 1,164,000 Federative Republic of Brazil Sr Unsecured 01-17-17 6.00 10,300,000 9,295,749 10-14-19 8.88 4,938,000 5,007,132 Marfrig Overseas 11-16-16 9.63 1,130,000(d) 542,400 Morgan Stanley (Brazilian Real) Sr Unsecured 05-03-17 10.09 4,850,000(d) 1,258,573 Nota do Tesouro Nacional (Brazilian Real) Series F 07-01-10 10.00 419,600 1,874,703 01-01-12 10.00 320,000 1,329,388 ---------- Total 25,749,445 ------------------------------------------------------------------------------------------------ CAYMAN ISLANDS (1.7%) EEB Intl 10-31-14 8.75 550,000(d) 550,000 Peru Enhanced Pass-Thru Sr Secured Zero Coupon 05-31-18 5.20 3,528,090(d,g) 1,764,045 TGI Intl 10-03-17 9.50 900,000(d) 693,000 ---------- Total 3,007,045 ------------------------------------------------------------------------------------------------ COLOMBIA (3.9%) Republic of Colombia 01-27-17 7.38 1,200,000 1,080,000 09-18-37 7.38 5,150,000 4,222,999 Republic of Colombia (Colombian Peso) 10-22-15 12.00 2,918,000,000 1,130,739 06-28-27 9.85 966,000,000 299,529 Santa Fe de Bogota (Colombian Peso) Sr Unsecured 07-26-28 9.75 1,377,000,000(d) 394,662 ---------- Total 7,127,929 ------------------------------------------------------------------------------------------------ DOMINICAN REPUBLIC (1.0%) Aes Dominicana Energia Finance 12-13-15 11.00 1,050,000(d) 525,000 Cerveceria Nacional Dominicana 03-27-12 16.00 1,450,000(d) 1,065,605 EGE Haina Finance 04-26-17 9.50 450,000(d) 225,000 ---------- Total 1,815,605 ------------------------------------------------------------------------------------------------ EL SALVADOR (1.2%) Republic of El Salvador 06-15-35 7.65 4,010,000(d) 2,125,300 ------------------------------------------------------------------------------------------------ GABON (0.4%) Republic of Gabonese 12-12-17 8.20 1,200,000(d) 780,000 ------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 16 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) INDONESIA (6.5%) Govt of Indonesia (Indonesian Rupiah) 10-15-14 11.00% 6,000,000,000 $425,032 07-15-17 10.00 20,000,000,000 1,218,183 09-15-19 11.50 9,000,000,000 573,562 07-15-22 10.25 25,200,000,000 1,407,568 Republic of Indonesia Sr Unsecured 01-17-18 6.88 2,350,000(d) 1,598,000 10-12-35 8.50 3,400,000(d) 2,278,000 02-17-37 6.63 1,950,000(d) 916,500 01-17-38 7.75 5,000,000(d) 3,250,000 ---------- Total 11,666,845 ------------------------------------------------------------------------------------------------ IRAQ (0.3%) Republic of Iraq 01-15-28 5.80 1,200,000(d) 600,000 ------------------------------------------------------------------------------------------------ KAZAKHSTAN (1.7%) Kazkommerts Intl 11-03-15 8.00 450,000(d) 193,500 KazMunaiGaz Finance 07-02-18 9.13 3,395,000(d) 2,235,446 Temir Capital for JSC TemirBank Bank Guaranteed 05-21-14 9.50 850,000(d) 665,396 ---------- Total 3,094,342 ------------------------------------------------------------------------------------------------ LUXEMBOURG (3.7%) Gaz Capital Secured 11-22-16 6.21 4,150,000(d) 2,573,000 08-16-37 7.29 3,450,000(d) 1,828,500 MHP Sr Secured 11-30-11 10.25 1,250,000(d) 987,500 TNK-BP Finance 07-18-16 7.50 400,000(d) 204,500 03-20-17 6.63 800,000(d) 377,000 03-13-18 7.88 1,525,000(d) 686,250 ---------- Total 6,656,750 ------------------------------------------------------------------------------------------------ MEXICO (10.1%) Controladora Comerical Mexicana (Mexican Peso) 03-30-27 8.70 31,700,000(d,j) 871,525 Mexican Fixed Rate Bonds (Mexican Peso) 12-20-12 9.00 11,600,000 920,978 12-18-14 9.50 29,500,000 2,375,213 Pemex Project Funding Master Trust 03-01-18 5.75 7,900,000(d) 6,162,000 06-15-35 6.63 6,104,000 4,547,425 06-15-38 6.63 1,500,000(d) 1,087,500 United Mexican States 12-30-19 8.13 1,000,000 1,015,000 Vitro 02-01-17 9.13 4,120,000 1,287,500 ---------- Total 18,267,141 ------------------------------------------------------------------------------------------------ NETHERLANDS (1.2%) Intergas Finance 05-14-17 6.38 300,000(d) 210,578 Majapahit Holding 10-17-16 7.75 1,600,000(d) 1,040,000 06-28-17 7.25 1,450,000(d) 797,500 06-29-37 7.88 200,000(d) 90,000 ---------- Total 2,138,078 ------------------------------------------------------------------------------------------------ PANAMA (1.3%) Republic of Panama Sr Unsecured 09-30-27 8.88 500,000 465,000 01-26-36 6.70 2,500,000 1,950,000 ---------- Total 2,415,000 ------------------------------------------------------------------------------------------------ PERU (3.4%) Banco de Credito del Peru Sub Nts 11-07-21 6.95 800,000(d,f) 513,197 Republic of Peru Sr Unsecured 02-06-15 9.88 1,800,000 1,881,000 03-14-37 6.55 5,500,000 3,795,000 ---------- Total 6,189,197 ------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) PHILIPPINE ISLANDS (3.3%) Natl Power 11-02-16 6.88% 900,000(d) $697,188 Republic of Philippines 01-15-16 8.00 1,950,000 1,813,500 01-15-19 9.88 750,000 806,250 10-21-24 9.50 921,000 884,160 01-14-31 7.75 1,906,000 1,753,520 ---------- Total 5,954,618 ------------------------------------------------------------------------------------------------ RUSSIA (5.7%) Alfa MTN Markets/ABH Financial 06-25-12 8.20 850,000(d) 399,500 Gazstream 07-22-13 5.63 602,066(d) 499,715 RSHB Capital for Russian Agricultural Bank Secured 05-29-18 7.75 500,000(d) 315,000 Russian Federation 03-31-30 7.50 6,527,780(d) 5,548,613 Russian Standard Finance Sr Secured 05-05-11 8.63 1,350,000(d) 445,500 TransCapitalInvest for Transneft Secured 08-07-18 8.70 5,100,000(d) 3,009,000 ---------- Total 10,217,328 ------------------------------------------------------------------------------------------------ TURKEY (9.1%) Republic of Turkey 03-15-15 7.25 2,000,000 1,640,000 04-03-18 6.75 5,000,000 3,700,000 03-11-19 7.00 3,100,000 2,201,000 06-05-20 7.00 3,000,000 2,280,000 02-05-25 7.38 400,000 312,000 02-14-34 8.00 720,000 568,800 03-17-36 6.88 7,900,000 5,372,000 03-05-38 7.25 600,000 414,000 ---------- Total 16,487,800 ------------------------------------------------------------------------------------------------ UKRAINE (0.3%) Credit Suisse First Boston Intl for Ex-Im Bank of Ukraine Secured 02-09-16 8.40 300,000 59,700 Govt of Ukraine 06-26-12 6.39 1,050,000(d) 525,000 ---------- Total 584,700 ------------------------------------------------------------------------------------------------ UNITED KINGDOM (0.9%) UK SPV Credit Finance for JSC Commercial Bank Privatbank Secured 02-06-12 8.00 700,000(d) 664,308 Vedanta Resources Sr Unsecured 07-18-18 9.50 2,300,000(d) 1,035,000 ---------- Total 1,699,308 ------------------------------------------------------------------------------------------------ URUGUAY (2.5%) Republic of Uruguay 05-17-17 9.25 2,000,000 1,680,000 Republic of Uruguay Pay-in-kind 01-15-33 7.88 500(e) 310 Republica Orient Uruguay (Uruguay Peso) 04-05-27 4.25 77,196,672(i) 1,717,134 06-26-37 3.70 15,756,049(i) 261,136 Republica Orient Uruguay Sr Unsecured 03-21-36 7.63 1,383,939 830,363 ---------- Total 4,488,943 ------------------------------------------------------------------------------------------------ VENEZUELA (7.9%) Petroleos de Venezuela 04-12-17 5.25 9,000,000 3,420,000 04-12-27 5.38 1,000,000 355,000 Republic of Venezuela 02-26-16 5.75 5,730,000 2,635,800 12-09-20 6.00 200,000 83,000 05-07-23 9.00 9,750,000 4,655,625 05-07-28 9.25 800,000 368,000 03-31-38 7.00 2,000,000 820,000
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 18 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) VENEZUELA (CONT.) Republic of Venezuela Sr Unsecured 10-08-14 8.50% 3,294,000 $1,844,640 01-13-34 9.38 231,000 117,810 ---------- Total 14,299,875 ------------------------------------------------------------------------------------------------ TOTAL BONDS (Cost: $215,582,469) $147,130,749 ------------------------------------------------------------------------------------------------
MONEY MARKET FUND (18.8%) ISSUER SHARES VALUE(a) RiverSource Short-Term Cash Fund, 1.60% 34,012,258(h) $34,012,258 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $34,012,258) $34,012,258 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $249,594,727)(k) $181,143,007 =====================================================================================
INVESTMENTS IN DERIVATIVES CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING AT OCT. 31, 2008
UNAMORTIZED REFERENCED BUY/SELL PAY/RECEIVE EXPIRATION NOTIONAL PREMIUM UNREALIZED COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT (PAID) RECEIVED DEPRECIATION ----------------------------------------------------------------------------------------------------------------------------- Merril Lynch CDX Emerging Sell 2.65% June 20, 2013 $12,000,000 $(59,919) $(1,602,045) Intl Markets Index ----------------------------------------------------------------------------------------------------------------------------- Barclays CDX Emerging Sell 2.65 June 20, 2013 3,000,000 -- (400,511) Markets Index ----------------------------------------------------------------------------------------------------------------------------- Total $(2,002,556) -----------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT OCT. 31, 2008
FUND FLOATING PAY/RECEIVE FIXED EXPIRATION NOTIONAL UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION --------------------------------------------------------------------------------------------------------- Credit Suisse Intl 3-month USD LIBOR Pay 4.1540% Aug. 4, 2013 $2,000,000 $38,117 --------------------------------------------------------------------------------------------------------- Merril Lynch Intl 3-month USD LIBOR Pay 4.1538 Aug. 12, 2013 10,000,000 185,405 --------------------------------------------------------------------------------------------------------- Merril Lynch Intl 3-month USD LIBOR Pay 4.0190 Sept. 2, 2013 3,000,000 33,584 --------------------------------------------------------------------------------------------------------- Total $257,106 ---------------------------------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) This is a variable rate security that entitles holders to receive only interest payments. Interest is paid annually. The interest payment is based on the Gross Domestic Product (GDP) level of the previous year for the respective country. To the extent that the previous year's GDP exceeds the 'base case GDP', an interest payment is made equal to 0.012225 of the difference. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Oct. 31, 2008, the value of these securities amounted to $58,533,301 or 32.4% of net assets. (e) Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (f) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Oct. 31, 2008. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (i) Inflation-indexed bonds are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (j) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (k) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $250,025,094 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $-- Unrealized depreciation (68,882,087) ------------------------------------------------------------ Net unrealized depreciation $(68,882,087) ------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 20 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $215,582,469) $147,130,749 Affiliated money market fund (identified cost $34,012,258) 34,012,258 ------------------------------------------------------------------------------- Total investments in securities (identified cost $249,594,727) 181,143,007 Foreign currency holdings (identified cost $70,507) 58,901 Capital shares receivable 617,194 Premiums paid on outstanding credit default swap contracts 59,919 Dividends and accrued interest receivable 3,667,009 Unrealized appreciation on swap contracts 257,106 Cash deposits and collateral held 3,520,000 ------------------------------------------------------------------------------- Total assets 189,323,136 ------------------------------------------------------------------------------- LIABILITIES Capital shares payable 1,590,438 Payable for investment securities purchased 4,551,266 Unrealized depreciation on swap contracts 2,002,556 Accrued investment management services fees 3,368 Accrued distribution fees 809 Accrued transfer agency fees 602 Accrued administrative services fees 374 Other accrued expenses 70,595 Collateral and deposits payable 380,000 ------------------------------------------------------------------------------- Total liabilities 8,600,008 ------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $180,723,128 ------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 256,347 Additional paid-in capital 251,547,092 Undistributed net investment income 2,028,313 Accumulated net realized gain (loss) (2,824,203) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (70,284,421) ------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $180,723,128 -------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $ 9,670,545 1,370,967 $7.05(1) Class B $ 1,178,353 167,178 $7.05 Class C $ 190,923 27,123 $7.04 Class I $ 65,282,310 9,254,282 $7.05 Class R4 $ 14,966 2,122 $7.05 Class W $104,386,031 14,813,074 $7.05 -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $7.40. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 21 STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED OCT. 31, 2008
INVESTMENT INCOME Income: Interest $ 12,320,522 Income distributions from affiliated money market fund 330,537 Less foreign taxes withheld (50,269) ------------------------------------------------------------------------------- Total income 12,600,790 ------------------------------------------------------------------------------- Expenses: Investment management services fees 1,182,004 Distribution fees Class A 21,289 Class B 14,432 Class C 2,267 Class W 125,465 Transfer agency fees Class A 20,957 Class B 3,829 Class C 581 Class R4 10 Class W 100,372 Administrative services fees 131,334 Plan administration services fees -- Class R4 48 Compensation of board members 3,835 Custodian fees 35,370 Printing and postage 24,980 Registration fees 65,187 Professional fees 35,070 Other 9,369 ------------------------------------------------------------------------------- Total expenses 1,776,399 Expenses waived/reimbursed by the Investment Manager and its affiliates (1,437) Earnings and bank fee credits on cash balances (250) ------------------------------------------------------------------------------- Total net expenses 1,774,712 ------------------------------------------------------------------------------- Investment income (loss) -- net 10,826,078 ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (1,784,409) Foreign currency transactions (52,384) Swap transactions (60,792) ------------------------------------------------------------------------------- Net realized gain (loss) on investments (1,897,585) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (75,049,499) ------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (76,947,084) ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(66,121,006) -------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 22 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 10,826,078 $ 6,058,237 Net realized gain (loss) on investments (1,897,585) 1,803,817 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (75,049,499) 2,593,776 --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (66,121,006) 10,455,830 --------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (513,077) (501,538) Class B (77,784) (32,727) Class C (12,305) (4,490) Class I (6,894,152) (4,198,103) Class R4 (1,280) (838) Class W (2,557,686) (1,049,016) Net realized gain Class A (47,559) (18,393) Class B (11,052) (880) Class C (1,687) (83) Class I (1,321,379) (59,853) Class R4 (167) (22) Class W (304,713) (8) --------------------------------------------------------------------------------------------- Total distributions (11,742,841) (5,865,951) ---------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 23 STATEMENTS OF CHANGES IN NET ASSETS (continued) --------------------------------
YEAR ENDED OCT. 31, 2008 2007 CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 11,877,937 $ 3,695,695 Class B shares 1,305,864 934,159 Class C shares 219,661 131,955 Class I shares 30,579,666 105,338,850 Class R4 shares 7,982 6,989 Class W shares 146,655,956 73,570,698 Reinvestment of distributions at net asset value Class A shares 534,907 167,200 Class B shares 77,569 28,622 Class C shares 11,620 3,686 Class I shares 8,214,784 4,257,340 Class R4 shares 692 273 Class W shares 2,862,056 1,048,760 Payments for redemptions Class A shares (3,149,341) (11,436,832) Class B shares (774,759) (358,088) Class C shares (117,014) (7,430) Class I shares (89,988,110) (13,150,244) Class R4 shares (2,694) (6,001) Class W shares (40,766,868) (37,405,273) --------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 67,549,908 126,820,359 --------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (10,313,939) 131,410,238 Net assets at beginning of year 191,037,067 59,626,829 --------------------------------------------------------------------------------------------- Net assets at end of year $180,723,128 $191,037,067 --------------------------------------------------------------------------------------------- Undistributed net investment income $ 2,028,313 $ 402,006 ---------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 24 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.57 $10.16 $9.98 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .61(c) .59(c) .33 Net gains (losses) (both realized and unrealized) (3.43) .39 .18 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.82) .98 .51 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.61) (.55) (.33) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.70) (.57) (.33) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.57 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $10 $5 $12 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.41% 1.33% 1.81%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.40% 1.33% 1.39%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.31% 5.61% 5.20%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return(i) (28.44%) 9.94% 5.25%(j) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 25 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.55 $10.16 $9.97 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .55(c) .52(c) .28 Net gains (losses) (both realized and unrealized) (3.42) .37 .19 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.87) .89 .47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.54) (.48) (.28) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.63) (.50) (.28) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.55 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.19% 2.13% 2.62%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 2.17% 2.13% 2.20%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 5.61% 4.90% 4.51%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return(i) (28.85%) 8.94% 4.80%(j) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.54 $10.15 $9.97 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .55(c) .53(c) .28 Net gains (losses) (both realized and unrealized) (3.42) .36 .18 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.87) .89 .46 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.54) (.48) (.28) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.63) (.50) (.28) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.04 $10.54 $10.15 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.18% 2.13% 2.61%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 2.16% 2.13% 2.19%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 5.64% 5.00% 4.46%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return(i) (28.88%) 8.94% 4.75%(j) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 27 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.57 $10.16 $9.98 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .69(c) .65(c) .35 Net gains (losses) (both realized and unrealized) (3.46) .38 .17 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.77) 1.03 .52 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.66) (.60) (.34) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.75) (.62) (.34) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.57 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $65 $147 $47 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .91% .93% 1.52%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .91% .93% 1.10%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.89% 6.14% 5.70%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return (28.08%) 10.38% 5.44%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006(b) Net asset value, beginning of period $10.56 $10.16 $9.98 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .67(c) .60(c) .34 Net gains (losses) (both realized and unrealized) (3.43) .39 .18 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.76) .99 .52 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.66) (.57) (.34) Distributions from realized gains (.09) (.02) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.75) (.59) (.34) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.56 $10.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.22% 1.24% 1.67%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .97% 1.24% 1.25%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.82% 5.75% 5.37%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% 32% -------------------------------------------------------------------------------------------------------------- Total return (27.98%) 9.97% 5.36%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to Oct. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 29 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $10.55 $10.24 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .56 .57 Net gains (losses) (both realized and unrealized) (3.36) .28 -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.80) .85 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.61) (.52) Distributions from realized gains (.09) (.02) -------------------------------------------------------------------------------------------------------------- Total distributions (.70) (.54) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.05 $10.55 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $104 $38 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.35% 1.33%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.35% 1.33%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.08% 5.86%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 82% 41% -------------------------------------------------------------------------------------------------------------- Total return (28.29%) 8.49%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 30 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Emerging Markets Bond Fund (the Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in fixed income securities of emerging market issuers. The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I and Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares. At Oct. 31, 2008, the Investment Manager and the RiverSource affiliated funds-of-funds owned approximately 36% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 31 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- -------------------------------------------------------------------------------- 32 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward- commitments. At Oct. 31, 2008, the Fund had no outstanding forward-commitments. The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to "roll over" its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain or loss. Losses may arise due to changes in the value of the securities or if a counterparty does not perform under the terms of the agreement. If a counterparty files for bankruptcy or becomes insolvent, the Fund's right to repurchase or sell securities may be limited. The Fund did not enter into any mortgage dollar roll transactions during the year ended Oct. 31, 2008. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Oct. 31, 2008, foreign currency holdings were entirely comprised of Mexican pesos. The Fund may enter into forward foreign currency contracts to produce incremental earnings, for operational purposes, or to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency -------------------------------------------------------------------------------- 34 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. At Oct. 31, 2008, the Fund had no outstanding forward foreign currency contracts. CREDIT DEFAULT SWAP TRANSACTIONS The Fund may enter into credit default swap contracts to increase or decrease its credit exposure to an issuer, obligation, portfolio, or index of issuers or obligations, to hedge its exposure on an obligation that it owns or in lieu of selling such obligations. As the purchaser of a credit default swap contract, the Fund purchases protection by paying a periodic interest rate on the notional amount to the counterparty. The interest amount is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as a realized loss upon payment. If the credit event specified in the contract occurs, the Fund will be required to deliver either the referenced obligation or an equivalent cash amount to the protection seller and in exchange the Fund will receive the notional amount from the seller. The difference between the value of the obligation delivered and the notional amount received will be recorded as a realized gain (loss). As the seller of a credit default swap contract, the Fund sells protection to a buyer and will generally receive a periodic interest rate on the notional amount. The interest amount is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as a realized gain upon receipt of the payment. If the credit event specified in the contract occurs, the Fund will receive the referenced obligation or an equivalent cash amount in exchange for the payment of the notional amount to the protection buyer. The difference between the value of the obligation received and the notional amount paid will be recorded as a realized gain (loss). As a protection seller, the maximum amount of the payment that may be made by the Fund may equal the notional amount (shown in the Credit Default Swap Contracts Outstanding table following the Portfolio of Investments), at par, of the underlying index or security as a result of the related credit event. The notional amounts of credit default swap contracts are not recorded in the financial statements. Any premium paid or received by the Fund upon entering into a credit default swap contract is recorded as an asset or liability and amortized daily as a component of realized gain (loss) on the Statement of Operations. Credit default swap contracts are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time a realized gain (loss) is recorded. Credit default swap contracts can involve greater risks than if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. The Fund will enter into credit default -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- swap agreements only with counterparties that meet certain standards of creditworthiness. INTEREST RATE SWAP TRANSACTIONS The Fund may enter into interest rate swap agreements to produce incremental earnings or to gain exposure to or protect themselves from market changes. Interest rate swaps are agreements between two parties that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future, based on a predetermined, specified notional amount. Certain interest rate swaps are considered forward-starting; whereby the accrual for the exchange of cash flows does not begin until a specified date in the future (the "effective date"). The net cash flow for a standard interest rate swap transaction is generally the difference between a floating market interest rate versus a fixed interest rate. The Fund may employ interest rate swaps to synthetically add or subtract principal exposure to the municipal market. Interest rate swaps are valued daily and unrealized appreciation (depreciation) is recorded. Certain interest rate swaps may accrue periodic interest on a daily basis as a component of unrealized appreciation (depreciation); the Fund will realize a gain or loss upon the payment or receipt of accrued interest. The Fund will realize a gain or a loss when the interest rate swap is terminated. Risks of entering into an interest rate swap include a lack of correlation between swaps and the portfolio of municipal bonds the swaps are designed to hedge or replicate. A lack of correlation may cause the interest rate swap to experience adverse changes in value relative to expectations. In addition, interest rate swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the interest rate swap positions entered. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. -------------------------------------------------------------------------------- 36 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of recognition of unrealized appreciation (depreciation) for certain derivative investments and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $856,513 and accumulated net realized loss has been increased by $856,513. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED OCT. 31, 2008 2007* ---------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income..................... $ 543,048 $ 519,931 Long-term capital gain.............. 17,588 -- CLASS B Distributions paid from: Ordinary income..................... 84,749 33,607 Long-term capital gain.............. 4,087 -- CLASS C Distributions paid from: Ordinary income..................... 13,368 4,573 Long-term capital gain.............. 624 -- CLASS I Distributions paid from: Ordinary income..................... 7,726,866 4,257,956 Long-term capital gain.............. 488,665 --
-------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
YEAR ENDED OCT. 31, 2008 2007* ---------------------------------------------------------------- CLASS R4 Distributions paid from: Ordinary income..................... $ 1,385 $ 860 Long-term capital gain.............. 62 -- CLASS W Distributions paid from: Ordinary income..................... 2,749,711 1,049,024 Long-term capital gain.............. 112,688 --
* Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $ 291,177 Undistributed accumulated long-term gain....... $ -- Accumulated realized loss...................... $ (2,399,388) Unrealized appreciation (depreciation)......... $(68,972,100)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. In addition, FASB Staff Position No. 133-1 and FIN No. 45-4 (FSP FAS 133-1 and FIN 45-4) was issued on Sept. 12, 2008 which amends SFAS 133 and FASB Interpretation No. 45 and provides additional clarification and disclosure related to the credit risk of derivative instruments and guarantees. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows and (d) the current status of the payment/ performance risk of the credit derivative. SFAS 161 and FSP FAS 133-1 and FIN 45-4 are effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 and FSP FAS 133-1 and FIN 45-4 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for -------------------------------------------------------------------------------- 38 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income, if any, is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.72% to 0.52% annually as the Fund's assets increase. The management fee for the year ended Oct. 31, 2008 was 0.72% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the year ended Oct. 31 2008, was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- administrative services to the Fund and the Board. For the year ended Oct. 31, 2008, other expenses paid to this company were $344. COMPENSATION OF BOARD MEMBERS Compensation of Board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares and an annual asset- based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class W shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. -------------------------------------------------------------------------------- 40 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $62,000 and $20,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $40,288 for Class A, $1,348 for Class B and $270 for Class C for the year ended Oct. 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), were as follows: Class A............................................. 1.40% Class B............................................. 2.17 Class C............................................. 2.16 Class R4............................................ 0.97
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A........................................... $1,135 Class B........................................... 212 Class C........................................... 42
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4............................................ $48
Under an agreement which was effective until Oct. 31, 2008, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) would not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.40% Class B............................................. 2.17 Class C............................................. 2.16 Class I............................................. 0.95 Class R4............................................ 1.25 Class W............................................. 1.40
-------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- Effective Nov. 1, 2008, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*) will not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.27% Class B............................................. 2.04 Class C............................................. 2.03 Class I............................................. 0.85 Class R4............................................ 1.15 Class W............................................. 1.30
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended Oct. 31, 2008, the Fund's custodian and transfer agency fees were reduced by $250 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $165,850,302 and $124,015,185, respectively, for the year ended Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. -------------------------------------------------------------------------------- 42 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED OCT. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 1,206,737 54,556 (332,734) 928,559 Class B 131,117 7,815 (80,424) 58,508 Class C 21,942 1,173 (12,061) 11,054 Class I 3,444,578 822,959 (8,936,995) (4,669,458) Class R4 781 70 (264) 587 Class W 15,118,235 298,553 (4,196,818) 11,219,970 ---------------------------------------------------------------------------------- YEAR ENDED OCT. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 355,415 16,082 (1,076,628) (705,131) Class B 90,068 2,759 (34,366) 58,461 Class C 12,620 355 (724) 12,251 Class I 10,129,478 409,766 (1,279,390) 9,259,854 Class R4 677 26 (583) 120 Class W* 7,065,923 101,109 (3,573,928) 3,593,104 ----------------------------------------------------------------------------------
* For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $155,177,157 and $128,862,438, respectively, for the year ended Oct. 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $2,399,388 at Oct. 31, 2008, that if not offset by capital gains will expire in 2016. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. -------------------------------------------------------------------------------- 44 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 8. RISKS RELATING TO CERTAIN INVESTMENTS DIVERSIFICATION RISK The Fund is non-diversified. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. The Fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. FOREIGN/EMERGING MARKETS RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of -------------------------------------------------------------------------------- 46 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 47 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 10. SUBSEQUENT EVENT Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. -------------------------------------------------------------------------------- 48 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE EMERGING MARKETS BOND FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Emerging Markets Bond Fund (the Fund) (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through October 31, 2006, were audited by other auditors whose report dated December 20, 2006, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. -------------------------------------------------------------------------------- RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT 49 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------ In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Emerging Markets Bond Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- 50 RIVERSOURCE EMERGING MARKETS BOND FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- RiverSource Global Bond Fund OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (97.0%)(c) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ARGENTINA (--%) Republic of Argentina 09-12-13 7.00% $748,000 $164,560 Republic of Argentina Sr Unsecured 12-15-35 0.00 2,900,000(e) 116,000 ----------- Total 280,560 ------------------------------------------------------------------------------------------------ AUSTRALIA (1.7%) Commonwealth Bank of Australia (European Monetary Unit) Sr Unsub 11-12-09 3.38 745,000 923,391 New South Wales Treasury (Australian Dollar) 05-01-12 6.00 8,145,000 5,498,132 Queensland Treasury (Australian Dollar) 07-14-09 6.00 5,790,000 3,865,930 Telstra Sr Unsecured 04-01-12 6.38 500,000 494,071 ----------- Total 10,781,524 ------------------------------------------------------------------------------------------------ AUSTRIA (1.5%) Republic of Austria (European Monetary Unit) 07-15-14 4.30 7,195,000 9,269,269 ------------------------------------------------------------------------------------------------ BELGIUM (1.6%) Fortis Bank (European Monetary Unit) Sr Unsecured 05-30-14 4.50 420,000 495,601 Kingdom of Belgium (European Monetary Unit) 03-28-10 3.00 4,090,000 5,217,894 09-28-12 5.00 3,235,000 4,319,719 ----------- Total 10,033,214 ------------------------------------------------------------------------------------------------ BRAZIL (0.8%) Banco Nacional de Desenvolvimento Economico e Social Sr Unsecured 06-16-18 6.37 635,000(d) 501,650 Federative Republic of Brazil 01-15-18 8.00 699,000 699,000 Federative Republic of Brazil (Brazilian Real) 01-05-16 12.50 1,750,000 705,514 Federative Republic of Brazil Sr Unsecured 01-17-17 6.00 307,000 277,068 Nota do Tesouro Nacional (Brazilian Real) Series F 07-01-10 10.00 629,000 2,810,268 ----------- Total 4,993,500 ------------------------------------------------------------------------------------------------ CANADA (4.7%) Canadian Natl Railway Sr Unsecured 05-15-18 5.55 390,000 339,277 Canadian Natural Resources Sr Unsecured 02-01-39 6.75 310,000 234,888 Canadian Pacific Railway (Canadian Dollar) 06-15-10 4.90 380,000(d) 312,209 EnCana Sr Unsecured 11-01-11 6.30 1,940,000 1,893,360
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 16 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) CANADA (CONT.) Govt of Canada (Canadian Dollar) 06-01-18 4.25% 2,655,000 $2,290,005 Molson Coors Capital Finance 09-22-10 4.85 $1,000,000 1,001,674 Nexen Sr Unsecured 05-15-37 6.40 1,970,000 1,343,698 Petro-Canada Sr Unsecured 05-15-38 6.80 2,680,000 1,804,393 Province of British Columbia (Canadian Dollar) 06-18-14 5.30 2,660,000 2,326,526 Province of Ontario (Canadian Dollar) 03-08-14 5.00 6,410,000 5,528,682 Province of Quebec (Canadian Dollar) 12-01-17 4.50 1,800,000 1,427,765 Rogers Communications 08-15-18 6.80 1,790,000 1,568,488 Royal Bank of Canada (European Monetary Unit) Sr Unsecured 01-18-13 3.25 300,000 340,886 TELUS Sr Unsecured 06-01-11 8.00 6,480,000 6,368,337 Thomson Reuters 10-01-14 5.70 2,465,000 2,151,198 07-15-18 6.50 150,000 126,116 Toronto-Dominion Bank (European Monetary Unit) Sr Unsecured 05-14-15 5.38 600,000 731,618 Videotron 04-15-18 9.13 130,000(d) 117,000 ----------- Total 29,906,120 ------------------------------------------------------------------------------------------------ COLOMBIA (0.1%) Republic of Colombia 01-27-17 7.38 380,000 342,000 09-18-37 7.38 460,000 377,200 ----------- Total 719,200 ------------------------------------------------------------------------------------------------ CZECH REPUBLIC (0.5%) Czech Republic (Czech Koruna) 10-18-10 2.55 25,260,000 1,299,876 06-16-13 3.70 36,500,000 1,860,917 ----------- Total 3,160,793 ------------------------------------------------------------------------------------------------ DENMARK (0.6%) Danske Bank (European Monetary Unit) 03-16-10 5.01 750,000(i) 937,822 Nykredit Realkredit (Danish Krone) 04-01-28 5.00 16,698,193 2,673,757 ----------- Total 3,611,579 ------------------------------------------------------------------------------------------------ FRANCE (4.2%) BNP Paribas (European Monetary Unit) Sr Sub Nts 12-17-12 5.25 555,000 698,731 Compagnie de Financement Foncier (European Monetary Unit) 01-29-09 2.38 950,000 1,203,885 Credit Agricole (European Monetary Unit) Sr Unsecured 06-24-13 6.00 550,000 711,626 Electricite de France (European Monetary Unit) Sr Unsecured 02-05-18 5.00 750,000 872,272 France Telecom (European Monetary Unit) Sr Unsecured 02-21-17 4.75 1,680,000 1,854,968
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) FRANCE (CONT.) Govt of France (European Monetary Unit) 04-25-12 5.00% 4,390,000 $5,904,285 04-25-13 4.00 9,620,000 12,513,373 10-25-16 5.00 1,730,000 2,331,705 Societe Generale (European Monetary Unit) Sr Unsecured 11-28-08 4.99 750,000(i) 955,188 ----------- Total 27,046,033 ------------------------------------------------------------------------------------------------ GERMANY (8.5%) Bayerische Landesbank (Japanese Yen) Sr Nts 04-22-13 1.40 300,000,000 3,079,031 Bundesobligation (European Monetary Unit) 04-13-12 4.00 4,000,000 5,246,131 Bundesrepublik Deutschland (European Monetary Unit) 07-04-10 5.25 5,590,000 7,415,510 07-04-27 6.50 7,750,000 12,153,748 07-04-28 4.75 3,200,000 4,134,198 07-04-34 4.75 7,035,000 9,238,553 Corealcredit Bank (European Monetary Unit) Series 501 09-02-09 5.00 1,800,000(d) 2,301,282 DEPFA Deutsche Pfandbriefbank (European Monetary Unit) Series G6 01-15-10 5.50 2,475,000 3,139,528 Deutsche Bank (European Monetary Unit) Sr Unsub 07-28-09 4.25 700,000 889,715 KfW (British Pound) 12-07-15 5.50 2,370,000 3,953,910 Rheinische Hypothekenbank (European Monetary Unit) Series 803 07-05-10 5.75 2,055,000(d) 2,701,342 ----------- Total 54,252,948 ------------------------------------------------------------------------------------------------ GREECE (0.8%) Hellenic Republic (European Monetary Unit) Sr Unsub 10-22-22 5.90 3,930,000 5,154,323 ------------------------------------------------------------------------------------------------ INDONESIA (0.4%) Govt of Indonesia (Indonesian Rupiah) 07-15-22 10.25 29,044,000,000 1,622,278 Republic of Indonesia Sr Unsecured 01-17-18 6.88 750,000(d) 510,000 10-12-35 8.50 190,000(d) 127,300 01-17-38 7.75 153,000(d) 99,450 ----------- Total 2,359,028 ------------------------------------------------------------------------------------------------ ITALY (3.5%) Buoni Poliennali Del Tesoro (European Monetary Unit) 01-15-10 3.00 4,965,000 6,304,270 08-01-15 3.75 1,800,000 2,190,613 02-01-19 4.25 2,020,000 2,402,917 11-01-26 7.25 3,186,283 4,913,994 11-01-27 6.50 1,325,000 1,898,648 Telecom Italia Capital 11-15-13 5.25 5,960,000 4,523,855 ----------- Total 22,234,297 ------------------------------------------------------------------------------------------------ JAPAN (12.6%) Development Bank of Japan (Japanese Yen) 06-20-12 1.40 662,000,000 6,807,571 Govt of Japan CPI Linked (Japanese Yen) 12-10-17 1.20 673,498,000(l) 5,773,589 03-10-18 1.40 681,736,000(l) 5,952,062
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 18 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) JAPAN (CONT.) Govt of Japan (Japanese Yen) 09-20-10 0.80% 572,000,000 $5,838,521 06-20-12 1.40 720,000,000 7,484,491 12-20-12 1.00 1,308,000,000 13,390,018 12-20-14 1.30 336,000,000 3,469,835 09-20-17 1.70 950,000,000 9,945,277 12-20-22 1.40 580,000,000 5,524,707 12-20-26 2.10 1,246,000,000 12,637,938 12-20-34 2.40 325,000,000 3,386,858 ----------- Total 80,210,867 ------------------------------------------------------------------------------------------------ JERSEY (0.4%) ASIF III Jersey (European Monetary Unit) Sr Secured 11-25-08 5.11 1,100,000(i) 1,273,280 ASIF III Jersey (Japanese Yen) Sr Secured 07-15-09 0.95 130,000,000 1,191,858 ----------- Total 2,465,138 ------------------------------------------------------------------------------------------------ LUXEMBOURG (0.3%) Gaz Capital Secured 08-16-37 7.29 230,000(d) 121,900 Tyco Electronics Group 01-15-14 5.95 2,005,000 1,825,512 ----------- Total 1,947,412 ------------------------------------------------------------------------------------------------ MALAYSIA (0.2%) Petronas Capital 05-22-12 7.00 1,500,000(d) 1,464,786 ------------------------------------------------------------------------------------------------ MEXICO (1.4%) Mexican Fixed Rate Bonds (Mexican Peso) 12-20-12 9.00 41,460,000 3,291,701 12-17-15 8.00 57,370,000 4,284,649 Pemex Project Funding Master Trust 03-01-18 5.75 917,000(d) 715,260 United Mexican States Sr Unsecured 09-27-34 6.75 270,000 224,100 Vitro 02-01-17 9.13 550,000 171,875 ----------- Total 8,687,585 ------------------------------------------------------------------------------------------------ NETHERLANDS (4.9%) Allianz Finance II (European Monetary Unit) 11-23-16 4.00 400,000 435,216 BMW Finance (European Monetary Unit) 01-22-14 4.25 1,175,000 1,231,790 Deutsche Telekom Intl Finance (European Monetary Unit) 01-19-15 4.00 1,835,000 2,062,683 E.ON Intl Finance (European Monetary Unit) 10-02-17 5.50 535,000 626,519 Govt of Netherlands (European Monetary Unit) 07-15-12 5.00 5,675,000 7,597,102 07-15-13 4.25 8,520,000 11,164,815 07-15-16 4.00 3,050,000 3,847,532 ING Groep (European Monetary Unit) Sr Unsecured 05-31-17 4.75 1,205,000 1,302,830 Rabobank Nederland (European Monetary Unit) Sr Unsub 04-04-12 4.13 1,000,000 1,267,449 Telefonica Europe 09-15-10 7.75 2,010,000 1,945,861 ----------- Total 31,481,797 ------------------------------------------------------------------------------------------------ NEW ZEALAND (0.7%) Govt of New Zealand (New Zealand Dollar) 04-15-13 6.50 7,070,000 4,214,946 ------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) NORWAY (0.9%) Govt of Norway (Norwegian Krone) 05-16-11 6.00% 36,500,000 $5,701,429 ------------------------------------------------------------------------------------------------ PHILIPPINE ISLANDS (0.1%) Republic of Philippines 01-15-16 8.00 100,000 93,000 01-15-19 9.88 150,000 161,250 01-14-31 7.75 440,000 404,800 ----------- Total 659,050 ------------------------------------------------------------------------------------------------ POLAND (1.6%) Govt of Poland (Polish Zloty) 03-24-10 5.75 27,730,000 9,910,266 ------------------------------------------------------------------------------------------------ RUSSIA (--%) Russian Federation 03-31-30 7.50 142,100(d) 120,785 ------------------------------------------------------------------------------------------------ SOUTH AFRICA (0.2%) Republic of South Africa (South African Rand) 08-31-10 13.00 14,107,500 1,523,458 ------------------------------------------------------------------------------------------------ SOUTH KOREA (0.3%) Korea Development Bank (Japanese Yen) 06-28-10 0.87 200,000,000 1,948,216 ------------------------------------------------------------------------------------------------ SPAIN (2.2%) AyT Cedulas Cajas Global (European Monetary Unit) 06-14-18 4.25 1,500,000 1,634,159 Caja de Ahorros y Monte de Piedad de Madrid (European Monetary Unit) 03-25-11 3.50 2,900,000 3,636,182 Govt of Spain (European Monetary Unit) 07-30-17 5.50 3,550,000 4,824,967 Instituto de Credito Oficial (European Monetary Unit) 06-30-09 3.50 1,400,000 1,769,461 Santander Intl Debt (European Monetary Unit) Bank Guaranteed 04-11-11 5.13 1,200,000 1,507,128 Telefonica Emisiones SAU (European Monetary Unit) 02-02-16 4.38 550,000 566,602 ----------- Total 13,938,499 ------------------------------------------------------------------------------------------------ SUPRA-NATIONAL (0.7%) European Investment Bank (British Pound) Sr Unsecured 12-07-08 6.25 385,000 620,881 12-07-11 5.50 2,480,000 4,111,772 ----------- Total 4,732,653 ------------------------------------------------------------------------------------------------ SWEDEN (0.7%) Govt of Sweden (Swedish Krona) 01-28-09 5.00 14,050,000 1,817,923 03-15-11 5.25 21,660,000 2,949,758 ----------- Total 4,767,681 ------------------------------------------------------------------------------------------------ SWITZERLAND (0.1%) UBS (European Monetary Unit) Sr Unsub 06-07-17 4.75 340,000 364,768 ------------------------------------------------------------------------------------------------ TUNISIA (0.3%) Banque Centrale de Tunisie (Japanese Yen) 08-02-10 3.30 190,000,000 1,981,996 ------------------------------------------------------------------------------------------------ TURKEY (0.1%) Republic of Turkey 04-03-18 6.75 354,000 261,960 03-17-36 6.88 540,000 367,200 ----------- Total 629,160 ------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 20 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UKRAINE (--%) Govt of Ukraine Sr Unsecured 11-14-17 6.75% 480,000(d) $195,953 ------------------------------------------------------------------------------------------------ UNITED KINGDOM (6.1%) Abbey Natl Treasury Services (European Monetary Unit) Bank Guaranteed 05-27-09 5.09 850,000(i) 1,078,531 Bank of Scotland (European Monetary Unit) 02-12-09 3.50 1,900,000 2,398,404 British Sky Broadcasting Group 02-15-18 6.10 2,800,000(d) 2,360,968 BT Group Sr Unsecured 12-15-10 8.63 550,000 543,417 SABMiller 01-15-14 5.70 1,275,000(d) 1,176,484 United Kingdom Treasury (British Pound) 03-07-12 5.00 6,950,000 11,666,971 09-07-14 5.00 7,805,000 13,161,415 09-07-15 4.75 1,370,000 2,265,605 03-07-18 5.00 2,645,000 4,407,220 ----------- Total 39,059,015 ------------------------------------------------------------------------------------------------ UNITED STATES (34.1%) Airgas 10-01-18 7.13 620,000(d) 502,200 Allied Waste North America Series B 04-15-14 7.38 275,000 244,750 Allied Waste North America Sr Secured 02-15-14 6.13 205,000 178,350 06-01-17 6.88 345,000 300,150 AmeriCredit Automobile Receivables Trust Series 2007-DF Cl A3A (FSA) 07-06-12 5.49 1,025,000(k) 971,988 Anadarko Petroleum Sr Unsecured 09-15-16 5.95 970,000 809,079 AT&T Sr Unsecured 01-15-38 6.30 3,655,000 2,817,949 Banc of America Commercial Mtge Series 2007-1 Cl A3 01-15-49 5.45 2,075,000(f) 1,642,504 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 319,615(f) 301,836 Bear Stearns Commercial Mtge Securities Series 2007-T26 Cl A4 01-12-45 5.47 1,050,000(f) 804,358 Brandywine Operating Partnership LP 05-01-17 5.70 315,000 183,403 California State Teachers' Retirement System Trust Series 2002-C6 Cl A3 11-20-14 4.46 1,760,986(d,f) 1,779,965 CenterPoint Energy Resources Sr Unsecured 02-15-11 7.75 1,230,000 1,156,434 Citigroup Commercial Mtge Trust Series 2006-C5 Cl A4 10-15-49 5.43 1,700,000(f) 1,294,437 Citigroup Mtge Loan Trust Collateralized Mtge Obligation Series 2005-7 Cl 2A3A 09-25-35 5.16 3,833,361(f,j) 2,902,116 Citigroup (European Monetary Unit) Sr Unsecured 05-21-10 3.88 590,000 709,276 Clorox Sr Unsecured 10-15-12 5.45 1,180,000 1,099,770 03-01-13 5.00 980,000 890,169 Colorado Interstate Gas Sr Unsecured 11-15-15 6.80 1,570,000 1,328,804 Comcast 03-15-11 5.50 1,945,000 1,866,042 03-15-37 6.45 2,460,000 1,889,205 05-15-38 6.40 695,000 525,110
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UNITED STATES (CONT.) Commercial Mtge Pass-Through Ctfs Series 2006-CN2A Cl BFL 02-05-19 4.36% $400,000(d,f,i)$360,155 Communications & Power Inds 02-01-12 8.00 15,000 12,600 Cott Beverages USA 12-15-11 8.00 280,000 182,000 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 756,457(f) 697,129 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-22R Cl 1A2 05-25-36 6.00 1,362,030(f) 1,235,574 Coventry Health Care Sr Unsecured 08-15-14 6.30 460,000 323,602 CPS Auto Trust Series 2007-A Cl A3 (MBIA) 09-15-11 5.04 849,999(d,k) 797,436 Credit Suisse Mtge Capital Ctfs Series 2007-C3 Cl A4 06-15-39 5.72 950,000(f) 715,932 Credit Suisse New York Sub Nts 02-15-18 6.00 590,000 452,945 Crown Americas LLC/Capital 11-15-15 7.75 160,000 139,600 CS First Boston Mtge Securities Series 2003-CPN1 Cl A2 03-15-35 4.60 600,000(f) 520,493 CS First Boston Mtge Securities Series 2004-C2 Cl A1 05-15-36 3.82 962,298(f) 886,850 CSC Holdings Sr Unsecured Series B 07-15-09 8.13 926,000 886,645 CSX Sr Unsecured 03-15-13 5.75 2,295,000 2,067,136 04-01-15 6.25 1,000,000 855,018 Detroit Edison 10-01-13 6.40 1,220,000 1,211,426 DIRECTV Holdings LLC/Financing 05-15-16 7.63 765,000(d) 640,688 Dr Pepper Snapple Group Sr Nts 05-01-18 6.82 590,000(d) 516,561 Duke Energy Carolinas LLC 1st Refunding Mtge 10-01-15 5.30 725,000 666,442 Duke Energy Indiana 1st Mtge 08-15-38 6.35 940,000 795,592 Dunkin Securitization Series 2006-1 Cl A2 (AMBAC) 06-20-31 5.78 1,600,000(d,k) 1,344,673 EchoStar DBS 10-01-13 7.00 40,000 33,200 10-01-14 6.63 740,000 593,850 02-01-16 7.13 255,000 204,638 Edison Mission Energy Sr Unsecured 06-15-13 7.50 175,000 147,438 Erac USA Finance 10-15-17 6.38 2,395,000(d) 1,671,234 ERP Operating LP Sr Unsecured 06-15-17 5.75 485,000 330,559 Exelon Sr Unsecured 06-15-10 4.45 1,000,000 947,200 Federal Home Loan Mtge Corp #A11799 08-01-33 6.50 197,473(f) 201,126 Federal Home Loan Mtge Corp #A15881 11-01-33 5.00 1,113,425(f) 1,055,602 Federal Home Loan Mtge Corp #E91486 09-01-17 6.50 175,921(f) 180,424 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 514,836(f) 507,545 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 1,311,193(f) 1,319,403
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 22 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UNITED STATES (CONT.) Federal Natl Mtge Assn 10-15-14 4.63% $4,630,000 $4,665,582 11-15-30 6.63 2,950,000 3,334,013 Federal Natl Mtge Assn #254686 04-01-18 5.50 1,201,674(f) 1,204,963 Federal Natl Mtge Assn #254722 05-01-18 5.50 626,088(f) 627,802 Federal Natl Mtge Assn #357850 07-01-35 5.50 2,934,184(f,q) 2,869,846 Federal Natl Mtge Assn #360800 01-01-09 5.74 1,105,636(f) 1,105,721 Federal Natl Mtge Assn #545874 08-01-32 6.50 204,385(f) 209,948 Federal Natl Mtge Assn #555528 04-01-33 6.00 936,609(f) 939,780 Federal Natl Mtge Assn #555734 07-01-23 5.00 804,146(f) 772,895 Federal Natl Mtge Assn #555740 08-01-18 4.50 1,113,683(f) 1,071,528 Federal Natl Mtge Assn #555851 01-01-33 6.50 1,074,161(f) 1,097,725 Federal Natl Mtge Assn #575487 04-01-17 6.50 500,357(f) 522,394 Federal Natl Mtge Assn #621581 12-01-31 6.50 247,988(f) 254,014 Federal Natl Mtge Assn #633966 03-01-17 6.00 113,024(f) 114,323 Federal Natl Mtge Assn #634749 03-01-17 5.50 549,422(f) 552,890 Federal Natl Mtge Assn #640996 05-01-32 7.50 434,338(f) 459,958 Federal Natl Mtge Assn #643381 06-01-17 6.00 277,896(f) 281,088 Federal Natl Mtge Assn #645053 05-01-32 7.00 716,563(f) 741,773 Federal Natl Mtge Assn #646147 06-01-32 7.00 326,565(f) 340,126 Federal Natl Mtge Assn #652284 08-01-32 6.50 317,233(f) 323,697 Federal Natl Mtge Assn #653145 07-01-17 6.00 188,436(f) 191,277 Federal Natl Mtge Assn #653730 09-01-32 6.50 163,319(f) 167,584 Federal Natl Mtge Assn #655589 08-01-32 6.50 1,270,997(f) 1,305,709 Federal Natl Mtge Assn #666424 08-01-32 6.50 233,771(f) 238,534 Federal Natl Mtge Assn #670461 11-01-32 7.50 167,138(f) 176,997 Federal Natl Mtge Assn #677333 01-01-33 6.00 3,632,866(f) 3,645,165 Federal Natl Mtge Assn #688034 03-01-33 5.50 438,665(f) 430,433 Federal Natl Mtge Assn #688691 03-01-33 5.50 707,879(f) 693,242 Federal Natl Mtge Assn #711503 06-01-33 5.50 898,965(f) 883,737 Federal Natl Mtge Assn #725594 07-01-34 5.50 3,927,577(f,q) 3,843,911 Federal Natl Mtge Assn #735029 09-01-13 5.32 625,000(f) 624,681 Federal Natl Mtge Assn #741850 09-01-33 5.50 1,660,852(f) 1,626,510 Federal Natl Mtge Assn #753507 12-01-18 5.00 1,955,206(f) 1,929,132 Federal Natl Mtge Assn #755498 11-01-18 5.50 917,286(f) 920,652 Federal Natl Mtge Assn #756236 01-01-34 6.00 3,457,212(f,q) 3,477,063 Federal Natl Mtge Assn #756788 11-01-33 6.50 216,449(f) 220,700 Federal Natl Mtge Assn #759336 01-01-34 6.00 3,416,984(f) 3,436,631 Federal Natl Mtge Assn #765946 02-01-34 5.50 3,483,269(f) 3,411,245 Federal Natl Mtge Assn #845229 11-01-35 5.50 1,556,934(f) 1,522,795 Federal Natl Mtge Assn #869867 04-01-21 5.50 1,405,623(f) 1,402,882 Federal Natl Mtge Assn #886292 07-01-36 7.00 3,206,677(f) 3,314,413 Federal Natl Mtge Assn #897248 11-01-36 6.00 4,045,921(f) 4,046,343
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UNITED STATES (CONT.) Federal Natl Mtge Assn #928019 01-01-37 5.50% $2,069,358(f) $2,023,013 FedEx 04-01-09 3.50 720,000 708,343 Frontier Communications Sr Unsecured 01-15-13 6.25 405,000 335,138 General Electric Capital Assurance Series 2003-1 Cl A4 05-12-35 5.25 450,000(d,f) 403,354 General Electric Capital (British Pound) Sr Unsecured 12-15-08 4.50 380,000 609,044 General Electric Capital (New Zealand Dollar) Sr Unsecured 02-04-10 6.63 3,450,000 1,858,115 Genworth Financial Assurance Holdings (Japanese Yen) Sr Unsecured 06-20-11 1.60 198,000,000 1,218,725 Govt Natl Mtge Assn #604708 10-15-33 5.50 887,155(f) 872,254 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-80 Cl CI 01-20-32 82.03 466,524(f,m) 24,337 Greenwich Capital Commercial Funding Series 2004-GG1 Cl A5 06-10-36 4.88 500,000(f) 467,476 GS Mtge Securities II Series 2007-EOP Cl J 03-06-20 4.89 1,250,000(d,f,i) 971,050 GS Mtge Securities II Series 2007-GG10 Cl F 08-10-45 5.80 775,000(f) 289,898 GSR Mtge Loan Trust Collateralized Mtge Obligation Series 2004-10F Cl 6A1 09-25-34 5.00 4,157,788(f) 3,523,726 Halliburton Sr Unsecured 09-15-38 6.70 630,000 533,211 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2004-1 Cl A4 04-19-34 4.79 2,248,243(f,j) 1,872,045 HJ Heinz Sr Unsecured 12-01-08 6.43 605,000(d) 605,467 Indiana Michigan Power Sr Unsecured 03-15-37 6.05 850,000 581,119 INVISTA Sr Unsecured 05-01-12 9.25 950,000(d) 802,750 JPMorgan Chase Commercial Mtge Securities Series 2003-LN1 Cl A1 10-15-37 4.13 225,005(f) 203,431 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A1 03-12-39 3.97 155,697(f) 141,302 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A2 03-12-39 4.77 1,200,000(f) 1,042,409 JPMorgan Chase Commercial Mtge Securities Series 2005-LDP4 Cl AM 10-15-42 5.00 2,425,000(f) 1,731,207 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP6 Cl A4 04-15-43 5.48 825,000(f) 637,956 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl A4 02-12-51 5.79 3,037,000(f) 2,255,848 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl E 02-12-51 6.20 675,000(d,f) 263,295 Kohl's Sr Unsecured 12-15-17 6.25 775,000 610,391 Kraft Foods Sr Unsecured 01-26-39 6.88 1,440,000 1,127,136
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 24 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UNITED STATES (CONT.) Lamar Media Sr Unsecured 08-15-15 6.63% $145,000 $106,575 LB-UBS Commercial Mtge Trust Series 2004-C2 Cl A3 03-15-29 3.97 750,000(f) 676,729 LB-UBS Commercial Mtge Trust Series 2006-C4 Cl AAB 06-15-32 5.86 750,000(f) 621,787 LB-UBS Commercial Mtge Trust Series 2006-C6 Cl A4 09-15-39 5.37 800,000(f) 613,566 LB-UBS Commercial Mtge Trust Series 2007-C1 Cl A4 02-15-40 5.42 850,000(f) 635,357 LB-UBS Commercial Mtge Trust Series 2007-C7 Cl A3 09-15-45 5.87 1,650,000(f) 1,251,070 LB-UBS Commercial Mtge Trust Series 2008-C1 Cl A2 04-15-41 6.15 1,000,000(f) 733,203 Lehman Brothers Holdings Sr Unsecured 05-02-18 6.88 1,320,000(b,s) 171,600 Liberty Media LLC Sr Unsecured 05-15-13 5.70 170,000 118,223 Macys Retail Holdings 07-15-09 4.80 725,000 685,926 Manufacturers & Traders Trust Sub Nts 12-01-21 5.63 1,500,000 1,068,481 Marathon Oil Sr Unsecured 03-15-18 5.90 1,870,000 1,451,697 Merrill Lynch & Co 04-25-18 6.88 660,000 588,461 Metropolitan Life Global Funding I Sr Secured 04-10-13 5.13 765,000(d) 703,698 Moog Sr Sub Nts 06-15-18 7.25 210,000(d) 168,000 Morgan Guaranty Trust (European Monetary Unit) Sr Unsecured 03-12-09 4.38 1,580,000 2,009,862 Morgan Stanley Capital I Series 2003-T11 Cl A2 06-13-41 4.34 306,457(f) 297,913 Morgan Stanley Capital I Series 2004-HQ4 Cl A5 04-14-40 4.59 750,000(f) 680,039 Morgan Stanley Capital I Series 2006-T23 Cl AAB 08-12-41 5.80 575,000(f) 480,857 NALCO 11-15-11 7.75 255,000 232,050 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-3 Cl AIO 01-25-12 5.88 2,400,000(m) 459,374 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-2 Cl AIO 07-25-12 50.00 1,050,000(m) 90,510 Neiman Marcus Group Pay-in-kind 10-15-15 9.00 75,000(h) 51,375 NewPage Sr Secured 05-01-12 10.00 380,000 258,400 News America 12-15-35 6.40 535,000 404,960 11-15-37 6.65 895,000 708,892 Nextel Communications Series D 08-01-15 7.38 1,135,000 624,250 Nextel Communications Series E 10-31-13 6.88 70,000 39,900
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 25 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UNITED STATES (CONT.) Norfolk Southern Sr Unsecured 04-01-18 5.75% $180,000 $154,938 Northwest Pipeline Sr Unsecured 04-15-17 5.95 1,070,000 873,244 NRG Energy 02-01-16 7.38 875,000 754,688 Omnicare 12-15-13 6.75 455,000 377,650 12-15-15 6.88 60,000 46,200 Owens-Brockway Glass Container 05-15-13 8.25 965,000 902,275 Pacific Gas & Electric Sr Unsecured 10-15-18 8.25 855,000 871,301 PacifiCorp 1st Mtge 09-15-13 5.45 505,000 479,770 07-15-38 6.35 1,350,000 1,122,446 PPL Electric Utilities 1st Mtge 11-30-13 7.13 1,650,000 1,681,374 Pricoa Global Funding I Sr Secured 10-18-12 5.40 1,310,000(d) 1,165,042 Principal Life Income Funding Trusts Sr Secured 12-14-12 5.30 1,370,000 1,315,995 Quicksilver Resources 08-01-15 8.25 870,000 600,300 Qwest Sr Unsecured 10-01-14 7.50 175,000 134,750 Renaissance Home Equity Loan Trust Series 2005-4 Cl A3 02-25-36 5.57 605,430 587,671 RR Donnelley & Sons Sr Unsecured 01-15-17 6.13 2,940,000 2,080,481 SandRidge Energy Sr Unsecured 06-01-18 8.00 370,000(d) 251,600 Sierra Pacific Power Series M 05-15-16 6.00 2,935,000 2,463,263 Smurfit-Stone Container Enterprises Sr Unsecured 03-15-17 8.00 120,000 58,800 Southern California Edison 1st Mtge 03-15-14 5.75 415,000 408,977 Southern Natural Gas Sr Unsecured 04-01-17 5.90 2,290,000(d) 1,766,130 Structured Asset Securities Collateralized Mtge Obligation Series 2003-33H Cl 1A1 10-25-33 5.50 2,807,525(f) 2,326,956 Transcontinental Gas Pipe Line Sr Unsecured 04-15-16 6.40 3,590,000 3,094,149 U.S. Treasury 09-30-13 3.13 5,650,000 5,741,813 08-15-18 4.00 5,610,000 5,617,450 02-15-38 4.38 5,000 5,015 U.S. Treasury Inflation-Indexed Bond 01-15-14 2.00 10,500,702(l) 9,617,594 01-15-15 1.63 3,442,560(l) 3,012,946 UnitedHealth Group Sr Unsecured 11-15-37 6.63 267,000 184,377 02-15-38 6.88 790,000 558,412 Verizon Communications 04-15-38 6.90 920,000 773,065 Verizon New York Sr Unsecured Series A 04-01-12 6.88 2,380,000 2,249,520 Verizon Pennsylvania Sr Unsecured Series A 11-15-11 5.65 970,000 912,907
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 26 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) UNITED STATES (CONT.) Wachovia Bank Commercial Mtge Trust Series 2003-C8 Cl A2 11-15-35 3.89% $833,634(f) $831,147 Wachovia Bank Commercial Mtge Trust Series 2005-C20 Cl A5 07-15-42 5.09 800,000(f) 719,537 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl APB 03-15-45 5.58 500,000(f) 426,658 Wachovia Bank Commercial Mtge Trust Series 2006-C27 Cl APB 07-15-45 5.73 900,000(f) 762,517 Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl AM 11-15-48 5.34 3,860,000(f) 2,446,729 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-14 Cl 2A1 12-25-35 5.50 4,319,399(f) 3,666,427 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-15 Cl A1 11-25-37 6.00 3,616,839(f) 2,930,063 Windstream 08-01-16 8.63 365,000 275,575 03-15-19 7.00 40,000 24,400 Wisconsin Electric Power Sr Unsecured 04-01-14 6.00 470,000 472,807 Wynn Las Vegas LLC/Capital 1st Mtge 12-01-14 6.63 185,000 136,438 XTO Energy Sr Unsecured 02-01-14 4.90 2,225,000 1,868,998 01-31-15 5.00 720,000 588,217 06-30-15 5.30 1,880,000 1,538,592 ----------- Total 216,222,312 ------------------------------------------------------------------------------------------------ URUGUAY (0.1%) Republic of Uruguay Pay-in-kind 01-15-33 7.88 102,000(h) 63,240 Republica Orient Uruguay Sr Unsecured 03-21-36 7.63 825,000 495,000 ----------- Total 558,240 ------------------------------------------------------------------------------------------------ VENEZUELA (0.1%) Petroleos de Venezuela 04-12-17 5.25 770,000 292,600 Republic of Venezuela 02-26-16 5.75 290,000 133,400 05-07-23 9.00 596,000 284,590 Republic of Venezuela Sr Unsecured 10-08-14 8.50 160,000 89,600 ----------- Total 800,190 ------------------------------------------------------------------------------------------------ TOTAL BONDS (Cost: $679,903,490) $617,388,590 ------------------------------------------------------------------------------------------------ MUNICIPAL BONDS (0.1%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE RATE AMOUNT VALUE(a) UNITED STATES Tobacco Settlement Financing Corporation Revenue Bonds Series 2007A-1 06-01-46 6.71% $1,130,000 $863,614 ------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (Cost: $1,129,887) $863,614 ------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 27 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
SENIOR LOANS (0.6%)(n) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(a) NETHERLANDS (0.1%) Nielsen Finance Term Loan TBD TBD $135,000(c,g,p) $96,187 08-09-13 4.80% 723,880(c) 515,764 ----------- Total 611,951 ------------------------------------------------------------------------------------------------ UNITED STATES (0.5%) Alltel Communications Tranche B2 Term Loan TBD TBD 340,000(g,p) 322,789 Charter Communications Term Loan 09-06-14 4.80 1,230,405 908,790 Community Health Systems Delayed Draw Term Loan TBD TBD 21,702(g,o,p) 17,524 Community Health Systems Term Loan 07-25-14 5.06-5.97 424,328 342,645 HCA Tranche B Term Loan 11-17-13 6.01 651,053 537,001 Idearc Tranche B Term Loan 11-17-14 5.12-5.77 404,809 167,996 Manitowoc Tranche B Term Loan TBD TBD 370,000(g,p) 289,525 West Corp Tranche B2 Term Loan TBD TBD 485,000(g,p) 308,581 10-24-13 5.38-5.65 235,809 150,034 ----------- Total 3,044,885 ------------------------------------------------------------------------------------------------ TOTAL SENIOR LOANS (Cost: $4,671,929) $3,656,836 ------------------------------------------------------------------------------------------------
MONEY MARKET FUND (1.1%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 1.60% 6,923,103(r) $6,923,103 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $6,923,103) $6,923,103 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $692,628,409)(t) $628,832,143 =====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT OCT. 31, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION/ CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION) ------------------------------------------------------------------------------------- Euro-Bobl, 5-year 10 $1,429,795 Dec. 2008 $41,565 Euro-Bund, 10-year 85 12,555,041 Dec. 2008 128,353 Japanese Govt Bond, 10- year 10 14,010,610 Dec. 2008 (14,523) United Kingdom Long GILT, 10-year 19 3,402,668 Dec. 2008 (18,310) U.S. Long Bond, 20-year 12 1,357,500 Dec. 2008 (44,424) U.S. Treasury Note, 5- year (88) (9,966,687) Jan. 2009 (14,758) U.S. Treasury Note, 10- year (158) (17,866,345) Dec. 2008 400,316 ------------------------------------------------------------------------------------- Total $478,219 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 28 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008
CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED EXCHANGE DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION --------------------------------------------------------------------------------------------- Nov. 4, 2008 1,883,807 1,282,873 $31,648 $-- Australian Dollar U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 3,389,935 5,580,172 125,090 -- British Pound U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 1,881,367 1,543,749 -- (17,616) Canadian Dollar U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 7,856,693 414,383 -- (3,927) Czech Koruna U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 2,021,513 350,835 4,828 -- Danish Krone U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 17,644,146 22,798,001 317,602 -- European Monetary Unit U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 1,020,937,781 10,361,695 -- (4,998) Japanese Yen U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 1,442,306 852,403 12,981 -- New Zealand Dollar U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 5,166,115 780,026 12,573 -- Norwegian Krone U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 3,763,085 1,349,260 -- (14,449) Polish Zloty U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 4, 2008 5,104,645 671,266 13,082 -- Swedish Krona U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 7, 2008 2,566,210 1,450,000 -- (233,291) U.S. Dollar British Pound --------------------------------------------------------------------------------------------- Nov. 20, 2008 30,844,794 3,140,000,000 1,053,301 -- U.S. Dollar Japanese Yen --------------------------------------------------------------------------------------------- Nov. 24, 2008 3,467,000 4,534,836 121,692 -- European Monetary Unit U.S. Dollar --------------------------------------------------------------------------------------------- Nov. 25, 2008 2,366,624 3,500,000 -- (4,982) U.S. Dollar Singapore Dollar --------------------------------------------------------------------------------------------- Dec. 4, 2008 672,830 1,220,000 34,892 -- U.S. Dollar New Zealand Dollar --------------------------------------------------------------------------------------------- Dec. 8, 2008 62,165,000 3,273,565 -- (23,607) Czech Koruna U.S. Dollar --------------------------------------------------------------------------------------------- Dec. 9, 2008 20,230,000 7,174,013 -- (104,536) Polish Zloty U.S. Dollar --------------------------------------------------------------------------------------------- Total $1,727,689 $(407,406) ---------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 29 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008 (CONTINUED) NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Oct. 31, 2008, the value of these securities amounted to $27,539,667 or 4.3% of net assets. (e) This is a variable rate security that entitles holders to receive only interest payments. Interest is paid annually. The interest payment is based on the Gross Domestic Product (GDP) level of the previous year for the respective country. To the extent that the previous year's GDP exceeds the 'base case GDP', an interest payment is made equal to 0.012225 of the difference. (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) At Oct. 31, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $1,142,127. See Note 1 to the financial statements. (h) Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Oct. 31, 2008. (j) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Oct. 31, 2008. (k) The following abbreviations are used in the portfolio security descriptions to identify the insurer of the issue: AMBAC -- Ambac Assurance Corporation FSA -- Financial Security Assurance MBIA -- MBIA Insurance Corporation
-------------------------------------------------------------------------------- 30 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (l) Inflation-indexed bonds are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (m) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Oct. 31, 2008. (n) Senior loans have rates of interest that float periodically based primarily on the London Interbank Offered Rate ("LIBOR") and other short-term rates. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. (o) At Oct. 31, 2008, the Fund had unfunded senior loan commitments pursuant to the terms of the loan agreement. The Fund receives a stated coupon rate until the borrower draws on the loan commitment, at which time the rate will become the stated rate in the loan agreement.
UNFUNDED BORROWER COMMITMENT ---------------------------------------------------------- Community Health Systems Delayed Draw $21,702
(p) Represents a senior loan purchased on a when-issued or delayed-delivery basis. Certain details associated with this purchase are not known prior to the settlement date of the transaction. In addition, senior loans typically trade without accrued interest and therefore a weighted average coupon rate is not available prior to settlement. At settlement, if still unknown, the borrower or counterparty will provide the Fund with the final weighted average coupon rate and maturity date. (q) At Oct. 31, 2008, investments in securities included securities valued at $2,709,383 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (r) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (s) On Sept. 15, 2008, Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. (t) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $708,591,372 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $13,501,367 Unrealized depreciation (93,260,596) ----------------------------------------------------------- Net unrealized depreciation $(79,759,229) -----------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 31 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 32 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $685,705,306) $621,909,040 Affiliated money market fund (identified cost $6,923,103) 6,923,103 ------------------------------------------------------------------------------- Total investments in securities (identified cost $692,628,409) 628,832,143 Cash 1,690,798 Foreign currency holdings (identified cost $2,558) 2,546 Capital shares receivable 620,859 Dividends and accrued interest receivable 8,817,664 Receivable for investment securities sold 71,372,415 Unrealized appreciation on forward foreign currency contracts 1,727,689 ------------------------------------------------------------------------------- Total assets 713,064,114 ------------------------------------------------------------------------------- LIABILITIES Capital shares payable 74,826,092 Payable for investment securities purchased 1,143,110 Variation margin payable 25,635 Unrealized depreciation on forward foreign currency contracts 407,406 Accrued investment management services fees 13,782 Accrued distribution fees 4,446 Accrued transfer agency fees 2,957 Accrued administrative services fees 1,554 Accrued plan administration services fees 1 Other accrued expenses 123,228 ------------------------------------------------------------------------------- Total liabilities 76,548,211 ------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $636,515,903 ------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 1,034,058 Additional paid-in capital 690,731,106 Undistributed net investment income 18,465,762 Accumulated net realized gain (loss) (10,152,200) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (63,562,823) ------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $636,515,903 -------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $248,748,168 40,394,613 $6.16(1) Class B $ 42,399,524 6,810,424 $6.23 Class C $ 4,294,941 695,288 $6.18 Class I $205,797,902 33,497,669 $6.14 Class R4 $ 118,425 19,229 $6.16 Class W $135,156,943 21,988,540 $6.15 -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $6.47. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 33 STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED OCT. 31, 2008
INVESTMENT INCOME Income: Interest $ 32,385,882 Income distributions from affiliated money market fund 770,670 Less foreign taxes withheld (212,940) -------------------------------------------------------------------------------- Total income 32,943,612 -------------------------------------------------------------------------------- Expenses: Investment management services fees 5,074,934 Distribution fees Class A 704,343 Class B 522,781 Class C 40,466 Class W 442,005 Transfer agency fees Class A 644,572 Class B 126,615 Class C 9,522 Class R4 70 Class W 353,604 Administrative services fees 572,976 Plan administration services fees -- Class R4 349 Compensation of board members 16,436 Custodian fees 224,795 Printing and postage 101,610 Registration fees 102,075 Professional fees 42,673 Other 35,333 -------------------------------------------------------------------------------- Total expenses 9,015,159 Expenses waived/reimbursed by the Investment Manager and its affiliates (349,989) Earnings and bank fee credits on cash balances (7,239) -------------------------------------------------------------------------------- Total net expenses 8,657,931 -------------------------------------------------------------------------------- Investment income (loss) -- net 24,285,681 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions 12,051,441 Foreign currency transactions (49,315) Futures contracts (1,228,537) Swap transactions (1,051,776) -------------------------------------------------------------------------------- Net realized gain (loss) on investments 9,721,813 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (100,650,487) -------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (90,928,674) -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ (66,642,993) --------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 34 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 24,285,681 $ 15,158,284 Net realized gain (loss) on investments 9,721,813 1,812,931 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (100,650,487) 22,918,455 ---------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (66,642,993) 39,889,670 ---------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (8,771,172) (10,445,402) Class B (1,230,738) (1,830,230) Class C (86,601) (87,382) Class I (7,773,703) (6,698,983) Class R4 (4,806) (4,654) Class W (4,581,936) (324,071) ---------------------------------------------------------------------------------------------- Total distributions (22,448,956) (19,390,722) ---------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 103,694,288 41,925,593 Class B shares 26,745,270 8,520,931 Class C shares 4,044,562 420,509 Class I shares 171,903,867 35,313,664 Class R4 shares 95,770 71,093 Class W shares 259,629,317 57,650,812 Reinvestment of distributions at net asset value Class A shares 8,236,440 9,776,138 Class B shares 1,157,449 1,714,958 Class C shares 78,743 79,537 Class I shares 7,773,342 6,698,564 Class R4 shares 4,806 4,654 Class W shares 4,581,771 323,864 Payments for redemptions Class A shares (90,849,153) (79,932,025) Class B shares (27,193,143) (28,554,355) Class C shares (1,808,860) (1,185,971) Class I shares (106,857,080) (35,536,448) Class R4 shares (79,105) (48,411) Class W shares (155,446,712) (5,063,418) ---------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 205,711,572 12,179,689 ---------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 116,619,623 32,678,637 Net assets at beginning of year 519,896,280 487,217,643 ---------------------------------------------------------------------------------------------- Net assets at end of year $ 636,515,903 $519,896,280 ---------------------------------------------------------------------------------------------- Undistributed net investment income $ 18,465,762 $ 1,426,074 ----------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 35 FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.89 $6.60 $6.59 $7.02 $6.57 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(b) .20(b) .19 .16 .17 Net gains (losses) (both realized and unrealized) (.73) .35 .14 (.23) .52 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.51) .55 .33 (.07) .69 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.26) (.32) (.36) (.24) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.16 $6.89 $6.60 $6.59 $7.02 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $249 $259 $276 $353 $389 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.32% 1.37% 1.39% 1.37% 1.34% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.25% 1.25% 1.25% 1.35% 1.34% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.26% 3.08% 2.77% 2.42% 2.66% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return(g) (7.66%) 8.63% 5.17% (1.18%) 10.70% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 36 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.96 $6.67 $6.59 $7.02 $6.57 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(b) .15(b) .13 .10 .14 Net gains (losses) (both realized and unrealized) (.73) .35 .16 (.23) .50 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.56) .50 .29 (.13) .64 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.21) (.21) (.30) (.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.23 $6.96 $6.67 $6.59 $7.02 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $47 $63 $111 $142 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 2.09% 2.13% 2.16% 2.13% 2.10% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 2.01% 2.01% 2.02% 2.12% 2.10% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.49% 2.30% 1.98% 1.65% 1.90% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return(g) (8.28%) 7.68% 4.45% (1.98%) 9.83% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 37 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.91 $6.62 $6.57 $6.99 $6.55 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(b) .15(b) .14 .11 .14 Net gains (losses) (both realized and unrealized) (.73) .35 .13 (.22) .49 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.56) .50 .27 (.11) .63 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.21) (.22) (.31) (.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.18 $6.91 $6.62 $6.57 $6.99 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $3 $3 $4 $5 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 2.08% 2.13% 2.16% 2.14% 2.09% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 2.01% 2.01% 2.02% 2.12% 2.09% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 2.51% 2.32% 2.00% 1.65% 1.91% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return(g) (8.27%) 7.75% 4.25% (1.83%) 9.72% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 38 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b) Net asset value, beginning of period $6.87 $6.59 $6.61 $7.03 $6.77 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(c) .23(c) .21 .19 .16 Net gains (losses) (both realized and unrealized) (.73) .34 .14 (.22) .24 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.48) .57 .35 (.03) .40 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.25) (.29) (.37) (.39) (.14) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.14 $6.87 $6.59 $6.61 $7.03 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $206 $157 $145 $89 $24 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .85% .87% .88% .91% .89%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .82% .87% .88% .91% .89%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.68% 3.47% 3.18% 2.87% 3.07%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return (7.30%) 8.91% 5.52% (.56%) 6.06%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to Oct. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 39 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $6.89 $6.60 $6.61 $7.04 $6.59 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(b) .22(b) .20 .16 .18 Net gains (losses) (both realized and unrealized) (.72) .35 .13 (.22) .52 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.47) .57 .33 (.06) .70 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.26) (.28) (.34) (.37) (.25) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.16 $6.89 $6.60 $6.61 $7.04 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.14% 1.17% 1.20% 1.20% 1.17% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .87% 1.08% 1.08% 1.18% 1.17% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.64% 3.27% 2.95% 2.60% 2.83% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% 68% 73% 92% -------------------------------------------------------------------------------------------------------------- Total return (7.19%) 8.84% 5.29% (1.00%) 10.86% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (f) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 40 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $6.88 $6.79 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .22 .20 Net gains (losses) (both realized and unrealized) (.73) .17 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.51) .37 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.28) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $6.15 $6.88 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $135 $54 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.30% 1.35%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.27% 1.26%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.27% 3.34%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 77% -------------------------------------------------------------------------------------------------------------- Total return (7.62%) 5.71%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Global Bond Fund (the Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in debt obligations of U.S. and foreign issuers. The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I and Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares. At Oct. 31, 2008, the Investment Manager and the RiverSource affiliated funds-of-funds owned approximately 32% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- 42 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS AND UNFUNDED LOAN COMMITMENTS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward- commitments. At Oct. 31, 2008, the Fund has outstanding when-issued securities of $384,302 and other forward-commitments of $757,825. The Fund may enter into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrower's discretion. These commitments are disclosed in the Portfolio of Investments. At Oct. 31, 2008, the Fund has entered into unfunded loan commitments of $21,702. The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to "roll over" its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain or loss. Losses may arise due to changes in the value of the securities or if a counterparty does not perform under the terms of the agreement. If a counterparty files for bankruptcy or becomes insolvent, the Fund's right to repurchase or sell securities may be limited. The Fund did not enter into any mortgage dollar roll transactions during the year ended Oct. 31, 2008. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the -------------------------------------------------------------------------------- 44 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Oct. 31, 2008, foreign currency holdings were comprised of Japanese yen and South African rand. The Fund may enter into forward foreign currency contracts to produce incremental earnings, for operational purposes, or to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. CMBS TOTAL RETURN SWAP TRANSACTIONS The Fund may enter into swap agreements to earn the total return on a specified security or index of fixed income securities. CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage-backed securities. Under the terms of the swaps, the Fund either receives or pays the total return on a reference security or index applied to a notional principal amount. In return, the Fund agrees to pay or receive from the counterparty a floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount. The notional amounts of swap contracts are not recorded in the financial statements. Swaps are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time realized gain (loss) is recorded. Payments received or made are recorded as realized gains (losses). Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. It may not be possible for the Fund to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Total return swaps are subject to the risk that the counterparty will default on its obligation to pay net amounts due to the Fund. At Oct. 31, 2008, the Fund had no outstanding CMBS total return swap contracts. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future -------------------------------------------------------------------------------- 46 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures and options contracts, foreign currency transactions, recognition of unrealized appreciation (depreciation) for certain derivative investments and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $15,202,963 and accumulated net realized loss has been increased by $15,202,963. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED OCT. 31, 2008 2007* ---------------------------------------------------------------- CLASS A DISTRIBUTIONS PAID FROM: Ordinary income.................... $8,771,172 $10,445,402 Long-term capital gain............. -- -- CLASS B Distributions paid from: Ordinary income.................... 1,230,738 1,830,230 Long-term capital gain............. -- --
-------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 47 NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
YEAR ENDED OCT. 31, 2008 2007* ---------------------------------------------------------------- CLASS C Distributions paid from: Ordinary income.................... $ 86,601 $ 87,382 Long-term capital gain............. -- -- CLASS I Distributions paid from: Ordinary income.................... 7,773,703 6,698,983 Long-term capital gain............. -- -- CLASS R4 Distributions paid from: Ordinary income.................... 4,806 4,654 Long-term capital gain............. -- -- CLASS W Distributions paid from: Ordinary income.................... 4,581,936 324,071 Long-term capital gain............. -- --
* Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $ 31,631,393 Undistributed accumulated long-term gain....... $ -- Accumulated realized loss...................... $ (6,492,562) Unrealized appreciation (depreciation)......... $(80,388,092)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 -------------------------------------------------------------------------------- 48 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared and paid each calendar quarter, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income, if any, is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.72% to 0.52% annually as the Fund's assets increase. The management fee for the year ended Oct. 31, 2008 was 0.70% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 49 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended Oct. 31, 2008, other expenses paid to this company were $1,440. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares and an annual asset- based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class W shares and a fee at an annual rate of up to 1.00% of the Fund's average -------------------------------------------------------------------------------- 50 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $1,404,000 and $36,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $353,672 for Class A, $35,408 for Class B and $2,497 for Class C for the year ended Oct. 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 1.25% Class B............................................. 2.01 Class C............................................. 2.01 Class I............................................. 0.82 Class R4............................................ 0.87 Class W............................................. 1.27
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A.......................................... $137,956 Class B.......................................... 27,549 Class C.......................................... 1,976 Class W.......................................... 125
The waived/reimbursed fees and expenses for plan administration services fees at the class level were as follows: Class R4........................................... $349
The management fees waived/reimbursed at the Fund level were $182,034. The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 51 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- acquired funds*) will not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.25% Class B............................................. 2.01 Class C............................................. 2.01 Class I............................................. 0.82 Class R4............................................ 1.12 Class W............................................. 1.27
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended Oct. 31, 2008, the Fund's custodian and transfer agency fees were reduced by $7,239 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $727,720,709 and $510,636,734, respectively, for the year ended Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. Expenses paid to the Investment Manager as securities lending agent were $425 for the year ended Oct. 31, 2008, which are included in other expenses on the Statement of Operations. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. At Oct. 31, 2008, the Fund had no securities out on loan. -------------------------------------------------------------------------------- 52 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED OCT. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 14,979,267 1,211,499 (13,367,693) 2,823,073 Class B 3,822,733 168,457 (3,926,341) 64,849 Class C 583,922 11,530 (267,833) 327,619 Class I 25,302,709 1,145,677 (15,862,285) 10,586,101 Class R4 13,757 706 (11,545) 2,918 Class W 37,609,351 674,090 (24,172,875) 14,110,566 ---------------------------------------------------------------------------------- YEAR ENDED OCT. 31, 2007* ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 6,327,232 1,485,288 (12,063,782) (4,251,262) Class B 1,270,247 258,114 (4,278,499) (2,750,138) Class C 63,080 12,039 (177,897) (102,778) Class I 5,334,334 1,019,550 (5,397,430) 956,454 Class R4 10,779 707 (7,379) 4,107 Class W 8,592,701 48,662 (763,389) 7,877,974 ----------------------------------------------------------------------------------
* Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $349,815,503 and $357,516,044, respectively, for the year ended Oct. 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 53 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $6,492,562 at Oct. 31, 2008, that if not offset by capital gains will expire as follows:
2010 2014 2016 $3,665,053 $498,771 $2,328,738
It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. -------------------------------------------------------------------------------- 54 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 8. RISKS RELATING TO CERTAIN INVESTMENTS DIVERSIFICATION RISK The Fund is non-diversified. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. The Fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. FOREIGN/EMERGING MARKETS RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 55 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in -------------------------------------------------------------------------------- 56 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 57 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 10. SUBSEQUENT EVENT Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the securities lending agent for the Fund. -------------------------------------------------------------------------------- 58 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE GLOBAL BOND FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Global Bond Fund (the Fund) (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through October 31, 2006, were audited by other auditors whose report dated December 20, 2006, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT 59 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------ In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Global Bond Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- 60 RIVERSOURCE GLOBAL BOND FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (96.7%) ISSUER SHARES VALUE(a) COMMUNICATIONS EQUIPMENT (17.0%) Cisco Systems 269,902(b) $4,796,158 Corning 119,360 1,292,669 Juniper Networks 97,189(b) 1,821,322 Nokia ADR 140,946(c) 2,139,560 QUALCOMM 92,373 3,534,191 Tellabs 240,983(b) 1,021,768 ----------- Total 14,605,668 ------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS (17.9%) Apple 44,503(b) 4,788,078 Dell 110,034(b) 1,336,913 Hewlett-Packard 146,241 5,598,105 IBM 27,341 2,541,893 SanDisk 54,995(b) 488,906 Seagate Technology 91,678(c) 620,660 ----------- Total 15,374,555 ------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES (3.3%) Qwest Communications Intl 485,257 1,387,835 Verizon Communications 47,759 1,417,010 ----------- Total 2,804,845 ------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS (1.4%) Flextronics Intl 85,061(b,c) 355,555 Jabil Circuit 98,145 825,399 ----------- Total 1,180,954 ------------------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (7.6%) eBay 63,308(b) 966,713 Google Cl A 13,146(b) 4,724,147 Yahoo! 69,138(b) 886,349 ----------- Total 6,577,209 ------------------------------------------------------------------------------------- IT SERVICES (2.1%) Automatic Data Processing 24,734 864,453 MasterCard Cl A 6,250 923,875 ----------- Total 1,788,328 ------------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (22.9%) Broadcom Cl A 108,186(b) 1,847,817 Fairchild Semiconductor Intl 192,026(b) 1,090,708 Infineon Technologies ADR 358,655(b,c) 1,122,590 Intel 227,977 3,647,632 Lam Research 93,192(b) 2,083,773 Micron Technology 523,533(b) 2,465,840 Monolithic Power Systems 67,803(b) 1,151,973 NVIDIA 62,278(b) 545,555 ON Semiconductor 281,078(b) 1,436,309 RF Micro Devices 673,609(b) 1,340,482 Samsung Electronics 2,056(c) 867,523 Skyworks Solutions 191,412(b) 1,364,768 Spansion Cl A 110,528(b) 68,527 Teradyne 122,900(b) 626,790 ----------- Total 19,660,287 ------------------------------------------------------------------------------------- SOFTWARE (23.3%) Adobe Systems 79,083(b) 2,106,771 Autodesk 95,842(b) 2,042,393 Citrix Systems 66,992(b) 1,726,384 Microsoft 321,254 7,173,602 Nintendo 3,800(c) 1,221,312 Oracle 280,475(b) 5,129,888 Symantec 56,226(b) 707,323 ----------- Total 20,107,673 ------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES (1.2%) Vodafone Group 542,387(c) 1,043,302 ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $113,621,615) $83,142,821 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
MONEY MARKET FUND (3.3%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 1.60% 2,848,852(d) $2,848,852 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $2,848,852) $2,848,852 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $116,470,467)(e) $85,991,673 =====================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. At Oct. 31, 2008, the value of foreign securities represented 8.6% of net assets. (d) Affiliated Money Market Fund -- See Note 6 to the financial statements. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (e) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $118,127,184 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $693,791 Unrealized depreciation (32,829,302) ----------------------------------------------------------- Net unrealized depreciation $(32,135,511) -----------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 18 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $113,621,615) $ 83,142,821 Affiliated money market fund (identified cost $2,848,852) 2,848,852 -------------------------------------------------------------------------------- Total investments in securities (identified cost $116,470,467) 85,991,673 Capital shares receivable 49,324 Dividends receivable 51,936 Receivable for investment securities sold 66,738 -------------------------------------------------------------------------------- Total assets 86,159,671 -------------------------------------------------------------------------------- LIABILITIES Capital shares payable 79,899 Accrued investment management services fees 1,691 Accrued distribution fees 936 Accrued transfer agency fees 1,211 Accrued administrative services fees 141 Accrued plan administration services fees 1 Other accrued expenses 84,634 -------------------------------------------------------------------------------- Total liabilities 168,513 -------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 85,991,158 -------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 531,458 Additional paid-in capital 466,549,656 Excess of distributions over net investment income (1,348) Accumulated net realized gain (loss) (350,610,397) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (30,478,211) -------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 85,991,158 --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $68,868,177 41,145,420 $1.67(1) Class B $15,072,741 10,575,597 $1.43 Class C $ 1,965,181 1,374,828 $1.43 Class I $ 4,802 2,785 $1.72 Class R4 $ 80,257 47,182 $1.70 ----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $1.77. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 19 STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED OCT. 31, 2008
INVESTMENT INCOME Income: Dividends $ 1,253,934 Interest 17,315 Income distributions from affiliated money market fund 283,377 Fee income from securities lending 42,841 Less foreign taxes withheld (46,095) ------------------------------------------------------------------------------- Total income 1,551,372 ------------------------------------------------------------------------------- Expenses: Investment management services fees 857,290 Distribution fees Class A 266,728 Class B 297,356 Class C 31,112 Transfer agency fees Class A 414,611 Class B 119,972 Class C 12,378 Class R4 74 Administrative services fees 83,820 Plan administration services fees -- Class R4 372 Compensation of board members 2,985 Custodian fees 16,845 Printing and postage 69,984 Registration fees 61,015 Professional fees 35,104 Other 6,880 ------------------------------------------------------------------------------- Total expenses 2,276,526 Expenses waived/reimbursed by the Investment Manager and its affiliates (372) Earnings and bank fee credits on cash balances (4,354) ------------------------------------------------------------------------------- Total net expenses 2,271,800 ------------------------------------------------------------------------------- Investment income (loss) -- net (720,428) ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (18,394,450) Foreign currency transactions 27,252 Options contracts written 9,840 ------------------------------------------------------------------------------- Net realized gain (loss) on investments (18,357,358) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (58,394,053) ------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (76,751,411) ------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(77,471,839) -------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 20 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 OPERATIONS Investment income (loss) -- net $ (720,428) $ (1,731,686) Net realized gain (loss) on investments (18,357,358) 32,284,685 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (58,394,053) 8,992,097 --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (77,471,839) 39,545,096 --------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 21,369,521 21,370,119 Class B shares 2,136,740 3,823,491 Class C shares 522,248 784,042 Class R4 shares 122,848 221,867 Payments for redemptions Class A shares (31,405,834) (35,029,639) Class B shares (13,779,456) (13,037,111) Class C shares (833,165) (989,760) Class I shares (7,015) -- Class R4 shares (115,949) (653,020) --------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (21,990,062) (23,510,011) --------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (99,461,901) 16,035,085 Net assets at beginning of year 185,453,059 169,417,974 --------------------------------------------------------------------------------------------- Net assets at end of year $ 85,991,158 $185,453,059 --------------------------------------------------------------------------------------------- Excess of distributions over net investment income $ (1,348) $ (1,860) ---------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 21 FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.04 $2.42 $1.99 $1.83 $1.72 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.02)(b) (.02) (.02) (.03) Net gains (losses) (both realized and unrealized) (1.36) .64 .45 .18 .14 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.37) .62 .43 .16 .11 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.67 $3.04 $2.42 $1.99 $1.83 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $69 $139 $123 $120 $146 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.45% 1.60% 1.69% 1.75% 1.74% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.34%) (.80%) (.89%) (.92%) (1.48%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.07%) 25.62% 21.61% 8.74% 6.40% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 22 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $2.61 $2.09 $1.74 $1.60 $1.53 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.02)(b) (.04)(b) (.03) (.03) (.04) Net gains (losses) (both realized and unrealized) (1.16) .56 .38 .17 .11 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.18) .52 .35 .14 .07 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.43 $2.61 $2.09 $1.74 $1.60 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $15 $43 $42 $46 $59 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.22% 2.38% 2.47% 2.53% 2.52% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (1.09%) (1.58%) (1.66%) (1.71%) (2.26%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.21%) 24.88% 20.12% 8.75% 4.58% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 23 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $2.62 $2.10 $1.74 $1.61 $1.53 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.02)(b) (.04)(b) (.03) (.03) (.04) Net gains (losses) (both realized and unrealized) (1.17) .56 .39 .16 .12 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.19) .52 .36 .13 .08 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.43 $2.62 $2.10 $1.74 $1.61 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 $4 $3 $3 $4 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.21% 2.36% 2.45% 2.52% 2.49% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (1.10%) (1.56%) (1.66%) (1.69%) (2.23%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.42%) 24.76% 20.69% 8.07% 5.23% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 24 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b) Net asset value, beginning of period $3.11 $2.46 $2.01 $1.83 $1.70 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01(c) (.01)(c) (.01) (.01) (.02) Net gains (losses) (both realized and unrealized) (1.40) .66 .46 .19 .15 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.39) .65 .45 .18 .13 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.72 $3.11 $2.46 $2.01 $1.83 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- $-- $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) .81% .99% 1.01% 1.04% 1.03%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .31% (.19%) (.22%) (.21%) (.73%)(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return (44.69%) 26.42% 22.39% 9.84% 7.65%(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 15, 2004 (inception date) to Oct. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 25 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.07 $2.43 $2.00 $1.83 $1.72 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01(b) (.01)(b) (.02) (.02) (.02) Net gains (losses) (both realized and unrealized) (1.38) .65 .45 .19 .13 -------------------------------------------------------------------------------------------------------------- Total from investment operations (1.37) .64 .43 .17 .11 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.70 $3.07 $2.43 $2.00 $1.83 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $1 $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.12% 1.34% 1.47% 1.54% 1.55% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) .87% 1.34% 1.47% 1.54% 1.55% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .22% (.52%) (.68%) (.73%) (1.28%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 81% 167% 196% 115% 349% -------------------------------------------------------------------------------------------------------------- Total return (44.63%) 26.34% 21.50% 9.29% 6.40% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Global Technology Fund (the Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund focuses on equity securities of companies in the information technology industry throughout the world. The Fund offers Class A, Class B, Class C, Class I and Class R4 shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I and Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) owned 100% of Class I shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 27 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligations depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option -------------------------------------------------------------------------------- 28 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Options contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 29 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. At Oct. 31, 2008, the Fund had no outstanding forward foreign currency contracts. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of options contracts, foreign currency transactions and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in -------------------------------------------------------------------------------- 30 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $720,940 and accumulated net realized loss has been increased by $27,252 resulting in a net reclassification adjustment to decrease paid-in capital by $693,688. The tax character of distributions paid for the years indicated is as follows: For the years ended Oct. 31, 2008 and 2007, there were no distributions. As of Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income................. $ -- Undistributed accumulated long-term gain...... $ -- Accumulated realized loss..................... $(348,953,680) Unrealized appreciation (depreciation)........ $ (32,136,276)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement on Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 31 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.72% to 0.595% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by measuring the percentage difference over a rolling 12-month period between the annualized performance of one Class A share of the Fund and the annualized performance of the Lipper Global Science and Technology Funds Index*. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment decreased the management fee by $148,556 for the year ended Oct. 31, 2008. The management fee for the year ended Oct. 31, 2008 was 0.61% of the Fund's average daily net assets, including the adjustment under the terms of the performance incentive arrangement. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.06% to 0.03% annually as * On July 1, 2008, the Lipper Global Science and Technology Funds Index replaced the Lipper Science and Technology Funds Index for purposes of determining the performance incentive adjustment. -------------------------------------------------------------------------------- 32 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- the Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.06% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended Oct. 31, 2008, other expenses paid to this company were $755. COMPENSATION OF BOARD MEMBERS Compensation of Board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R4 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Funds average daily net assets attributable to Class R4 shares for the provision of various administrative record keeping, communication and educational services. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $482,000 and $24,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $168,357 for Class A, $21,609 for Class B and $756 for Class C for the year ended Oct. 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), including the adjustment under the terms of a performance incentive arrangement, were as follows: Class R4............................................ 0.87%
The waived/reimbursed fees and expenses for the plan administration services fee at the class level was $372 for Class R4. The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, will not exceed 1.41% for Class R4 of the Fund's average daily net assets. * In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. -------------------------------------------------------------------------------- 34 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- EARNINGS AND BANK FEE CREDITS During the year ended Oct. 31, 2008, the Fund's custodian and transfer agency fees were reduced by $4,354 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $107,012,733 and $119,951,469 respectively, for the year ended Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. Income from securities lending amounted to $42,841 for the year ended Oct. 31, 2008. Expenses paid to the Investment Manager as securities lending agent were $676 for the year ended Oct. 31, 2008, which are included in other expenses on the Statement of Operations. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. At Oct. 31, 2008, the Fund had no securities out on loan. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED OCT. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 8,799,565 -- (13,224,262) (4,424,697) Class B 993,451 -- (6,754,597) (5,761,146) Class C 254,027 -- (411,849) (157,822) Class I -- -- (3,097) (3,097) Class R4 48,279 -- (56,646) (8,367) ---------------------------------------------------------------------------------- YEAR ENDED OCT. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 8,002,124 -- (13,306,617) (5,304,493) Class B 1,671,730 -- (5,677,043) (4,005,313) Class C 339,430 -- (436,868) (97,438) Class R4 88,006 -- (256,250) (168,244) ----------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 5. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows:
CALLS PUTS CONTRACTS PREMIUMS CONTRACTS PREMIUMS ------------------------------------------------------------------------- Balance Oct. 31, 2007 -- $ -- -- $-- Opened 43 9,840 -- -- Closed -- -- -- -- Expired (43) (9,840) -- -- ------------------------------------------------------------------------- Balance Oct. 31, 2008 -- $ -- -- $-- -------------------------------------------------------------------------
See Note 1 "Summary of Significant Accounting Policies." 6. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $67,154,592 and $75,899,855, respectively, for the year ended Oct. 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments. 7. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal -------------------------------------------------------------------------------- 36 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 8. CAPITAL LOSS CARRY-OVER For federal income tax purposes the Fund had a capital loss carry-over of $348,953,680 at Oct. 31, 2008, that if not offset by capital gains will expire as follows:
2009 2010 2016 $250,345,326 $81,299,227 $17,309,127
It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 9. RISKS RELATING TO CERTAIN INVESTMENTS SECTOR RISK The Fund invests a significant part of its total assets in securities of companies primarily engaged in the technology, media and telecommunications sectors. This may result in greater fluctuations in value than would be the case for a fund invested in a wider variety of unrelated industries. As these sectors increase or decrease in favor with the investing public, the price of securities of companies that rely heavily on those sectors could become increasingly sensitive to downswings in the economy. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- FOREIGN RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. 10. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. -------------------------------------------------------------------------------- 38 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. 11. SUBSEQUENT EVENT Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the securities lending agent for the Fund. -------------------------------------------------------------------------------- 40 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE GLOBAL TECHNOLOGY FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource Global Technology Fund (the Fund) (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through October 31, 2006, were audited by other auditors whose report dated December 20, 2006, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. -------------------------------------------------------------------------------- RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT 41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------ In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of RiverSource Global Technology Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- 42 RIVERSOURCE GLOBAL TECHNOLOGY FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------ OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (95.8%)(c) ISSUER SHARES VALUE(a) BERMUDA (1.0%) Credicorp $- 72,761 2,857,324 ------------------------------------------------------------------------------------- BRAZIL (12.2%) AmBev ADR 54,439 2,313,658 Banco Bradesco 255,100 2,937,551 Companhia Vale do Rio Doce ADR 211,011 2,768,464 MRV Engenharia e Participacoes 160,400 833,218 Multiplan Empreendimentos Imobiliarios 399,849(b) 2,017,774 PDG Realty 269,800 1,381,506 Petroleo Brasileiro ADR 327,760 8,813,466 Redecard 955,100 10,405,191 UNIBANCO -- Uniao de Bancos Brasileiros GDR 52,661 3,321,857 ------------ Total 34,792,685 ------------------------------------------------------------------------------------- CANADA (0.8%) Yamana Gold 460,420 2,131,745 ------------------------------------------------------------------------------------- CHINA (14.4%) China Construction Bank Series H 9,620,000 4,772,560 China Life Insurance Series H 2,005,000 5,358,462 China Medical Technologies ADR 77,736 1,894,426 China Merchants Bank Series H 2,439,000 3,736,882 CNOOC ADR 71,752 5,861,421 Industrial & Commercial Bank of China Series H 18,359,000 8,638,789 Li Ning 1,691,500 2,093,436 Minth Group 2,484,000 868,102 Ping An Insurance Group of China Series H 1,825,000 7,805,478 ------------ Total 41,029,556 ------------------------------------------------------------------------------------- CZECH REPUBLIC (1.1%) CEZ 70,000 3,033,756 ------------------------------------------------------------------------------------- HONG KONG (7.5%) China Mobile 2,084,000 18,347,176 China Overseas Land & Investment 2,566,000 2,897,869 ------------ Total 21,245,045 ------------------------------------------------------------------------------------- INDIA (7.4%) Bharat Heavy Electricals 91,662 2,435,150 Bharti Airtel 412,765(b) 5,573,659 Housing Development Finance 87,154 3,163,627 Infosys Technologies 191,779 5,574,974 Reliance Inds 145,110 4,113,500 ------------ Total 20,860,910 ------------------------------------------------------------------------------------- INDONESIA (1.4%) Bank Rakyat Indonesia 8,962,000 2,729,545 Bumi Resources 7,288,500(g) 1,136,986 ------------ Total 3,866,531 ------------------------------------------------------------------------------------- ISRAEL (6.8%) Check Point Software Technologies 297,210(b) 6,009,586 Israel Chemicals 491,565 4,979,313 Teva Pharmaceutical Inds ADR 190,786 8,180,903 ------------ Total 19,169,802 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 16 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) MALAYSIA (1.3%) IOI $- 2,647,300 2,101,445 KNM Group 9,350,150 1,587,707 ------------ Total 3,689,152 ------------------------------------------------------------------------------------- MEXICO (6.8%) America Movil ADR Series L 207,252 6,412,377 Grupo Financiero Banorte Series O 1,930,900 3,543,198 Grupo Televisa ADR 252,920 4,466,567 Wal-Mart de Mexico Series V 1,747,500 4,707,272 ------------ Total 19,129,414 ------------------------------------------------------------------------------------- NORWAY (0.1%) Copeinca 110,800(b) 181,059 ------------------------------------------------------------------------------------- RUSSIA (7.7%) Eurasia Drilling GDR 243,662(b,d,e)1,339,747 Gazprom ADR 617,321 12,577,916 MMC Norilsk Nickel ADR 201,865 2,025,853 Pharmstandard 72,811(b) 1,830,430 Sibirskiy Cement 24,589 1,475,340 Vimpel-Communications ADR 163,588 2,372,026 ------------ Total 21,621,312 ------------------------------------------------------------------------------------- SOUTH AFRICA (8.4%) ABSA Group 335,510 3,517,898 Aveng 720,771 3,571,281 Gold Fields 485,399 3,386,473 Gold Fields ADR 218,148 1,450,684 Impala Platinum Holdings 258,879 2,707,989 MTN Group 350,937 3,949,297 Murray & Roberts Holdings 272,391 1,848,111 Sasol 109,036 3,225,527 ------------ Total 23,657,260 ------------------------------------------------------------------------------------- SOUTH KOREA (9.2%) Hyundai Motor 68,408 3,163,629 Infopia 65,450 488,514 KT 34,150 870,018 LG Electronics 45,653 3,411,257 NHN 33,539(b) 3,572,276 Samsung Electronics 27,090 11,430,540 Yuhan 20,363 2,964,512 ------------ Total 25,900,746 ------------------------------------------------------------------------------------- TAIWAN (7.4%) Asustek Computer 2,037,062 2,919,344 Chunghwa Telecom 1,286,460 2,129,621 First Financial Holding 4,196,764 1,980,311 Hon Hai Precision Industry 1,098,250 2,652,248 Taiwan Semiconductor Mfg ADR 1,119,988 9,251,101 Tripod Technology 1,008,155 1,232,753 U-Ming Marine Transport 635,000 741,724 ------------ Total 20,907,102 ------------------------------------------------------------------------------------- THAILAND (1.1%) Kasikornbank 2,094,800 3,066,297 ------------------------------------------------------------------------------------- TURKEY (1.2%) Turkiye Garanti Bankasi 2,008,865(b) 3,374,384 ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $424,358,342) $270,514,080 ------------------------------------------------------------------------------------- MONEY MARKET FUND (4.8%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 1.60% $- 13,521,361(f) 13,521,361 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $13,521,361) $13,521,361 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $437,879,703)(h) $284,035,441 =====================================================================================
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------ SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY The following table represents the portfolio investments of the Fund by industry classifications as a percentage of total net assets at Oct. 31, 2008:
PERCENTAGE OF INDUSTRY NET ASSETS VALUE ----------------------------------------------------------------------- Auto Components 0.3% $868,102 Automobiles 1.1 3,163,629 Beverages 0.8 2,313,658 Chemicals 1.8 4,979,313 Commercial Banks 15.8 44,476,596 Computers & Peripherals 1.0 2,919,344 Construction & Engineering 1.3 3,571,281 Diversified Telecommunication Services 1.9 5,371,665 Electric Utilities 1.1 3,033,756 Electrical Equipment 0.9 2,435,150 Electronic Equipment, Instruments & Components 1.4 3,885,001 Energy Equipment & Services 1.0 2,927,454 Food & Staples Retailing 1.7 4,707,272 Food Products 0.8 2,282,504 Health Care Equipment & Supplies 0.8 2,382,940 Household Durables 2.0 5,625,981 Industrial Conglomerate 0.6 1,848,111 Insurance 4.7 13,163,940 Internet Software & Services 1.3 3,572,276 IT Services 5.7 15,980,165 Leisure Equipment & Products 0.7 2,093,436 Marine 0.3 741,724 Media 1.6 4,466,567 Metals & Mining 5.1 14,471,208 Multi-Utilities 0.5 1,475,340 Oil, Gas & Consumable Fuels 12.7 35,728,816 Pharmaceuticals 4.6 12,975,845 Real Estate Management & Development 1.7 4,915,643 Semiconductors & Semiconductor Equipment 7.3 20,681,641 Software 2.1 6,009,586 Thrifts & Mortgage Finance 1.1 3,163,627 Wireless Telecommunication Services 12.1 34,282,509 Other(1) 4.8 13,521,361 ----------------------------------------------------------------------- Total $284,035,441 -----------------------------------------------------------------------
(1) Cash & Cash Equivalents. See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 18 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Oct. 31, 2008, the value of these securities amounted to $1,339,747 or 0.5% of net assets. (e) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to procedures approved, in good faith, by the Fund's Board of Directors. Information concerning such security holdings at Oct. 31, 2008, is as follows:
ACQUISITION SECURITY DATES COST ---------------------------------------------------------------------- Eurasia Drilling GDR* 11-02-07 thru 04-15-08 $5,741,380
* Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. (f) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (g) Security valued by management at fair value according to procedures approved, in good faith, by the Board. (h) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $449,749,120 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,377,852 Unrealized depreciation (168,091,531) ------------------------------------------------------------ Net unrealized depreciation $(165,713,679) ------------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 19 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $424,358,342) $ 270,514,080 Affiliated money market fund (identified cost $13,521,361) 13,521,361 -------------------------------------------------------------------------------- Total investments in securities (identified cost $437,879,703) 284,035,441 Cash 667,406 Foreign currency holdings (identified cost $1,911,096) 1,906,201 Capital shares receivable 202,353 Dividends and accrued interest receivable 435,788 Receivable for investment securities sold 12,802,608 -------------------------------------------------------------------------------- Total assets 300,049,797 -------------------------------------------------------------------------------- LIABILITIES Capital shares payable 278,847 Payable for investment securities purchased 17,212,931 Accrued investment management services fees 8,332 Accrued distribution fees 2,524 Accrued transfer agency fees 2,573 Accrued administrative services fees 607 Accrued plan administration services fees 5 Other accrued expenses 320,472 -------------------------------------------------------------------------------- Total liabilities 17,826,291 -------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 282,223,506 -------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 576,740 Additional paid-in capital 456,206,763 Excess of distributions over net investment income (5,170) Accumulated net realized gain (loss) (20,707,820) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (153,847,007) -------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 282,223,506 --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $250,088,197 50,453,378 $4.96(1) Class B $ 28,179,486 6,354,512 $4.43 Class C $ 3,162,935 711,847 $4.44 Class I $ 7,972 1,558 $5.12 Class R4 $ 782,170 152,215 $5.14 Class R5 $ 2,746 535 $5.13 -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $5.26. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 20 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED OCT. 31, 2008
INVESTMENT INCOME Income: Dividends $ 17,185,342 Interest 64,517 Income distributions from affiliated money market fund 412,142 Less foreign taxes withheld (1,058,784) -------------------------------------------------------------------------------- Total income 16,603,217 -------------------------------------------------------------------------------- Expenses: Investment management services fees 7,352,591 Distribution fees Class A 1,283,814 Class B 701,567 Class C 62,513 Transfer agency fees Class A 972,852 Class B 139,042 Class C 12,334 Class R4 868 Class R5 1 Administrative services fees 498,019 Plan administration services fees -- Class R4 4,342 Compensation of board members 13,359 Custodian fees 693,125 Printing and postage 117,050 Registration fees 86,716 Professional fees 79,151 Other 168,800 -------------------------------------------------------------------------------- Total expenses 12,186,144 Expenses waived/reimbursed by the Investment Manager and its affiliates (4,460) Earnings and bank fee credits on cash balances (14,844) -------------------------------------------------------------------------------- Total net expenses 12,166,840 -------------------------------------------------------------------------------- Investment income (loss) -- net 4,436,377 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (18,203,439) Foreign currency transactions (1,454,385) -------------------------------------------------------------------------------- Net realized gain (loss) on investments (19,657,824) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (421,981,869) -------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (441,639,693) -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(437,203,316) --------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 21 STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 4,436,377 $ 1,517,079 Net realized gain (loss) on investments (19,657,824) 156,013,553 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (421,981,869) 189,936,461 ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (437,203,316) 347,467,093 ----------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (7,733,781) -- Class B (584,169) -- Class C (60,487) -- Class I (828,121) -- Class R4 (23,143) -- Net realized gain Class A (117,775,823) (98,239,230) Class B (18,510,075) (18,762,771) Class C (1,520,014) (1,196,069) Class I (9,800,247) (9,664,518) Class R4 (416,434) (1,447,673) ----------------------------------------------------------------------------------------------- Total distributions (157,252,294) (129,310,261) ----------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 109,825,373 91,841,700 Class B shares 12,474,577 12,086,529 Class C shares 2,616,649 1,969,066 Class I shares 30,164,283 5,204,952 Class R4 shares 642,913 3,407,128 Class R5 shares 5,000 N/A Reinvestment of distributions at net asset value Class A shares 124,102,560 97,170,044 Class B shares 18,787,330 18,551,177 Class C shares 1,531,576 1,147,176 Class I shares 10,623,826 9,658,984 Class R4 shares 439,576 1,447,453 Payments for redemptions Class A shares (148,388,977) (127,473,312) Class B shares (31,272,815) (38,310,114) Class C shares (2,462,810) (2,015,974) Class I shares (72,065,208) (16,607,477) Class R4 shares (921,454) (9,169,513) ----------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 56,102,399 48,907,819 ----------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (538,353,211) 267,064,651 Net assets at beginning of year 820,576,717 553,512,066 ----------------------------------------------------------------------------------------------- Net assets at end of year $ 282,223,506 $ 820,576,717 ----------------------------------------------------------------------------------------------- Undistributed (excess of distributions over) net investment income $ (5,170) $ 22,906 -----------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 22 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $14.99 $11.32 $8.23 $6.27 $5.46 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .04(b) .01 .04 .03 Net gains (losses) (both realized and unrealized) (7.24) 6.27 3.10 1.95 .84 -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.16) 6.31 3.11 1.99 .87 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) -- (.02) (.03) (.06) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.87) (2.64) (.02) (.03) (.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.96 $14.99 $11.32 $8.23 $6.27 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $250 $661 $425 $295 $191 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.87% 1.83% 1.81% 1.79% 1.83% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.87% 1.83% 1.81% 1.79% 1.83% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .78% .31% .19% .54% .41% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return(g) (57.79%) 68.21% 37.85% 31.83% 16.09% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 23 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $13.73 $10.63 $7.77 $5.95 $5.19 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(b),(c) (.05)(b) (.05) (.01) (.02) Net gains (losses) (both realized and unrealized) (6.53) 5.79 2.91 1.83 .81 -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.53) 5.74 2.86 1.82 .79 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) -- -- -- (.03) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.77) (2.64) -- -- (.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.43 $13.73 $10.63 $7.77 $5.95 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $28 $94 $77 $74 $73 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.62% 2.58% 2.57% 2.55% 2.59% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 2.62% 2.58% 2.57% 2.55% 2.59% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .02% (.48%) (.55%) (.24%) (.32%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return(h) (58.08%) 66.95% 36.81% 30.59% 15.18% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 24 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $13.78 $10.66 $7.79 $5.97 $5.20 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .00(b),(c) (.05)(b) (.06) -- (.01) Net gains (losses) (both realized and unrealized) (6.54) 5.81 2.93 1.82 .81 -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.54) 5.76 2.87 1.82 .80 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) -- -- -- (.03) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.80) (2.64) -- -- (.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.44 $13.78 $10.66 $7.79 $5.97 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $8 $5 $3 $1 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 2.63% 2.59% 2.58% 2.56% 2.60% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 2.63% 2.59% 2.58% 2.56% 2.60% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .03% (.48%) (.57%) (.19%) (.34%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return(h) (58.15%) 67.03% 36.84% 30.54% 15.37% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 25 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004(b) Net asset value, beginning of period $15.38 $11.50 $8.35 $6.36 $6.54 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(c) .09(c) .03 .06 .01 Net gains (losses) (both realized and unrealized) (7.45) 6.43 3.16 1.98 (.19) -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.34) 6.52 3.19 2.04 (.18) -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.23) -- (.04) (.05) -- Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.92) (2.64) (.04) (.05) -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.12 $15.38 $11.50 $8.35 $6.36 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $56 $41 $19 $13 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.42% 1.39% 1.35% 1.30% 1.35%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.42% 1.39% 1.35% 1.30% 1.35%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .97% .75% .63% .97% .79%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return (57.63%) 69.07% 38.36% 32.32% (2.75%)(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to Oct. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $15.32 $11.50 $8.33 $6.35 $5.52 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .05(b) .03 .05 .04 Net gains (losses) (both realized and unrealized) (7.45) 6.41 3.14 1.97 .86 -------------------------------------------------------------------------------------------------------------- Total from investment operations (7.34) 6.46 3.17 2.02 .90 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) -- -- (.04) (.07) Distributions from realized gains (2.69) (2.64) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (2.84) (2.64) -- (.04) (.07) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.14 $15.32 $11.50 $8.33 $6.35 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $2 $6 $2 $18 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.73% 1.65% 1.63% 1.59% 1.65% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.47% 1.65% 1.63% 1.59% 1.65% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.12% .45% .41% .81% .61% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% 125% 145% 124% 128% -------------------------------------------------------------------------------------------------------------- Total return (57.58%) 68.51% 38.06% 31.87% 16.50% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 27 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.32 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (4.22) -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.13 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e),(f) 1.47%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.57%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 133% -------------------------------------------------------------------------------------------------------------- Total return (44.96%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (g) Adjusted to an annual basis. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Threadneedle Emerging Markets Fund (the Fund) (formerly RiverSource Emerging Markets Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in equity securities of emerging markets companies. The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class R5 shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. Class R5 shares became available effective Aug. 1, 2008. At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares and the Investment Manager owned 100% of Class R5 shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the- -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 29 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. ILLIQUID SECURITIES At Oct. 31, 2008, investments in securities included issues that are illiquid which the Fund currently limits to 15% of net assets, at market value, at the time of purchase. The aggregate value of such securities at Oct. 31, 2008 was $1,339,747 representing 0.47% of net assets. According to Board guidelines, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. Assets are liquid if they can be sold or -------------------------------------------------------------------------------- 30 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 31 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Oct. 31, 2008, foreign currency holdings consisted of multiple denominations, primarily Indonesian rupiah. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. At Oct. 31, 2008, the Fund had no outstanding forward foreign currency contracts. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all -------------------------------------------------------------------------------- 32 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of foreign currency transactions, passive foreign investment company (PFIC) holdings, and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $4,765,248 accumulated net realized loss has been increased by $9,262,053 resulting in a net reclassification adjustment to increase paid-in capital by 4,496,805. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED OCT. 31, 2008* 2007 ----------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income.................. $76,776,161 $43,124,323 Long-term capital gain........... 48,733,443 55,114,907 CLASS B Distributions paid from: Ordinary income.................. 11,435,113 8,236,390 Long-term capital gain........... 7,659,131 10,526,381 CLASS C Distributions paid from: Ordinary income.................. 951,551 523,272 Long-term capital gain........... 628,950 672,797
-------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
YEAR ENDED OCT. 31, 2008* 2007 ----------------------------------------------------------------- CLASS I Distributions paid from: Ordinary income.................. $6,573,170 $4,243,012 Long-term capital gain........... 4,055,198 5,421,506 CLASS R4 Distributions paid from: Ordinary income.................. 267,263 635,576 Long-term capital gain........... 172,314 812,097 CLASS R5 Distributions paid from: Ordinary income.................. -- N/A Long-term capital gain........... -- N/A
* Class R5 is for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income................. $ -- Undistributed accumulated long-term gain...... $ -- Accumulated realized loss..................... $ (8,838,403) Unrealized appreciation (depreciation)........ $(165,721,594)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 30, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements -------------------------------------------------------------------------------- 34 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 1.10% to 0.90% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by measuring the percentage difference over a rolling 12-month period between the annualized performance of one Class A share of the Fund and the annualized performance of the Lipper Emerging Markets Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the management fee by $507,378 for the year ended Oct. 31, 2008. The management fee for the year ended Oct. 31, 2008 was 1.16% of the Fund's average daily net assets, including the adjustment under the terms of the performance incentive arrangement. SUBADVISORY AGREEMENT The Investment Manager has a Subadvisory Agreement with Threadneedle International Limited (Threadneedle), an affiliate of the Investment Manager and an indirect wholly-owned subsidiary of Ameriprise Financial, to subadvise the -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- assets of the Fund. The Investment Manager contracts with and compensates Threadneedle to manage the investment of the Fund's assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines 0.08% to 0.05% annually as the Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended Oct. 31, 2008, other expenses paid to this company were $3,707. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average net assets attributable to Class R4 and Class R5 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. -------------------------------------------------------------------------------- 36 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $1,077,000 and $38,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $739,218 for Class A, $40,279 for Class B and $1,375 for Class C for the year ended Oct. 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), including the adjustment under the terms of a performance incentive arrangement, were as follows: Class R4............................................ 1.47%
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class R4........................................... $118
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R4.......................................... $4,342
-------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, will not exceed the following percentage of the Fund's average daily net assets: Class R4............................................ 1.64%
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended Oct. 31, 2008, the Fund's custodian and transfer agency fees were reduced by $14,844 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $819,754,752 and $913,722,799, respectively, for the year ended Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED OCT. 31, 2008** ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------- Class A 11,082,775 11,944,431 (16,677,659) 6,349,547 Class B 1,336,871 2,007,193 (3,818,705) (474,641) Class C 296,342 163,281 (305,438) 154,185 Class I 2,894,086 993,810 (7,495,922) (3,608,026) Class R4 56,860 40,967 (95,990) 1,837 Class R5 535 -- -- 535 ---------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 38 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
YEAR ENDED OCT. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------- Class A 8,019,411 9,935,587 (11,422,639) 6,532,359 Class B 1,163,544 2,056,671 (3,595,546) (375,331) Class C 179,156 126,760 (198,413) 107,503 Class I 463,963 966,865 (1,397,671) 33,157 Class R4 313,574 145,035 (806,884) (348,275) ---------------------------------------------------------------------------------
** Class R5 is for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of the shares of the RiverSource Short- Term Cash Fund aggregated $449,546,557 and $443,696,285, respectively, for the year ended Oct. 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $8,838,403 at Oct. 31, 2008, that if not offset by capital gains will expire in 2016. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 8. RISKS RELATING TO CERTAIN INVESTMENTS FOREIGN/EMERGING MARKETS RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services -------------------------------------------------------------------------------- 40 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise -------------------------------------------------------------------------------- 42 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. 10. SUBSEQUENT EVENTS Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THREADNEEDLE EMERGING MARKETS FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Threadneedle Emerging Markets Fund (the Fund), formerly RiverSource Emerging Markets Fund, (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through October 31, 2006, were audited by other auditors whose report dated December 20, 2006 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. -------------------------------------------------------------------------------- 44 THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of Threadneedle Emerging Markets Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- THREADNEEDLE EMERGING MARKETS FUND -- 2008 ANNUAL REPORT 45 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (99.0%)(c) ISSUER SHARES VALUE(a) AUSTRALIA (1.3%) CSL 229,557 $5,579,839 ------------------------------------------------------------------------------------- BERMUDA (2.0%) Accenture Cl A 90,000 2,974,500 PartnerRe 83,022 5,619,759 ----------- Total 8,594,259 ------------------------------------------------------------------------------------- BRAZIL (0.7%) Petroleo Brasileiro ADR 112,520 3,025,663 ------------------------------------------------------------------------------------- CANADA (1.6%) Barrick Gold 124,296 2,824,005 Research In Motion 28,926(b) 1,458,738 ShawCor Cl A 161,600 2,447,570 ----------- Total 6,730,313 ------------------------------------------------------------------------------------- DENMARK (0.7%) Vestas Wind Systems 70,000(b) 2,867,131 ------------------------------------------------------------------------------------- FINLAND (0.8%) Nokia 95,587 1,463,703 Talvivaara Mining 600,000(b) 1,957,691 ----------- Total 3,421,394 ------------------------------------------------------------------------------------- FRANCE (0.5%) France Telecom 87,761 2,212,162 ------------------------------------------------------------------------------------- GERMANY (4.3%) Allianz 43,511 3,273,019 E.ON 54,547 2,086,821 K+S 25,717 999,715 Linde 52,819 4,441,274 MTU Aero Engines Holding 110,000 2,166,895 RWE 36,846 3,062,946 Siemens 43,323 2,601,550 ----------- Total 18,632,220 ------------------------------------------------------------------------------------- HONG KONG (1.5%) Esprit Holdings 295,000 1,676,316 Great Eagle Holdings 1,714,607 1,968,499 Hongkong & Shanghai Hotels 2,828,000 2,671,302 ----------- Total 6,316,117 ------------------------------------------------------------------------------------- JAPAN (6.9%) AMADA 383,000 1,759,338 Canon 115,700 4,049,663 GOLDCREST 100,280 1,473,257 Honda Motor 103,800 2,581,749 Mitsubishi Estate 309,000 5,521,317 Mitsubishi UFJ Financial Group 434,100 2,728,721 Nintendo 18,300 5,881,584 Sony Financial Holdings 1,832 5,959,840 ----------- Total 29,955,469 ------------------------------------------------------------------------------------- MEXICO (0.2%) America Movil ADR Series L 32,000 990,080 ------------------------------------------------------------------------------------- NETHERLANDS (1.1%) ASML Holding 153,704 2,689,844 Fugro 60,000 2,143,298 ----------- Total 4,833,142 ------------------------------------------------------------------------------------- PORTUGAL (0.4%) Galp Energia Series B 187,199 1,701,236 ------------------------------------------------------------------------------------- RUSSIA (0.3%) Mobile Telesystems ADR 30,000 1,174,500 ------------------------------------------------------------------------------------- SINGAPORE (1.3%) DBS Group Holdings 708,000 5,407,067 ------------------------------------------------------------------------------------- SOUTH AFRICA (0.2%) First Uranium 843,700(b) 980,273 ------------------------------------------------------------------------------------- SPAIN (1.6%) Gamesa Tecnologica 85,016 1,393,325 Inditex 81,177 2,743,012 Telefonica 140,000 2,591,175 ----------- Total 6,727,512 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) SWITZERLAND (9.7%) Nestle 404,766 $15,738,097 Novartis 185,205 9,399,422 Roche Holding 67,141 10,266,334 Syngenta 21,598 4,036,863 Xstrata 159,226 2,723,199 ----------- Total 42,163,915 ------------------------------------------------------------------------------------- TAIWAN (0.4%) Asustek Computer 1,114,293 1,596,910 ------------------------------------------------------------------------------------- UNITED KINGDOM (9.4%) Anglo American 94,865 2,380,062 Autonomy 157,985(b) 2,504,725 BG Group 336,105 4,941,614 Home Retail Group 559,734 1,783,860 HSBC Holdings 587,350 6,956,056 Intl Power 656,446 2,348,219 Lloyds TSB Group 632,067 2,042,718 Prudential 552,011 2,772,681 SOCO Intl 73,459(b) 1,692,172 Tesco 630,217 3,452,709 Tullow Oil 436,396 3,705,782 Vodafone Group 3,199,094 6,153,577 ----------- Total 40,734,175 ------------------------------------------------------------------------------------- UNITED STATES (54.1%) Adobe Systems 107,541(b) 2,864,892 American Express 70,000 1,925,000 Aon 60,397 2,554,793 Arch Coal 80,000 1,712,800 AT&T 303,983 8,137,625 Cisco Systems 240,920(b) 4,281,148 Cliffs Natural Resources 35,580 960,304 Coca-Cola 129,628 5,711,410 Comcast Cl A 432,615 6,818,012 CVS Caremark 98,220 3,010,443 Devon Energy 77,055 6,230,667 Diamond Offshore Drilling 30,359 2,695,880 eBay 146,456(b) 2,236,383 ENSCO Intl 60,000 2,280,600 Genzyme 83,200(b) 6,063,616 Gilead Sciences 96,397(b) 4,419,802 Goldman Sachs Group 14,294 1,322,195 Google Cl A 12,175(b) 4,375,208 IBM 112,478 10,457,080 Johnson & Johnson 213,502 13,096,212 JPMorgan Chase & Co 195,667 8,071,264 KeyCorp 200,000 2,446,000 Laboratory Corp of America Holdings 83,120(b) 5,111,048 Lowe's Companies 120,000 2,604,000 McAfee 53,912(b) 1,754,836 Merck & Co 88,013 2,724,002 Microsoft 581,405 12,982,773 Norfolk Southern 172,379 10,332,397 Oracle 373,402(b) 6,829,522 PepsiCo 150,814 8,597,906 Pfizer 406,759 7,203,702 Philip Morris Intl 112,356 4,884,115 Plum Creek Timber 83,189 3,101,286 Procter & Gamble 132,051 8,522,572 QUALCOMM 75,000 2,869,500 Republic Services 201,992 4,787,210 Schering-Plough 201,953 2,926,299 St. Jude Medical 76,051(b) 2,892,220 Synovus Financial 432,084 4,463,428 Thermo Fisher Scientific 138,398(b) 5,618,959 Travelers Companies 184,253 7,839,966 Ultra Petroleum 50,984(b) 2,373,305 Valero Energy 118,660 2,442,023 Wal-Mart Stores 251,538 14,038,336 Walt Disney 146,355 3,790,595 WellPoint 98,572(b) 3,831,494 ----------- Total 234,192,828 ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $588,312,259) $427,836,205 ------------------------------------------------------------------------------------- MONEY MARKET FUND (1.5%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 1.60% 6,623,559(d) $6,623,559 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $6,623,559) $6,623,559 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $594,935,818)(e) $434,459,764 =====================================================================================
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 20 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY The following table represents the portfolio investments of the Fund by industry classifications as a percentage of total net assets at Oct. 31, 2008:
PERCENTAGE OF INDUSTRY NET ASSETS VALUE ----------------------------------------------------------------------- Aerospace & Defense 0.5% $2,166,895 Automobiles 0.6 2,581,749 Beverages 3.3 14,309,316 Biotechnology 3.7 16,063,257 Capital Markets 0.3 1,322,195 Chemicals 2.2 9,477,852 Commercial Banks 5.6 24,043,990 Commercial Services & Supplies 1.1 4,787,210 Communications Equipment 2.3 10,073,089 Computers & Peripherals 2.8 12,053,990 Consumer Finance 0.4 1,925,000 Diversified Financial Services 1.9 8,071,264 Diversified Telecommunication Services 3.0 12,940,962 Electric Utilities 0.5 2,086,821 Electrical Equipment 1.0 4,260,456 Energy Equipment & Services 2.2 9,567,348 Food & Staples Retailing 4.7 20,501,488 Food Products 3.6 15,738,097 Health Care Equipment & Supplies 0.7 2,892,220 Health Care Providers & Services 2.1 8,942,542 Hotels, Restaurants & Leisure 0.6 2,671,302 Household Durables 0.3 1,473,257 Household Products 2.0 8,522,572 Independent Power Producers & Energy Traders 0.5 2,348,219 Industrial Conglomerates 0.6 2,601,550 Insurance 6.6 28,020,058 Internet & Catalog Retail 0.4 1,783,860 Internet Software & Services 1.5 6,611,591 IT Services 0.7 2,974,500 Life Sciences Tools & Services 1.3 5,618,959 Machinery 0.4 1,759,338 Media 2.5 10,608,607 Metals & Mining 2.7 11,825,534 Multi-Utilities 0.7 3,062,946 Office Electronics 0.9 4,049,663 Oil, Gas & Consumable Fuels 6.5 27,825,262 Pharmaceuticals 10.6 45,615,971 Real Estate Investment Trusts (REITs) 0.7 3,101,286 Real Estate Management & Development 1.7 7,489,816 Road & Rail 2.4 10,332,397 Semiconductors & Semiconductor Equipment 0.6 2,689,844 Software 7.7 32,818,332
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
PERCENTAGE OF INDUSTRY NET ASSETS VALUE ----------------------------------------------------------------------- Specialty Retail 1.6% $7,023,328 Tobacco 1.1 4,884,115 Wireless Telecommunication Services 1.9 8,318,157 Other(1) 1.5 6,623,559 ----------------------------------------------------------------------- Total $434,459,764 -----------------------------------------------------------------------
(1) Cash & Cash Equivalents. NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. (d) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Oct. 31, 2008. (e) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $598,979,582 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,607,213 Unrealized depreciation (168,127,031) ------------------------------------------------------------ Net unrealized depreciation $(164,519,818) ------------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 22 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $588,312,259) $ 427,836,205 Affiliated money market fund (identified cost $6,623,559) 6,623,559 -------------------------------------------------------------------------------- Total investments in securities (identified cost $594,935,818) 434,459,764 Foreign currency holdings (identified cost $250,247) 252,785 Capital shares receivable 358,291 Dividends receivable 706,822 Receivable for investment securities sold 4,409,678 Reclaims receivable 394,816 -------------------------------------------------------------------------------- Total assets 440,582,156 -------------------------------------------------------------------------------- LIABILITIES Capital shares payable 468,262 Payable for investment securities purchased 7,517,275 Accrued investment management services fees 9,180 Accrued distribution fees 3,817 Accrued transfer agency fees 3,375 Accrued administrative services fees 930 Accrued plan administration services fees 34 Other accrued expenses 144,192 -------------------------------------------------------------------------------- Total liabilities 8,147,065 -------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 432,435,091 -------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 836,473 Additional paid-in capital 997,824,407 Undistributed net investment income 2,536,752 Accumulated net realized gain (loss) (408,287,051) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (160,475,490) -------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 432,435,091 --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $380,429,958 73,040,390 $5.21(1) Class B $ 42,166,196 8,654,662 $4.87 Class C $ 4,754,813 985,451 $4.83 Class I $ 3,498 666 $5.25 Class R2 $ 3,314 634 $5.23 Class R3 $ 3,322 634 $5.24 Class R4 $ 5,067,319 963,574 $5.26 Class R5 $ 3,329 634 $5.25 Class W $ 3,342 639 $5.23 -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $5.53. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 23 STATEMENT OF OPERATIONS -------------------------------------------------------- YEAR ENDED OCT. 31, 2008
INVESTMENT INCOME Income: Dividends $ 15,191,451 Interest 17,988 Income distributions from affiliated money market fund 267,987 Fee income from securities lending 101,233 Less foreign taxes withheld (798,509) -------------------------------------------------------------------------------- Total income 14,780,150 -------------------------------------------------------------------------------- Expenses: Investment management services fees 5,825,153 Distribution fees Class A 1,507,084 Class B 814,247 Class C 73,244 Class R2 25 Class R3 13 Class W 13 Transfer agency fees Class A 1,316,120 Class B 187,180 Class C 16,522 Class R2 3 Class R3 3 Class R4 4,089 Class R5 3 Class W 10 Administrative services fees 549,601 Plan administration services fees Class R2 13 Class R3 13 Class R4 20,446 Compensation of board members 15,113 Custodian fees 240,610 Printing and postage 165,380 Registration fees 83,650 Professional fees 42,982 Other 26,395 -------------------------------------------------------------------------------- Total expenses 10,887,912 Expenses waived/reimbursed by the Investment Manager and its affiliates (1,360) Earnings and bank fee credits on cash balances (18,631) -------------------------------------------------------------------------------- Total net expenses 10,867,921 -------------------------------------------------------------------------------- Investment income (loss) -- net 3,912,229 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 24 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $ (63,602,873) Foreign currency transactions (738,516) -------------------------------------------------------------------------------- Net realized gain (loss) on investments (64,341,389) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (324,354,761) -------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (388,696,150) -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(384,783,921) --------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 25 STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
YEAR ENDED OCT. 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 3,912,229 $ 1,375,121 Net realized gain (loss) on investments (64,341,389) 130,447,745 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (324,354,761) 67,887,744 ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (384,783,921) 199,710,610 ----------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (2,895,413) (5,052,007) Class B -- (46,137) Class C -- (24,579) Class R2 (16) (60) Class R3 (28) (61) Class R4 (51,464) (77,098) Class R5 (43) (61) Class W (24) (61) ----------------------------------------------------------------------------------------------- Total distributions (2,946,988) (5,200,064) ----------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 122,218,532 103,394,162 Class B shares 19,744,662 16,189,120 Class C shares 2,778,659 2,137,681 Class I shares 5,000 N/A Class R2 shares -- 5,000 Class R3 shares -- 5,000 Class R4 shares 2,142,353 2,445,834 Class R5 shares -- 5,000 Class W shares -- 5,000 Reinvestment of distributions at net asset value Class A shares 2,842,402 4,972,629 Class B shares -- 45,360 Class C shares -- 23,936 Class R4 shares 51,464 77,098 Payments for redemptions Class A shares (144,969,040) (141,986,972) Class B shares (38,846,306) (50,692,015) Class C shares (2,137,746) (1,286,730) Class R4 shares (2,469,638) (4,449,426) ----------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (38,639,658) (69,109,323) ----------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (426,370,567) 125,401,223 Net assets at beginning of year 858,805,658 733,404,435 ----------------------------------------------------------------------------------------------- Net assets at end of year $ 432,435,091 $ 858,805,658 ----------------------------------------------------------------------------------------------- Undistributed net investment income $ 2,536,752 $ 2,648,118 -----------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.61 $7.52 $6.23 $5.16 $4.62 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05(b) .02(b) .01 .02 -- Net gains (losses) (both realized and unrealized) (4.41) 2.13 1.30 1.08 .54 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.36) 2.15 1.31 1.10 .54 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.06) (.02) (.03) -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $9.61 $7.52 $6.23 $5.16 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $380 $737 $608 $446 $364 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 1.46% 1.39% 1.51% 1.57% 1.41% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .65% .28% .23% .33% .07% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.55%) 28.82% 21.01% 21.48% 11.72% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 27 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.02 $7.06 $5.88 $4.87 $4.40 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.04)(b) (.01) (.02) (.03) Net gains (losses) (both realized and unrealized) (4.14) 2.00 1.19 1.03 .50 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.15) 1.96 1.18 1.01 .47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- .00(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.87 $9.02 $7.06 $5.88 $4.87 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $104 $110 $102 $104 -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 2.23% 2.15% 2.28% 2.34% 2.18% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.11%) (.45%) (.54%) (.41%) (.66%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return(f) (46.01%) 27.81% 20.07% 20.74% 10.68% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $8.93 $7.02 $5.85 $4.85 $4.38 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.01)(b) (.04)(b) (.01) (.02) (.02) Net gains (losses) (both realized and unrealized) (4.09) 1.98 1.18 1.03 .49 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.10) 1.94 1.17 1.01 .47 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.03) -- (.01) -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.83 $8.93 $7.02 $5.85 $4.85 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $8 $6 $2 $1 -------------------------------------------------------------------------------------------------------------- Total expenses(c),(d) 2.22% 2.15% 2.27% 2.33% 2.19% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.09%) (.48%) (.50%) (.53%) (.69%) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return(e) (45.91%) 27.76% 20.03% 20.89% 10.73% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Total return does not reflect payment of a sales charge. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 29 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $7.47 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (2.25) -------------------------------------------------------------------------------------------------------------- Total from investment operations (2.22) -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) .85%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.55%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% -------------------------------------------------------------------------------------------------------------- Total return (29.72%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 30 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.62 $7.89 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .05 (.01) Net gains (losses) (both realized and unrealized) (4.42) 1.84 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.83 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.23 $9.62 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.79% 1.74%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.54% 1.74%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .57% (.13%)(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.48%) 23.41%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 31 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.65 $7.89 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .06 .01 Net gains (losses) (both realized and unrealized) (4.43) 1.85 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.86 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.24 $9.65 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.54% 1.49%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.29% 1.49%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .82% .12%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.43%) 23.80%(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 32 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $9.70 $7.60 $6.29 $5.20 $4.65 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(b) .04(b) .02 .04 .01 Net gains (losses) (both realized and unrealized) (4.46) 2.13 1.31 1.09 .54 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.39) 2.17 1.33 1.13 .55 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.07) (.02) (.04) .00 -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.26 $9.70 $7.60 $6.29 $5.20 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $10 $9 $6 $4 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) 1.29% 1.23% 1.32% 1.38% 1.23% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(e),(f) 1.28% 1.23% 1.32% 1.38% 1.23% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .83% .45% .44% .49% .25% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% 112% 93% 104% -------------------------------------------------------------------------------------------------------------- Total return (45.47%) 28.85% 21.26% 21.90% 11.88% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (f) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 33 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.69 $7.89 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 .05 Net gains (losses) (both realized and unrealized) (4.45) 1.85 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.37) 1.90 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 $9.69 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 1.04% .99%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 1.07% .62%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.40%) 24.33%(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 34 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008 2007(b) Net asset value, beginning of period $9.66 $7.83 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .05 .02 Net gains (losses) (both realized and unrealized) (4.44) 1.91 -------------------------------------------------------------------------------------------------------------- Total from investment operations (4.39) 1.93 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.23 $9.66 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- -------------------------------------------------------------------------------------------------------------- Total expenses(d),(e) 1.43% 1.39%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .68% .20%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 97% 100% -------------------------------------------------------------------------------------------------------------- Total return (45.62%) 24.87%(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Includes the impact of a performance incentive adjustment, if any. Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended Oct. 31, 2008 were less than 0.01% of average net assets. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Threadneedle Global Equity Fund (the Fund) (formerly RiverSource Global Equity Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). Under normal market conditions, at least 80% of the Fund's net assets will be invested in equity securities, including companies located in developed and emerging countries. The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. Class I shares became effective Aug. 1, 2008. - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At Oct. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) owned 100% of Class I, Class R2, Class R3, Class R5 and Class W shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- 36 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these future contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. -------------------------------------------------------------------------------- 38 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Oct. 31, 2008, foreign currency holdings consisted of multiple denominations. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. At Oct. 31, 2008, the Fund had no outstanding forward foreign currency contracts. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of foreign currency transactions, passive foreign investment company (PFIC) holdings, re- characterization of REIT distributions, and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $1,076,607 and accumulated net realized loss has been decreased by $1,076,607. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED OCT. 31, 2008* 2007** ---------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income.................... $2,895,413 $5,052,007 Long-term capital gain............. -- -- CLASS B Distributions paid from: Ordinary income.................... -- 46,137 Long-term capital gain............. -- -- CLASS C Distributions paid from: Ordinary income.................... -- 24,579 Long-term capital gain............. -- -- CLASS I Distributions paid from: Ordinary income.................... -- N/A Long-term capital gain............. -- N/A CLASS R2 Distributions paid from: Ordinary income.................... 16 60 Long-term capital gain............. -- --
-------------------------------------------------------------------------------- 40 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
YEAR ENDED OCT. 31, 2008* 2007** ---------------------------------------------------------------- CLASS R3 Distributions paid from: Ordinary income.................... $28 $61 Long-term capital gain............. -- -- CLASS R4 Distributions paid from: Ordinary income.................... 51,464 77,098 Long-term capital gain............. -- -- CLASS R5 Distributions paid from: Ordinary income.................... 43 61 Long-term capital gain............. -- -- CLASS W Distributions paid from: Ordinary income.................... 24 61 Long-term capital gain............. -- --
* Class I is for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. ** Class R2, Class R3 and Class R5 are for the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income................. $ 2,543,644 Undistributed accumulated long-term gain...... $ -- Accumulated realized loss..................... $(404,243,287) Unrealized appreciation (depreciation)........ $(164,526,146)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Nov. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.80% to 0.57% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by measuring the percentage difference over a rolling 12-month period between the annualized performance of one Class A share of the Fund and the annualized performance of the Lipper Global Funds Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The adjustment increased the management fee by $393,409 for the year ended Oct. 31, 2008. The management fee for the year ended Oct. 31, 2008 was 0.83% of the Fund's average daily net assets, including the adjustment under the terms of the performance incentive arrangement. -------------------------------------------------------------------------------- 42 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- SUBADVISORY AGREEMENT The Investment Manager has a Subadvisory Agreement with Threadneedle International Limited (Threadneedle), an affiliate of the Investment Manager and an indirect wholly-owned subsidiary of Ameriprise Financial, to subadvise the assets of the Fund. The Investment Manager contracts with and compensates Threadneedle to manage the investment of the Fund's assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the year ended Oct. 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended Oct. 31, 2008, other expenses paid to this company were $3,588. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A, Class R3 and Class W shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $1,733,000 and $58,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $749,778 for Class A, $49,352 for Class B and $1,644 for Class C for the year ended Oct. 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), including the adjustment under the terms of a performance incentive arrangement, were as follows: Class R2............................................ 1.54% Class R3............................................ 1.29 Class R4............................................ 1.28
-------------------------------------------------------------------------------- 44 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2........................................... $13 Class R3........................................... 13 Class R4........................................... 1,334
The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, will not exceed the following percentage of the Fund's average daily net assets: Class R4............................................ 1.27%
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended Oct. 31, 2008, the Fund's custodian and transfer agency fees were reduced by $18,631 as a result of earnings and bank fee credits from overnight cash balances. The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $670,217,944 and $698,227,533, respectively, for the year ended Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. Income from securities lending amounted to $101,233 for the year ended Oct. 31, 2008. Expenses paid to the Investment Manager as securities lending agent were $1,067 for the year ended Oct. 31, 2008, which are included in other expenses on the Statement of Operations. The risk to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. At Oct. 31, 2008, the Fund had no securities out on loan. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 45 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
YEAR ENDED OCT. 31, 2008* ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 15,480,435 328,601 (19,420,602) (3,611,566) Class B 2,606,662 -- (5,461,285) (2,854,623) Class C 381,563 -- (318,939) 62,624 Class I 666 -- -- 666 Class R4 264,404 5,909 (319,876) (49,563) ---------------------------------------------------------------------------------- YEAR ENDED OCT. 31, 2007** ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 12,264,903 636,700 (17,108,766) (4,207,163) Class B 2,095,921 6,146 (6,192,934) (4,090,867) Class C 276,396 3,279 (164,135) 115,540 Class R2 634 -- -- 634 Class R3 634 -- -- 634 Class R4 288,576 9,796 (531,402) (233,030) Class R5 634 -- -- 634 Class W 639 -- -- 639 ----------------------------------------------------------------------------------
* Class I is for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. ** Class R2, Class R3 and Class R5 are for the period from Dec. 11, 2006 (inception date) to Oct. 31, 2007. Class W is for the period from Dec. 1, 2006 (inception date) to Oct. 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $302,567,723 and $308,596,766, respectively, for the year ended Oct. 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Oct. 31, 2008, can be found in the Portfolio of Investments. -------------------------------------------------------------------------------- 46 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the year ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $404,243,287 at Oct. 31, 2008, that if not offset by capital gains will expire as follows:
2009 2010 2011 2016 $170,490,067 $143,634,885 $30,509,951 $59,608,384
-------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 47 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 8. RISKS RELATING TO CERTAIN INVESTMENTS FOREIGN/EMERGING MARKETS RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties -------------------------------------------------------------------------------- 48 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 49 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. 10. SUBSEQUENT EVENT Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the securities lending agent for the Fund. -------------------------------------------------------------------------------- 50 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THREADNEEDLE GLOBAL EQUITY FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Threadneedle Global Equity Fund (the Fund), formerly the RiverSource Global Equity Fund, (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the periods presented through October 31, 2006, were audited by other auditors whose report dated December 20, 2006, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT 51 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------ In our opinion, the financial statements and financial highlights audited by us as referred to above present fairly, in all material respects, the financial position of Threadneedle Global Equity Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- 52 THREADNEEDLE GLOBAL EQUITY FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (93.0%)(c) ISSUER SHARES VALUE(a) AUSTRALIA (2.2%) Australia & New Zealand Banking Group $91,2- 7,784 00 Lend Lease 12,006 55,526 Transurban Group 18,204 65,326 -------- Total 212,052 ------------------------------------------------------------------------------------- BRAZIL (2.5%) Cia de Bebidas das Americas 2,600 110,964 Cia Vale do Rio Doce ADR 8,160 95,554 Petroleo Brasileiro 3,000 32,447 -------- Total 238,965 ------------------------------------------------------------------------------------- CANADA (0.3%) Timberwest Forest Unit 5,600 31,742 ------------------------------------------------------------------------------------- CHINA (0.7%) CNOOC 80,000 65,036 ------------------------------------------------------------------------------------- CZECH REPUBLIC (0.5%) Telefonica O2 Czech Republic GDR 2,462 51,640 ------------------------------------------------------------------------------------- DENMARK (0.8%) TrygVesta 1,376 82,736 ------------------------------------------------------------------------------------- FINLAND (3.2%) Nokia 5,284 80,913 Sampo Series A 7,352 147,280 Talvivaara Mining 13,198(b) 43,063 Wartsila 1,634 41,385 -------- Total 312,641 ------------------------------------------------------------------------------------- FRANCE (4.0%) France Telecom 2,974 74,965 PagesJaunes Groupe 4,414 41,831 Total 2,315 127,311 Vivendi 5,405 141,232 -------- Total 385,339 ------------------------------------------------------------------------------------- GERMANY (4.4%) BASF 3,024 101,482 Bayer 1,683 94,103 Deutsche Telekom 5,389 79,990 K+S 807 31,371 RWE 1,443 119,954 -------- Total 426,900 ------------------------------------------------------------------------------------- GREECE (0.5%) OPAP 2,088 45,575 ------------------------------------------------------------------------------------- HONG KONG (2.6%) Champion REIT 163,000 39,138 Esprit Holdings 27,400 155,698 Hang Lung Properties 25,000 61,091 -------- Total 255,927 ------------------------------------------------------------------------------------- IRELAND (0.2%) Bank of Ireland 7,425 21,916 ------------------------------------------------------------------------------------- ITALY (5.2%) Enel 17,740 118,643 Eni 8,420 200,898 Snam Rete Gas 19,300 97,665 Telecom Italia 35,682 40,976 UniCredit 20,312 49,707 -------- Total 507,889 ------------------------------------------------------------------------------------- JAPAN (5.3%) Nintendo 500 160,699 Nissan Motor 15,400 76,504 Ono Pharmaceutical 4,600 205,110 Oracle Japan 1,800 78,275 -------- Total 520,588 ------------------------------------------------------------------------------------- MEXICO (1.1%) Grupo Continental 66,400 103,389 ------------------------------------------------------------------------------------- NETHERLANDS (1.3%) Aegon 7,632 31,701 Royal Dutch Shell Series B 3,381 91,656 -------- Total 123,357 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 11 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) NORWAY (1.9%) DNB NOR $67,2- 11,600 64 StatoilHydro 3,550 71,444 Telenor 7,900 47,166 -------- Total 185,874 ------------------------------------------------------------------------------------- SINGAPORE (1.4%) DBS Group Holdings 18,000 137,468 ------------------------------------------------------------------------------------- SPAIN (2.1%) Inditex 2,164 73,123 Telefonica 7,097 131,354 -------- Total 204,477 ------------------------------------------------------------------------------------- SWEDEN (2.1%) Holmen Series B 2,507 70,704 Skanska Series B 7,865 69,117 SKF Group Series B 7,374 67,209 -------- Total 207,030 ------------------------------------------------------------------------------------- TAIWAN (4.4%) Chunghwa Telecom ADR 4,786 78,783 Delta Electronics 45,000 102,179 High Tech Computer 5,000 59,299 Hung Poo Real Estate Development 108,000 56,634 Taiwan Semiconductor Mfg 89,000 129,569 -------- Total 426,464 ------------------------------------------------------------------------------------- UNITED KINGDOM (13.6%) Admiral Group 10,097 149,667 Anglo American 3,491 87,585 BP 19,444 158,483 British American Tobacco 7,340 201,312 Drax Group 8,341 77,500 GlaxoSmithKline 6,072 116,717 Home Retail Group 17,530 55,868 Intl Power 24,739 88,495 Natl Grid 12,062 135,867 Pearson 8,591 85,561 Prudential 14,043 70,536 Vodafone Group 48,856 93,976 -------- Total 1,321,567 ------------------------------------------------------------------------------------- UNITED STATES (32.6%) AllianceBernstein Holding LP 1,311 30,730 AT&T 10,840 290,186 Bank of America 6,479 156,598 BP Prudhoe Bay Royalty Trust 3,130 258,193 Bristol-Myers Squibb 8,102 166,496 Coca-Cola 1,018 44,853 Diamond Offshore Drilling 1,692 150,250 JPMorgan Chase & Co 3,349 138,146 KeyCorp 10,300 125,969 Kinder Morgan Energy Partners LP 3,225 174,311 Kraft Foods Cl A 1,562 45,517 Merck & Co 5,939 183,812 Newell Rubbermaid 9,843 135,341 Packaging Corp of America 8,655 145,664 Parkway Properties 2,542 43,850 Pfizer 15,978 282,970 Philip Morris Intl 3,255 141,495 Plum Creek Timber 2,400 89,471 Regal Entertainment Group Cl A 7,729 99,240 Reynolds American 2,610 127,786 US Bancorp 6,700 199,727 UST 2,296 155,187 -------- Total 3,185,792 ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $11,438,926) $9,054,364 =====================================================================================
BONDS (0.6%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) JERSEY Intl Power Finance III (European Monetary Unit) 06-05-15 4.75% $100,000(c) $54,065 ------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $66,890) $54,065 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $11,505,816)(d) $9,108,429 =====================================================================================
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 12 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY The following table represents the portfolio investments of the Fund by industry classifications as a percentage of total net assets at Oct. 31, 2008:
PERCENTAGE OF INDUSTRY NET ASSETS VALUE ----------------------------------------------------------------------- Automobiles 0.8% $76,504 Beverages 2.7 259,206 Capital Markets 0.3 30,730 Chemicals 1.4 132,853 Commercial Banks 7.1 693,251 Communications Equipment 0.8 80,913 Computers & Peripherals 0.6 59,299 Construction & Engineering 0.7 69,117 Containers & Packaging 1.5 145,664 Diversified Financial Services 3.0 294,744 Diversified Telecommunication Services 8.2 795,060 Electric 0.6 54,065 Electric Utilities 1.2 118,643 Electronic Equipment, Instruments & 102,179 Components 1.0 Energy Equipment & Services 1.5 150,250 Food Products 0.5 45,517 Gas Utilities 1.0 97,665 Hotels, Restaurants & Leisure 0.5 45,575 Household Durables 1.4 135,341 Independent Power Producers & Energy 165,995 Traders 1.7 Insurance 4.9 481,920 Internet & Catalog Retail 0.6 55,868 Machinery 1.1 108,594 Media 3.8 367,864 Metals & Mining 2.3 226,202 Multi-Utilities 2.6 255,821 Oil, Gas & Consumable Fuels 12.1 1,179,779 Paper & Forest Products 1.1 102,446 Pharmaceuticals 10.8 1,049,208 Real Estate Investment Trusts (REITs) 1.8 172,459 Real Estate Management & Development 1.8 173,251 Semiconductors & Semiconductor 129,569 Equipment 1.3 Software 2.5 238,974 Specialty Retail 2.3 228,821 Tobacco 6.4 625,780 Transportation Infrastructure 0.7 65,326 Wireless Telecommunication Services 1.0 93,976 ----------------------------------------------------------------------- Total $9,108,429 -----------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 13 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. (d) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $11,537,612 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $51,036 Unrealized depreciation (2,480,219) ----------------------------------------------------------- Net unrealized depreciation $(2,429,183) -----------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. -------------------------------------------------------------------------------- 14 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to implement more uniform reporting relating to the fair valuation of securities for financial statement purposes. Mutual funds are required to implement the requirements of this standard for fiscal years beginning after Nov. 15, 2007. While uniformity of presentation is the objective of the standard, industry implementation has just begun and it is likely that there will be a range of practices utilized and it will be some period of time before industry practices become more uniform. For this reason care should be exercised in interpreting this information and/or using it for comparison with other mutual funds. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund's own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. Non-U.S. equity securities actively traded in foreign markets may be reflected in Level 2 despite the availability of closing prices, because the fund evaluates and determines whether those closing prices reflect fair value at the close of the NYSE or require adjustment, as described in Note 1 to the financial statements - Valuation of securities. The following table is a summary of the inputs used to value the Fund's investments as of Oct. 31, 2008:
FAIR VALUE AT OCT. 31, 2008 -------------------------------------------------------- LEVEL 1 LEVEL 2 QUOTED PRICES OTHER LEVEL 3 IN ACTIVE SIGNIFICANT SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL --------------------------------------------------------------------------------- Investments in securities $3,391,872 $5,716,557 $-- $9,108,429
-------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 15 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 16 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value (identified cost $11,505,816) $ 9,108,429 Cash 753,746 Foreign currency holdings (identified cost $271,148) 265,604 Capital shares receivable 96,970 Dividends receivable 29,704 Receivable for investment securities sold 77,838 ------------------------------------------------------------------------------ Total assets 10,332,291 ------------------------------------------------------------------------------ LIABILITIES Payable for investment securities purchased 551,406 Accrued investment management services fees 208 Accrued distribution fees 55 Accrued transfer agency fees 40 Accrued administrative services fees 21 Other accrued expenses 41,487 ------------------------------------------------------------------------------ Total liabilities 593,217 ------------------------------------------------------------------------------ Net assets applicable to outstanding capital stock $ 9,739,074 ------------------------------------------------------------------------------ REPRESENTED BY Capital stock -- $.01 par value $ 13,444 Additional paid-in capital 12,341,344 Excess of distributions over net investment income (934) Accumulated net realized gain (loss) (213,844) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (2,400,936) ------------------------------------------------------------------------------ Total -- representing net assets applicable to outstanding capital stock $ 9,739,074 ------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $5,428,904 749,581 $7.24(1) Class B $ 648,517 89,630 $7.24 Class C $ 57,726 7,976 $7.24 Class I $3,573,485 493,000 $7.25 Class R2 $ 7,248 1,000 $7.25 Class R3 $ 7,250 1,000 $7.25 Class R4 $ 8,696 1,199 $7.25 Class R5 $ 7,248 1,000 $7.25 ---------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $7.68. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 17 STATEMENT OF OPERATIONS -------------------------------------------------------- FOR THE PERIOD FROM AUG. 1, 2008* TO OCT. 31, 2008
INVESTMENT INCOME Income: Dividends $ 100,144 Interest 4,158 Less foreign taxes withheld (6,031) ------------------------------------------------------------------------------ Total income 98,271 ------------------------------------------------------------------------------ Expenses: Investment management services fees 15,723 Distribution fees Class A 1,812 Class B 818 Class C 157 Class R2 11 Class R3 6 Transfer agency fees Class A 1,624 Class B 198 Class C 35 Class R2 1 Class R3 1 Class R4 1 Class R5 1 Administrative services fees 1,528 Plan administration services fees Class R2 6 Class R3 6 Class R4 7 Compensation of board members 66 Custodian fees 4,457 Printing and postage 7,123 Registration fees 9,536 Professional fees 38,918 Other 2,302 ------------------------------------------------------------------------------ Total expenses 84,337 Expenses waived/reimbursed by the Investment Manager and its affiliates (59,413) ------------------------------------------------------------------------------ Total net expenses 24,924 ------------------------------------------------------------------------------ Investment income (loss) -- net 73,347 ------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (214,071) Foreign currency transactions (53,391) ------------------------------------------------------------------------------ Net realized gain (loss) on investments (267,462) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (2,378,855) ------------------------------------------------------------------------------ Net gain (loss) on investments and foreign currencies (2,646,317) ------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $(2,572,970) ------------------------------------------------------------------------------
* When shares became publicly available. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 18 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------- FOR THE PERIOD FROM AUG. 1, 2008* TO OCT. 31, 2008
OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 73,347 Net realized gain (loss) on investments (267,462) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (2,378,855) ------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations (2,572,970) ------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (10,316) Class B (993) Class C (166) Class I (12,568) Class R2 (13) Class R3 (17) Class R4 (25) Class R5 (25) Tax return of capital Class A (506) Class B (59) Class C (12) Class I (555) Class R2 (1) Class R3 (1) Class R4 (1) Class R5 (1) ------------------------------------------------------------------------------ Total distributions (25,259) ------------------------------------------------------------------------------
-------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 19 STATEMENT OF CHANGES IN NET ASSETS (continued) --------------------------------- FOR THE PERIOD ENDED AUG. 1, 2008* TO OCT. 31, 2008
CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 6,965,441 Class B shares 763,341 Class C shares 96,736 Class R4 shares 2,000 Reinvestment of distributions at net asset value Class A shares 10,418 Class B shares 1,033 Class C shares 161 Class R4 shares 4 Payments for redemptions Class A shares (459,003) Class C shares (22,899) ------------------------------------------------------------------------------ Increase (decrease) in net assets from capital share transactions 7,357,232 ------------------------------------------------------------------------------ Total increase (decrease) in net assets 4,759,003 Net assets at beginning of period 4,980,071** ------------------------------------------------------------------------------ Net assets at end of period $ 9,739,074 ------------------------------------------------------------------------------ Undistributed (excess of distributions over) net investment income $ (934) ------------------------------------------------------------------------------
* When shares became publicly available. ** Initial capital of $5,000,000 was contributed on July 24, 2008. The Fund had a decrease in net assets resulting from operations of $19,929 during the period from July 24, 2008 to Aug. 1, 2008 (when shares became publicly available). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 20 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.24 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.71%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.45%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.78%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return(h) (27.12%)(i) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 21 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .06 Net gains (losses) (both realized and unrealized) (2.76) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.24 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.48%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 2.21%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.11%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return(h) (27.15%)(i) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 22 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.24 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.15%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 2.21%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.31%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return(h) (27.18%)(i) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 23 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .09 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.68) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.03) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.12%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.07%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.95%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.00%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 24 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .07 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.70) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.01) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.92%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.72%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.36%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.10%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 25 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.69) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.68%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.47%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.61%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.07%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .08 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.69) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.02) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.42%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.24%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.89%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.04%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 27 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $9.96 ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .09 Net gains (losses) (both realized and unrealized) (2.77) ------------------------------------------------------------------------------------------------------------- Total from investment operations (2.68) ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.03) Tax return of capital .00(d) ------------------------------------------------------------------------------------------------------------- Total distributions (.03) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $7.25 ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 4.17%(f) ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.12%(f) ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.91%(f) ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 10% ------------------------------------------------------------------------------------------------------------- Total return (27.00%)(h) -------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS ------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Threadneedle Global Equity Income Fund (the Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). Under normal market conditions, at least 80% of the Fund's net assets will be invested in equity securities, including companies located in (non-U.S.) developed and emerging countries. On July 24, 2008, RiverSource Investments, LLC (the Investment Manager) a subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), invested $5,000,000 in the Fund (1,000 shares for Class A, 1,000 shares for Class B, 1,000 shares for Class C, 493,000 shares for Class I, 1,000 shares for Class R2, 1,000 shares for Class R3, 1,000 shares for Class R4 and 1,000 shares for Class R5), which represented the initial capital for each class at $10 per share. Shares of the Fund were first offered to the public on Aug. 1, 2008. The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class R4 and Class R5 shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. At Oct. 31, 2008, the Investment Manager owned 100% of Class I, Class R2, Class R3 and Class R5 shares and at Oct. 31, 2008, the Investment Manager owned approximately 37% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 29 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES Effective Aug. 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. There was no impact to the Fund's net assets or results of operations upon adoption. The fair valuation measurements disclosure can be found following the Notes to Portfolio of Investments. All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. -------------------------------------------------------------------------------- 30 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Accordingly, in those situations, Ameriprise Financial, as administrator to the Fund, will fair value foreign equity securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the period then ended, the Fund had no outstanding option contracts. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 31 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these future contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Oct. 31, 2008, foreign currency holdings consisted of multiple denominations. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. At Oct. 31, 2008, the Fund had no outstanding forward foreign currency contracts. -------------------------------------------------------------------------------- 32 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of foreign currency transactions, passive foreign investment company (PFIC) holdings, re- characterization of REIT distributions, investments in partnerships and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $54,336 and accumulated net realized loss has been decreased by $55,644 resulting in a net reclassification adjustment to decrease paid-in capital by $1,308. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- The tax character of distributions paid for the period indicated is as follows:
YEAR ENDED OCT. 31, 2008* ----------------------------------------------------------- CLASS A Distributions paid from: Ordinary income.............................. $10,316 Long-term capital gain....................... -- Tax return of capital........................ 506 CLASS B Distributions paid from: Ordinary income.............................. 993 Long-term capital gain....................... -- Tax return of capital........................ 59 CLASS C Distributions paid from: Ordinary income.............................. 166 Long-term capital gain....................... -- Tax return of capital........................ 12 CLASS I Distributions paid from: Ordinary income.............................. 12,568 Long-term capital gain....................... -- Tax return of capital........................ 555 CLASS R2 Distributions paid from: Ordinary income.............................. 13 Long-term capital gain....................... -- Tax return of capital........................ 1 CLASS R3 Distributions paid from: Ordinary income.............................. 17 Long-term capital gain....................... -- Tax return of capital........................ 1 CLASS R4 Distributions paid from: Ordinary income.............................. 25 Long-term capital gain....................... -- Tax return of capital........................ 1 CLASS R5 Distributions paid from: Ordinary income.............................. 25 Long-term capital gain....................... -- Tax return of capital........................ 1
* For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. -------------------------------------------------------------------------------- 34 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $-- Undistributed accumulated long-term gain....... $-- Accumulated realized loss...................... $(182,867) Unrealized appreciation (depreciation)......... $(2,432,847)
RECENT ACCOUNTING PRONOUNCEMENT In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared and paid each calendar quarter, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.80% to 0.57% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- measuring the percentage difference over a rolling 12-month period between the annualized performance of one Class A share of the Fund and the annualized performance of the MSCI All Country World Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.12% per year. If the performance difference is less than 0.50%, the adjustment will be zero. The first adjustment will be made on Feb. 1, 2009 and cover the six-month period beginning Aug. 1, 2008. The management fee for the period ended Oct. 31, 2008 was 0.80% of the Fund's average daily net assets. SUBADVISORY AGREEMENT The Investment Manager has a Subadvisory Agreement with Threadneedle International Limited (Threadneedle), an affiliate of the Investment Manager and an indirect wholly-owned subsidiary of Ameriprise Financial, to subadvise the assets of the Fund. The Investment Manager contracts with and compensates Threadneedle to manage the investment of the Fund's assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the period ended Oct. 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the period ended Oct. 31, 2008, there were no expenses incurred for these particular items. COMPENSATION OF BOARD MEMBERS Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, -------------------------------------------------------------------------------- 36 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class R3 shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $38,000 and $1,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $18,329 for Class A and $229 for Class C for the period ended Oct. 31, 2008. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the period ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 1.45% Class B............................................. 2.21 Class C............................................. 2.21 Class I............................................. 1.07 Class R2............................................ 1.72 Class R3............................................ 1.47 Class R4............................................ 1.24 Class R5............................................ 1.12
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A............................................ $682 Class B............................................ 84 Class C............................................ 15
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2............................................. $4 Class R3............................................. 4 Class R4............................................. 5
The management fees waived/reimbursed at the Fund level were $58,619. Under an agreement which was effective until Oct. 31, 2008, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, would not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.45% Class B............................................. 2.21 Class C............................................. 2.21 Class I............................................. 1.07 Class R2............................................ 1.87 Class R3............................................ 1.62 Class R4............................................ 1.37 Class R5............................................ 1.12
Effective Nov. 1, 2008, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, -------------------------------------------------------------------------------- 38 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, will not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.45% Class B............................................. 2.21 Class C............................................. 2.20 Class I............................................. 1.05 Class R2............................................ 1.85 Class R3............................................ 1.60 Class R4............................................ 1.35 Class R5............................................ 1.10
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $7,902,667 and $710,156, respectively, for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008 are as follows:
ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) -------------------------------------------------------------------------------- Class A 806,221 1,124 (58,764) 748,581 Class B 88,519 111 -- 88,630 Class C 10,230 17 (3,271) 6,976 Class R4 199 -- -- 199 --------------------------------------------------------------------------------
5. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the period ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $182,867 at Oct. 31, 2008, that if not offset by capital gains will expire in 2016. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. -------------------------------------------------------------------------------- 40 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 7. RISKS RELATING TO CERTAIN INVESTMENTS FOREIGN/EMERGING MARKETS RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined -------------------------------------------------------------------------------- 42 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THREADNEEDLE GLOBAL EQUITY INCOME FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Threadneedle Global Equity Income Fund (the Fund) (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations, changes in net assets, and financial highlights for the period from August 1, 2008 (when shares became publicly available) to October 31, 2008. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. -------------------------------------------------------------------------------- 44 THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Threadneedle Global Equity Income Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations, changes in its net assets and the financial highlights for the period from August 1, 2008 (when shares became publicly available) to October 31, 2008, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EQUITY INCOME FUND -- 2008 ANNUAL REPORT 45 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- OCT. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
COMMON STOCKS (93.3%)(c) ISSUER SHARES VALUE(a) AUSTRALIA (1.1%) CSL 2,830 $68,789 ------------------------------------------------------------------------------------- BERMUDA (1.7%) Accenture Cl A 1,400 46,270 PartnerRe 875 59,229 -------- Total 105,499 ------------------------------------------------------------------------------------- CANADA (0.4%) ShawCor Cl A 1,400 21,204 ------------------------------------------------------------------------------------- DENMARK (0.5%) Vestas Wind Systems 720(b) 29,490 ------------------------------------------------------------------------------------- FINLAND (0.2%) Talvivaara Mining 3,330(b) 10,865 ------------------------------------------------------------------------------------- FRANCE (1.3%) France Telecom 3,085 77,763 ------------------------------------------------------------------------------------- GERMANY (3.6%) Allianz 570 42,877 Linde 1,490 125,287 RWE 560 46,552 -------- Total 214,716 ------------------------------------------------------------------------------------- HONG KONG (0.9%) Esprit Holdings 4,000 22,730 Great Eagle Holdings 30,000 34,442 -------- Total 57,172 ------------------------------------------------------------------------------------- JAPAN (4.2%) Nintendo 500 160,699 Sony Financial Holdings 29 94,342 -------- Total 255,041 ------------------------------------------------------------------------------------- MEXICO (0.4%) America Movil ADR Series L 825 25,526 ------------------------------------------------------------------------------------- NETHERLANDS (0.8%) Fugro 1,280 45,724 ------------------------------------------------------------------------------------- RUSSIA (0.5%) Mobile Telesystems ADR 800 31,320 ------------------------------------------------------------------------------------- SINGAPORE (2.0%) DBS Group Holdings 16,000 122,193 ------------------------------------------------------------------------------------- SWITZERLAND (10.5%) Nestle 7,550 293,559 Novartis 2,310 117,236 Roche Holding 900 137,616 Syngenta 248 46,353 Xstrata 2,370 40,534 -------- Total 635,298 ------------------------------------------------------------------------------------- UNITED KINGDOM (7.7%) Autonomy 3,650(b) 57,868 BG Group 8,080 118,797 Lloyds TSB Group 8,600 27,794 Prudential 9,850 49,475 Tesco 12,600 69,030 Tullow Oil 3,000 25,475 Vodafone Group 60,200 115,796 -------- Total 464,235 ------------------------------------------------------------------------------------- UNITED STATES (57.5%) American Express 1,920 52,800 Aon 2,400 101,520 AT&T 6,010 160,887 AutoZone 480(b) 61,099 Coca-Cola 2,500 110,150 Comcast Cl A 8,640 136,166 CVS Caremark 3,400 104,210 Devon Energy 800 64,688 Diamond Offshore Drilling 300 26,640 eBay 6,040(b) 92,231 Fiserv 1,500(b) 50,040 Genzyme 1,660(b) 120,981 Google Cl A 225(b) 80,856 IBM 1,730 160,838 Johnson & Johnson 3,140 192,608 KeyCorp 2,800 34,244 Laboratory Corp of America Holdings 1,510(b) 92,850 Lowe's Companies 3,200 69,440 Microsoft 7,990 178,416
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 11 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) UNITED STATES (CONT.) Occidental Petroleum 1,800 $99,972 Oracle 6,620(b) 121,080 PepsiCo 3,240 184,712 Pfizer 12,000 212,521 Philip Morris Intl 3,065 133,236 Praxair 1,300 84,695 Republic Services 5,000 118,500 Synovus Financial 4,000 41,320 Thermo Fisher Scientific 1,590(b) 64,554 Travelers Companies 2,830 120,417 Ultra Petroleum 2,000(b) 93,100 Union Pacific 500 33,385 United States Steel 800 29,504 Valero Energy 1,700 34,986 Wal-Mart Stores 2,800 156,268 Wisconsin Energy 1,000 43,500 -------- Total 3,462,414 ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $6,828,222) $5,627,249 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $6,828,222)(d) $5,627,249 =====================================================================================
SUMMARY OF INVESTMENTS IN SECURITIES BY INDUSTRY The following table represents the portfolio investments of the Fund by industry classifications as a percentage of total net assets at Oct. 31, 2008:
PERCENTAGE OF INDUSTRY NET ASSETS VALUE ------------------------------------------------------------------- Beverages 4.9% $294,862 Biotechnology 3.1 189,770 Chemicals 4.3 256,335 Commercial Banks 3.7 225,551 Commercial Services & Supplies 2.0 118,500 Computers & Peripherals 2.7 160,838 Consumer Finance 0.9 52,800 Diversified Telecommunication Services 4.0 238,650 Electrical Equipment 0.5 29,490 Energy Equipment & Services 1.6 93,568 Food & Staples Retailing 5.5 329,508 Food Products 4.9 293,559 Health Care Providers & Services 1.5 92,850 Insurance 7.7 467,860 Internet Software & Services 2.9 173,087 IT Services 1.6 96,310 Life Sciences Tools & Services 1.1 64,554 Media 2.3 136,166 Metals & Mining 1.3 80,903 Multi-Utilities 1.5 90,052 Oil, Gas & Consumable Fuels 7.2 437,018 Pharmaceuticals 10.8 659,981 Real Estate Management & Development 0.6 34,442 Road & Rail 0.6 33,385
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 12 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT --------------------------------------------------------------------------------
PERCENTAGE OF INDUSTRY NET ASSETS VALUE ------------------------------------------------------------------- Software 8.5% $518,063 Specialty Retail 2.5 153,269 Tobacco 2.2 133,236 Wireless Telecommunication Services 2.9 172,642 ------------------------------------------------------------------- Total $5,627,249 -------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCT. 31, 2008
CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED EXCHANGE DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION ------------------------------------------------------------------------------- Nov. 4, 2008 3,380,370 34,576 $252 $-- Japanese Yen U.S. Dollar ------------------------------------------------------------------------------- Nov. 4, 2008 34,576 21,000 -- (783) U.S. Dollar British Pound ------------------------------------------------------------------------------- Nov. 20, 2008 266,646 26,000,000 -- (2,521) U.S. Dollar Japanese Yen ------------------------------------------------------------------------------- Total $252 $(3,304) -------------------------------------------------------------------------------
PORTFOLIO SWAP(1) OUTSTANDING AT OCT. 31, 2008
NET COUNTER- NEXT UNREALIZED PARTY DESCRIPTION RESET DATE DEPRECIATION ---------------------------------------------------------------------- UBS The Fund receives(pays) the Nov. 10, 2008 $(201,953) total return on a custom basket of long(short) equity positions and pays(receives) a floating rate based on the 1- day LIBOR. The basket is denominated in various foreign currencies based on the local currencies of the underlying securities. ---------------------------------------------------------------------- Total $(201,953) ----------------------------------------------------------------------
(1) The Fund has entered into a portfolio swap agreement. A portfolio swap allows the Fund to obtain exposure to a custom basket of securities and foreign markets (both long and short exposures) without owning or taking physical custody of such securities. Under the terms of the agreement, payments made by the Fund or the counterparty are based on the total return of the reference assets within the basket. That is, one party agrees to pay another party the return on the basket in return for a specified interest rate. The agreement allows the Investment Manager of the Fund to alter the composition of the custom basket by trading in and out of the notional security positions at its discretion. The notional amounts of the security positions held in the basket are not recorded in the financial statements. The portfolio swap is valued daily based on closing prices obtained from an authorized pricing source, and the change in value is recorded as unrealized appreciation (depreciation). The swap resets monthly at which time the Fund settles in cash with the counterparty. Payments received or made are recorded as realized gains (losses). See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 13 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Foreign security values are stated in U.S. dollars. (d) At Oct. 31, 2008, the cost of securities for federal income tax purposes was $6,975,971 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $65,976 Unrealized depreciation (1,414,698) ----------------------------------------------------------- Net unrealized depreciation $(1,348,722) -----------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. -------------------------------------------------------------------------------- 14 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to implement more uniform reporting relating to the fair valuation of securities for financial statement purposes. Mutual funds are required to implement the requirements of this standard for fiscal years beginning after Nov. 15, 2007. While uniformity of presentation is the objective of the standard, industry implementation has just begun and it is likely that there will be a range of practices utilized and it will be some period of time before industry practices become more uniform. For this reason care should be exercised in interpreting this information and/or using it for comparison with other mutual funds. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund's own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. Non-U.S. equity securities actively traded in foreign markets may be reflected in Level 2 despite the availability of closing prices, because the fund evaluates and determines whether those closing prices reflect fair value at the close of the NYSE or require adjustment, as described in Note 1 to the financial statements -- Valuation of securities. The following table is a summary of the inputs used to value the Fund's investments as of Oct. 31, 2008:
FAIR VALUE AT OCT. 31, 2008 ---------------------------------------------------------- LEVEL 1 LEVEL 2 QUOTED PRICES OTHER LEVEL 3 IN ACTIVE SIGNIFICANT SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL ------------------------------------------------------------------------------ Investments in securities $3,645,962 $1,981,287 $-- $5,627,249 Other financial instruments* (3,052) (201,953) -- (205,005) ------------------------------------------------------------------------------ Total $3,642,910 $1,779,334 $-- $5,422,244 ------------------------------------------------------------------------------
* Other financial instruments are derivative instruments, such as forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 15 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 16 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- OCT. 31, 2008
ASSETS Investments in securities, at value (identified cost $6,828,222) $ 5,627,249 Cash 650,676 Foreign currency holdings (identified cost $285,651) 284,608 Capital shares receivable 2,450 Dividends receivable 8,939 Receivable for investment securities sold 42,459 Unrealized appreciation on forward foreign currency contracts 252 ------------------------------------------------------------------------------------- Total assets 6,616,633 ------------------------------------------------------------------------------------- LIABILITIES Capital shares payable 250 Payable for investment securities purchased 339,053 Unrealized depreciation on forward foreign currency contracts 3,304 Unrealized depreciation on the portfolio swap contract 201,953 Accrued investment management services fees 168 Accrued distribution fees 24 Accrued transfer agency fees 9 Accrued administrative services fees 13 Other accrued expenses 42,008 ------------------------------------------------------------------------------------- Total liabilities 586,782 ------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 6,029,851 ------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 4,315 Additional paid-in capital 7,951,796 Undistributed net investment income 204,383 Accumulated net realized gain (loss) (724,977) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,405,666) ------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 6,029,851 -------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $2,207,567 158,009 $13.97(1) Class B $ 238,583 17,116 $13.94 Class C $ 93,733 6,724 $13.94 Class I $3,445,776 246,500 $13.98 Class R2 $ 6,979 500 $13.96 Class R3 $ 6,984 500 $13.97 Class R4 $ 23,241 1,663 $13.98 Class R5 $ 6,988 500 $13.98 ---------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $14.82. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 5.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 17 STATEMENT OF OPERATIONS -------------------------------------------------------- FOR THE PERIOD FROM AUG. 1, 2008* TO OCT. 31, 2008
INVESTMENT INCOME Income: Dividends $ 26,504 Interest 1,774 Less foreign taxes withheld (1,070) ------------------------------------------------------------------------- Total income 27,208 ------------------------------------------------------------------------- Expenses: Investment management services fees 16,485 Distribution fees Class A 1,067 Class B 508 Class C 207 Class R2 11 Class R3 5 Transfer agency fees Class A 515 Class B 65 Class C 26 Class R2 1 Class R3 1 Class R4 3 Class R5 1 Administrative services fees 1,256 Plan administration services fees Class R2 5 Class R3 5 Class R4 14 Compensation of board members 49 Custodian fees 4,457 Printing and postage 5,640 Registration fees 11,104 Professional fees 37,590 Other 2,147 ------------------------------------------------------------------------- Total expenses 81,162 Expenses waived/reimbursed by the Investment Manager and its affiliates (59,865) ------------------------------------------------------------------------- Total net expenses 21,297 ------------------------------------------------------------------------- Investment income (loss) -- net 5,911 -------------------------------------------------------------------------
-------------------------------------------------------------------------------- 18 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT STATEMENT OF OPERATIONS (continued) -------------------------------------------- FOR THE PERIOD FROM AUG. 1, 2008* TO OCT. 31, 2008
REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $ (722,673) Foreign currency transactions (8,695) Swap transactions (239,869) ------------------------------------------------------------------------- Net realized gain (loss) on investments (971,237) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,410,405) ------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (2,381,642) ------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(2,375,731) -------------------------------------------------------------------------
* When shares became publicly available. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 19 STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------- FOR THE PERIOD FROM AUG. 1, 2008* TO OCT. 31, 2008
OPERATIONS Investment income (loss) -- net $ 5,911 Net realized gain (loss) on investments (971,237) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (1,410,405) ------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (2,375,731) ------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 3,082,069 Class B shares 482,927 Class C shares 117,476 Class R4 shares 22,000 Payments for redemptions Class A shares (157,519) Class B shares (141,999) ------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 3,404,954 ------------------------------------------------------------------------- Total increase (decrease) in net assets 1,029,223 Net assets at beginning of period 5,000,628** ------------------------------------------------------------------------- Net assets at end of period $ 6,029,851 ------------------------------------------------------------------------- Undistributed net investment income $ 204,383 -------------------------------------------------------------------------
* When shares became publicly available. ** Initial capital of $5,000,000 was contributed on July 24, 2008. The Fund had an increase in net assets resulting from operations of $628 during the period from July 24, 2008 to Aug. 1, 2008 (when shares became publicly available). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 20 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c),(d) .00 Net gains (losses) (both realized and unrealized) (6.03) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.97 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.55%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.55%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.07%)(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return(h) (30.15%)(i) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 21 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) (.02) Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.94 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 6.33%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 2.31%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.55%)(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return(g) (30.30%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Total return does not reflect payment of a sales charge. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 22 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) (.03) Net gains (losses) (both realized and unrealized) (6.03) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.94 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 6.22%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 2.30%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.79%)(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return(g) (30.30%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Total return does not reflect payment of a sales charge. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 23 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .03 Net gains (losses) (both realized and unrealized) (6.05) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.02) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 4.94%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.21%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .63%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.10%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 24 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c),(d) .00 Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.04) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.96 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e) 5.74%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g) 1.81%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .03%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.20%)(h) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (h) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 25 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .01 Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.03) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.97 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 5.49%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.56%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .28%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.15%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 26 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .01 Net gains (losses) (both realized and unrealized) (6.03) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.02) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 5.38%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.36%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .30%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.10%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 27 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Oct. 31, 2008(b) Net asset value, beginning of period $20.00 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .02 Net gains (losses) (both realized and unrealized) (6.04) -------------------------------------------------------------------------------------------------------------- Total from investment operations (6.02) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d) 4.99%(e) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f) 1.26%(e) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) .58%(e) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 36% -------------------------------------------------------------------------------------------------------------- Total return (30.10%)(g) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. (c) Per share amount has been calculated using the average shares outstanding method. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratio. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds), before giving effect to any performance incentive adjustment. (g) Not annualized. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Threadneedle Global Extended Alpha Fund (the Fund) is a series of RiverSource Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund will invest primarily in equity securities, including at least 40% of its net assets in companies located in (non-U.S.) developed and emerging markets. The Fund will hold both long and short positions. Both long and short positions may be obtained through buying or selling individual securities or creating similar long or short exposure through the use of derivative instruments. On July 24, 2008, RiverSource Investments, LLC (the Investment Manager), a subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), invested $5,000,000 in the Fund (500 shares for Class A, 500 shares for Class B, 500 shares for Class C, 246,500 shares for Class I, 500 shares for Class R2, 500 shares for Class R3, 500 shares for Class R4 and 500 shares for Class R5), which represented the initial capital for each class at $20 per share. Shares of the Fund were first offered to the public on Aug. 1, 2008. The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class R4 and Class R5 shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. At Oct. 31, 2008, the Investment Manager owned 100% of Class I, Class R2, Class R3 and Class R5 shares. At Oct. 31, 2008, the Investment Manager owned approximately 58% of the total outstanding Fund shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 29 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES Effective Aug. 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. There was no impact to the Fund's net assets or results of operations upon adoption. The fair valuation measurements disclosure can be found following the Notes to Portfolio of Investments. All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, as administrator to the -------------------------------------------------------------------------------- 30 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- Fund, will fair value foreign equity securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost, which approximates fair value. SECURITIES SOLD SHORT The Fund may enter into short sales of securities that it concurrently holds or for which it holds no corresponding position. Short selling is the practice of selling securities which have been borrowed from a third party in anticipation of a decline in the market price of that security. Securities which have been sold short represent a liability of the Fund to acquire specific securities at prevailing market prices at a future date in order to satisfy the obligation to deliver the securities sold. The Fund is required to return securities equivalent to those borrowed for the short sale at the lender's demand. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited in size, will be recorded upon the termination of a short sale. Short sales are collateralized with segregated securities or cash held at the custodian as noted on the Portfolio of Investments. The collateral required is determined daily based on the market value of the securities sold short. At Oct. 31, 2008, the Fund had no outstanding securities sold short. The Fund is liable to pay the counterparty for any dividends accrued on a security it has borrowed and sold short and to pay interest for any net financing costs incurred during the time the short position is held by the Fund. Such dividends (recognized on ex-date) and interest are recorded as an expense and shown on the Statement of Operations. During the period ended Oct. 31, 2008, the Fund had no dividends and interest expense on the Statement of Operations. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 31 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Oct. 31, 2008, and for the period then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these future contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At Oct. 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange -------------------------------------------------------------------------------- 32 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Oct. 31, 2008, foreign currency holdings consisted of multiple denominations. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. PORTFOLIO SWAP TRANSACTIONS The Fund has entered into a portfolio swap agreement. A portfolio swap allows the Fund to obtain exposure to a custom basket of securities and foreign markets (both long and short exposures) without owning or taking physical custody of such securities. Under the terms of the agreement, payments made by the Fund or the counterparty are based on the total return of the reference assets within the basket. That is, one party agrees to pay another party the return on the basket in return for a specified interest rate. The agreement allows the Investment Manager of the Fund to alter the composition of the custom basket by trading in and out of the notional security positions at its discretion. The notional amounts of the security positions held in the basket are not recorded in the financial statements. The portfolio swap is valued daily based on closing prices obtained from an authorized pricing source, and the change in value is recorded as unrealized appreciation (depreciation). The swap resets monthly at which time the Fund settles in cash with the counterparty. Payments received or made are recorded as realized gains (losses). See the Portfolio Swap Outstanding table following the Portfolio of Investments for additional information. Portfolio swaps can involve greater risks than if a fund had invested in the reference securities directly since, in addition to general market risks (including foreign/emerging market risks and risks of securities sold short), portfolio swaps are also subject to counterparty credit risk and liquidity risk. Although the risks mentioned above are the largest risks associated with portfolio swaps, other risks may also apply. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of foreign currency transactions, recognition of unrealized appreciation (depreciation) for certain derivative investments and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $199,035 and accumulated net realized loss has been decreased by $249,808 resulting in a net reclassification adjustment to decrease paid-in capital by $448,843. The tax character of distributions paid for the period indicated is as follows: For the period ended Oct. 31, 2008, there were no distributions. -------------------------------------------------------------------------------- 34 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- At Oct. 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income.................. $ -- Undistributed accumulated long-term gain....... $ -- Accumulated realized loss...................... $ (577,229) Unrealized appreciation (depreciation)......... $(1,349,031)
RECENT ACCOUNTING PRONOUNCEMENT In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for periods beginning after Nov. 15, 2008. As of Oct. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. DIVIDENDS TO SHAREHOLDERS An annual dividend from net investment income, declared and paid at the end of the calendar year, when available, is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 1.05% to 0.99% annually as the Fund's assets increase. The fee may be adjusted upward or downward by a performance incentive adjustment determined monthly by measuring the percentage difference over a rolling 36-month period between the -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 35 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- annualized performance of one Class A share of the Fund and the annualized performance of the MSCI All Country World Index. In certain circumstances, the Board may approve a change in the index. The maximum adjustment is 0.50% per year. If the performance difference is less than 1.00%, the adjustment will be zero. The first adjustment will be made on Aug. 1, 2010 and cover the 24-month period beginning Aug. 1, 2008. The management fee for the period ended Oct. 31, 2008 was 1.05% of the Fund's average daily net assets. SUBADVISORY AGREEMENT The Investment Manager has a Subadvisory Agreement with Threadneedle International Limited (Threadneedle), an affiliate of the Investment Manager and an indirect wholly-owned subsidiary of Ameriprise Financial, to subadvise the assets of the Fund. The Investment Manager contracts with and compensates Threadneedle to manage the investment of the Fund's assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.08% to 0.05% annually as the Fund's assets increase. The fee for the period ended Oct. 31, 2008 was 0.08% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the period ended Oct. 31, 2008, there were no expenses incurred for these particular items. COMPENSATION OF BOARD MEMBERS Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $19.50 for Class A, $20.50 for Class B and $20.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's -------------------------------------------------------------------------------- 36 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A and Class R3 shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $26,000 and $1,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares was $1,795 for Class A for the period ended Oct. 31, 2008. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 37 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the period ended Oct. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 1.55% Class B............................................. 2.31 Class C............................................. 2.30 Class I............................................. 1.21 Class R2............................................ 1.81 Class R3............................................ 1.56 Class R4............................................ 1.36 Class R5............................................ 1.26
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A............................................ $173 Class B............................................ 20 Class C............................................ 10
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2............................................ $ 4 Class R3............................................ 4 Class R4............................................ 10
The management fees waived/reimbursed at the Fund level were $59,644. The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Oct. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*), before giving effect to any performance incentive adjustment, will not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 1.55% Class B............................................. 2.31 Class C............................................. 2.30 Class I............................................. 1.22 Class R2............................................ 2.02 Class R3............................................ 1.77 Class R4............................................ 1.52 Class R5............................................ 1.27
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. -------------------------------------------------------------------------------- 38 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $4,963,598 and $1,925,503, respectively, for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the period from Aug. 1, 2008 (when shares became publicly available) to Oct. 31, 2008 are as follows:
ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) -------------------------------------------------------------------------------- Class A 166,961 -- (9,452) 157,509 Class B 26,996 -- (10,380) 16,616 Class C 6,224 -- -- 6,224 Class R4 1,163 -- -- 1,163 --------------------------------------------------------------------------------
5. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the period ended Oct. 31, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 39 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $577,229 at Oct. 31, 2008, that if not offset by capital gains will expire in 2016. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 7. RISKS RELATING TO CERTAIN INVESTMENTS FOREIGN/EMERGING MARKETS RISK Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. SHORT SELLING RISK The Fund may make short sales, which involves selling a security the Fund does not own in anticipation that the security's price will decline. The Fund's potential losses could exceed those of other mutual funds which hold only long security positions if the value of the securities held long decreases and the value of the securities sold short increases. The Fund's use of short sales in effect "leverages" the Fund, as the Fund intends to use the cash proceeds from the short sales to invest in additional long securities. Leveraging potentially exposes the Fund to greater risks due to unanticipated market movements, which may magnify losses and increase volatility of returns. There is no assurance that a leveraging strategy will be successful. -------------------------------------------------------------------------------- 40 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 41 NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------- frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, Seligman and its affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies. Seligman does not believe that the foregoing legal action or other possible actions will have a material adverse impact on Seligman or its clients, including the Seligman Funds and other investment companies managed by it; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial -------------------------------------------------------------------------------- 42 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THREADNEEDLE GLOBAL EXTENDED ALPHA FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Threadneedle Global Extended Alpha Fund (the Fund) (one of the portfolios constituting the RiverSource Global Series, Inc.) as of October 31, 2008, and the related statement of operations, changes in net assets, and financial highlights for the period from August 1, 2008 (when shares became publicly available) to October 31, 2008. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. -------------------------------------------------------------------------------- 44 THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT -------------------------------------------------------------------------------- In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Threadneedle Global Extended Alpha Fund of the RiverSource Global Series, Inc. at October 31, 2008, the results of its operations, changes in its net assets and the financial highlights for the period from August 1, 2008 (when shares became publicly available) to October 31, 2008, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota December 19, 2008 -------------------------------------------------------------------------------- THREADNEEDLE GLOBAL EXTENDED ALPHA FUND -- 2008 ANNUAL REPORT 45 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, dated April 21, 2006, filed electronically on or about June 2, 2006 as Exhibit (a)(5) to Registrant's Post-Effective Amendment No. 49 to Registration Statement No. 33-25824 are incorporated by reference. (a)(6) Certificate of Designation, dated April 8, 2008 filed electronically on or about April 17, 2008 as Exhibit (a)(6) to Registrant's Post-Effective Amendment No. 54 to Registration Statement No. 33-25824 is incorporated by reference. (a)(7) Certificate of Designation, dated April 10, 2008 filed electronically on or about April 17, 2008 as Exhibit (a)(7) to Registrant's Post-Effective Amendment No. 54 to Registration Statement No. 33-25824 is incorporated by reference. (b) By-laws, as amended April 13, 2006, filed electronically on or about April 17, 2008 as Exhibit (b) to Registrant's Post-Effective Amendment No. 54 to Registration Statement No. 33-25824 are incorporated by reference. (c) Instruments Defining Rights of Security Holders: Not Applicable. (d)(1) Investment Management Services Agreement, dated May 1, 2006, amended and restated June 12, 2008, between Registrant and RiverSource Investments, LLC filed electronically on or about Oct. 29, 2008 as Exhibit (d)(1) to Registrant's Post-Effective Amendment No. 57 to Registration Statement No. 33-25824 is incorporated by reference. (d)(2) Subadvisory Agreement, dated June 11, 2008 between RiverSource Investments, LLC and Threadneedle International Limited, filed electronically on or about Oct. 29, 2008 as Exhibit (d)(2) to Registrant's Post-Effective Amendment No. 57 to Registration Statement No. 33-25824 is incorporated by reference. (e)(1) Distribution Agreement, effective Aug. 1, 2006, amended and restated as of Sept. 11, 2007, between Registrant and RiverSource Distributors, Inc. filed electronically on or about Oct. 30, 2007 as Exhibit (e)(2) to Diversified Income Series, Inc. Post-Effective Amendment No. 63 to Registration Statement No. 2-51586 is incorporated by reference. (e)(2) Distribution Agreement, effective Nov. 7, 2008, between Registrant and Seligman Advisors, Inc. filed electronically on or about Nov. 25, 2008 as Exhibit (e)(2) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 121 to Registration Statement No. 2-11328 is incorporated by reference. (e)(3) Form of Service Agreement for RiverSource Distributors, Inc. and RiverSource Service Corporation filed electronically on or about Aug. 27, 2007 as Exhibit (e)(3) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference. (e)(4) Form of RiverSource Funds Dealer Agreement filed electronically on or about Aug. 27, 2007 as Exhibit (e)(4) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference. (f) Bonus or Profit Sharing Contracts: Not Applicable. (g) Form of Master Global Custody Agreement with JP Morgan Chase Bank, N.A. filed electronically on or about Dec. 23, 2008 as Exhibit (g) to RiverSource International Mangers, Inc. Post-Effective Amendment No. 18 to Registration Statement No. 333-64010 is incorporated by reference. (h)(1) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated June 12, 2008, between Registrant and Ameriprise Financial, Inc. filed electronically on or about July 28, 2008 as Exhibit (h)(1) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(2) Transfer Agency Agreement, dated Oct. 1, 2005, amended and restated June 12, 2008, between Registrant and RiverSource Service Corporation filed electronically on or about July 28, 2008 as Exhibit (h)(2) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(3) Plan Administration Services Agreement, dated Dec. 1, 2006, amended and restated June 12, 2008, between Registrant and RiverSource Service Corporation filed electronically on or about July 28, 2008 as Exhibit (h)(3) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(4) Agreement and Plan of Reorganization 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)(5) 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)(6) 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)(7) 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)(8) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated June 12, 2008, between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Distributors, Inc. and the Registrant filed electronically on or about July 28, 2008 as Exhibit (h)(5) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (h)(9) License Agreement, effective May 1, 2006, amended and restated as of Sept. 11, 2007, between Ameriprise Financial, Inc. and RiverSource Funds filed electronically on or about Oct. 30, 2007 as Exhibit (h)(7) to RiverSource Diversified Income Series, Inc. Post-Effective Amendment No. 63 to Registration Statement No. 2-51586 is incorporated by reference. (h)(10) Form of License Agreement, dated July 10, 2004, between Threadneedle Asset Management Holdings Limited and the Registrant is filed electronically herewith as Exhibit (h)(10) to Registrant's Post-Effective Amendment No. 58 to Registration Statement No. 33-25824. (h)(11) Form of License Agreement Amendment, dated May 15, 2008, between Threadneedle Asset Management Holdings Limited and RiverSource Global Series, Inc., RiverSource International Series, Inc. and RiverSource Variable Series Trust filed electronically on or about June 30, 2008 as Exhibit (h)(10) to Registrant's Post-Effective Amendment No. 56 to Registration Statement No. 33-25824 is incorporated by reference. (i) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith. (j) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP) is filed electronically herewith. (k) Omitted Financial Statements: Not Applicable. (l) Initial Capital Agreement: Not Applicable. (m)(1) Plan of Distribution and Agreement of Distribution, dated Aug. 1, 2006, amended and restated June 12, 2008, between Registrant and RiverSource Distributors, Inc. filed electronically on or about July 28, 2008 as Exhibit (m) to RiverSource High Yield Income Series, Inc. Post-Effective Amendment No. 45 to Registration Statement No. 2-86637 is incorporated by reference. (m)(2) Plan of Distribution and Agreement of Distribution, effective Nov. 7, 2008, between Registrant and Seligman Advisors, Inc. filed electronically on or about Nov. 25, 2008 as Exhibit (m)(2) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 121 to Registration Statement No. 2-11328 is incorporated by reference. (n) Rule 18f - 3(d) Plan, amended and restated as of June 12, 2008, filed electronically on or about June 30, 2008 as Exhibit (n) to Registrant's. Post-Effective Amendment No. 120 to Registration Statement No. 2-11328 is incorporated by reference. (o) Reserved. (p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about Aug. 27, 2007 as Exhibit (p)(1) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference. (p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's principal underwriter, dated April 2008, filed electronically on or about April 25, 2008 as Exhibit (p)(2) to RiverSource Variable Series Trust Post-Effective Amendment No. 3 to Registration Statement No. 333-146374 is incorporated by reference. (p)(3) Code of Ethics adopted under Rule 17j-1 for Registrant's investment adviser, dated Nov. 15, 2008, filed electronically on or about Nov. 25, 2008 as Exhibit (p)(3) to RiverSource Investment Series, Inc. Post-Effective Amendment No. 121 to Registration Statement No. 2-11328 is incorporated by reference. (p)(4) Code of Ethics, dated March 2006, adopted under Rule 17j-1, for Threadneedle Emerging Markets Fund's, Threadneedle Global Equity Fund's, Threadneedle Global Equity Income Fund's and Threadneedle Global Extended Alpha Fund's Subadviser, Threadneedle International Ltd., filed electronically on or about June 30, 2008, as Exhibit (p)(3) to Registrant's Post-Effective Amendment No. 56 to Registration Statement No. 33-25824 is incorporated by reference. (q) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated Nov. 13, 2008, is filed electronically herewith as Exhibit (q) to Registrant's Post-Effective Statement No. 58 to Registration Statement No. 33-25824. Item 24. Persons Controlled by or Under Common Control with Registrant: RiverSource Investments, LLC, as sponsor of the RiverSource Funds, may make initial capital investments in RiverSource funds (seed accounts). RiverSource Investments also serves as investment manager of certain RiverSource funds-of-funds that invest primarily in Class I shares of affiliated RiverSource funds (the "underlying funds"). RiverSource Investments does not make initial capital investments or invest in underlying funds for the purpose of exercising control. However, since these ownership interests may be significant, in excess of 25%, such that RiverSource Investments may be deemed to control certain RiverSource funds, procedures have been put in place to assure that public shareholders determine the outcome of all actions taken at shareholder meetings. Specifically, RiverSource Investments (which votes proxies for the seed accounts) and the Boards of Directors or Trustees of the RiverSource funds-of-funds (which votes proxies for the RiverSource funds-of-funds) vote on each proposal in the same proportion that other shareholders vote on the proposal. Item 25. Indemnification The Articles of Incorporation of the registrant provide that the Fund shall indemnify any person who was or is a party or is threatened to be made a party, by reason of the fact that she or he is or was a director, officer, employee or agent of the Fund, or is or was serving at the request of the Fund as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, to any threatened, pending or completed action, suit or proceeding, wherever brought, and the Fund may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the State of Minnesota, as now existing or hereafter amended. The By-laws of the registrant provide that present or former directors or officers of the Fund made or threatened to be made a party to or involved (including as a witness) in an actual or threatened action, suit or proceeding shall be indemnified by the Fund to the full extent authorized by the Minnesota Business Corporation Act, all as more fully set forth in the By-laws filed as an exhibit to this registration statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940. Item 26. Business and Other Connections of the Investment Adviser (RiverSource Investments, LLC) The following are directors and principal officers of RiverSource Investments, LLC who are directors and/or officers of one or more other companies:
Name and Title Other Companies Address* Title within other companies --------------------- ---------------------------------- --------------------------- -------------------------------------- Neysa M. Alecu, Advisory Capital Strategies Group 100 Park Avenue, New York, Anti-Money Laundering Officer Anti-Money Laundering Inc. NY 10017 Officer Advisory Select LLC Dissolved Anti-Money Laundering Officer (resigned 5/1/07) American Enterprise Investment 70400 AXP Financial Anti-Money Laundering Officer Services Inc. Center, Minneapolis, MN 55474 Ameriprise Auto & Home Insurance 3500 Packerland Drive Anti-Money Laundering Officer Agency, Inc. De Pere, WI 54115 Ameriprise Certificate Company 70100 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN (resigned 8/24/07) 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 Ameriprise Financial Services, 5221 Ameriprise Financial Anti-Money Laundering Officer Inc. Center, Minneapolis, MN 55474 Ameriprise Trust Company 200 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 Boston Equity General Partner LLC Anti-Money Laundering Officer IDS Capital Holdings Inc. Anti-Money Laundering Officer IDS Management Corporation Anti-Money Laundering Officer Kenwood Capital Management LLC 333 S. 7th Street, Suite Anti-Money Laundering Officer 2330, Minneapolis, MN 55402 RiverSource Distributors, Inc. 50611 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 RiverSource Life Insurance Company 829 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Anti-Money Laundering Officer Center, Minneapolis, MN 55474 Patrick Thomas Ameriprise Trust Company 200 Ameriprise Financial Director, Senior Vice President Bannigan, Center, Minneapolis, MN Director and Senior 55474 Vice President - Asset Management, RiverSource Distributors, Inc. 50611 Ameriprise Financial Vice President Products and Center, Minneapolis, MN Marketing 55474 RiverSource Service Corporation 734 Ameriprise Financial Director Center, Minneapolis, MN 55474 Seligman Advisors, Inc. 100 Park Avenue, New York, Director and Vice President Seligman Services, Inc. NY 10017 Walter S. Berman, Advisory Capital Strategies Group 100 Park Avenue, New York, Treasurer Treasurer Inc. NY 10017
Name and Title Other Companies Address* Title within other companies --------------------- ---------------------------------- --------------------------- -------------------------------------- American Enterprise Investment 70400 AXP Financial Treasurer Services Inc. Center, Minneapolis, MN 55474 Ameriprise Auto & Home Insurance 3500 Packerland Drive Treasurer Agency Inc. De Pere, WI 54115 Ameriprise Bank, FSB 9393 Ameriprise Financial Treasurer Center, Minneapolis, MN 55474 Ameriprise Captive Insurance Director and Treasurer Company Ameriprise Certificate Company 70100 Ameriprise Financial Treasurer and Investment Committee Center, Minneapolis, MN Member (resigned 8/24/07) 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial Executive Vice President, Chief Center, Minneapolis, MN Financial Officer and Treasurer 55474 Ameriprise Financial Services, 5221 Ameriprise Financial Director and Treasurer Inc. Center, Minneapolis, MN 55474 Ameriprise Insurance Company 3500 Packerland Drive Treasurer De Pere, WI 54115 Boston Equity General Partner LLC Treasurer IDS Capital Holdings Inc. Treasurer IDS Management Corporation Treasurer IDS Property Casualty Insurance 3500 Packerland Drive Treasurer Company De Pere, WI 54115 Investors Syndicate Development Vice President and Treasurer Corporation RiverSource CDO Seed Investments, Treasurer LLC RiverSource Distributors, Inc. 50611 Ameriprise Financial Treasurer Center, Minneapolis, MN 55474 RiverSource Life Insurance Company 20 Madison Ave. Extension, Vice President and Treasurer of New York Albany, NY 12005 RiverSource Life Insurance Company 829 Ameriprise Financial Vice President and Treasurer Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Treasurer Center, Minneapolis, MN 55474 RiverSource Tax Advantaged Treasurer Investments, Inc. Securities America Advisors Inc. 12325 Port Grace Blvd., Director Lavista, NE68128-8204 Securities America Financial 7100 W. Center Rd., Ste. Director Corporation 500, Omaha, NE 68106-2716 Securities America, Inc. 12325 Port Grace Blvd., Director Lavista, NE68128 Seligman Advisors, Inc. 100 Park Avenue, New York, Treasurer Seligman Services, Inc. NY 10017
Name and Title Other Companies Address* Title within other companies --------------------- ---------------------------------- --------------------------- -------------------------------------- Threadneedle Asset Management 60 St. Mary Axe, London Director Holdings Ltd. EC3A 8JQ Peter Arthur Gallus, Advisory Capital Strategies Group 100 Park Avenue, New York, Director, Vice President and Chief Senior Vice Inc. NY 10017 Operating Officer President, Chief Operating Officer and Advisory Select LLC Dissolved President and Chief Operating Officer Assistant Treasurer (resigned 5/1/07) Ameriprise Financial, Inc. 200 Ameriprise Financial Vice President - Investment Center, Minneapolis, MN Administration 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Financial Vice President - CAO-AEFA Investment Center, Minneapolis, MN Management 55474 Boston Equity General Partner LLC President, Chief Operating Officer and Chief Compliance Officer IDS Capital Holdings Inc. Vice President and Controller Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member 2330, Minneapolis, MN 55402 Seligman Advisors, Inc. 100 Park Avenue, New York, Vice President and Chief Operating Seligman Services, Inc. NY 10017 Officer Christopher Paul Ameriprise Trust Company 200 Ameriprise Financial Director, Head of Institutional Sales, Keating, Director and Center, Minneapolis, MN Client Service and Consultant Vice President and 55474 Relationships Head of Institutional Sales, Client Service Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member and Consultant 2330, Minneapolis, MN 55402 Relationships Seligman Advisors, Inc. 100 Park Avenue, New York, Vice President Seligman Services, Inc. NY 10017 Michelle Marie Ameriprise Bank, FSB 9393 Ameriprise Financial Director Keeley, Director and Center, Minneapolis, MN Executive Vice 55474 President - Equity and Fixed Income Ameriprise Financial, Inc. 200 Ameriprise Financial Executive Vice President - Equity and Center, Minneapolis, MN Fixed Income 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Financial Executive Vice President - Equity and Center, Minneapolis, MN Fixed Income 55474 IDS Property Casualty Insurance 3500 Packerland Drive Vice President - Investments Company De Pere, WI 54115 Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member 2330, Minneapolis, MN 55402 RiverSource CDO Seed Investments, Chairperson and President LLC RiverSource Life Insurance Company 829 Ameriprise Financial Vice President - Investments Center, Minneapolis, MN 55474
Name and Title Other Companies Address* Title within other companies --------------------- ---------------------------------- --------------------------- -------------------------------------- RiverSource Life Insurance Company 20 Madison Ave. Extension, Vice President - Investments of New York Albany, NY 12005 Ameriprise Certificate Company 70100 Ameriprise Financial Vice President - Investments, Center, Minneapolis, MN Investment Committee Member (resigned 55474 8/24/07) AMEX Assurance Company Vice President - Investments (resigned 9/30/2007) Jennifer Davis Kenwood Capital Management LLC 333 S. 7th Street, Suite Chief Compliance Officer Lammers, 2330, Minneapolis, MN 55402 Chief Compliance Officer RiverSource Service Corporation 734 Ameriprise Financial Chief Compliance Officer Center, Minneapolis, MN 55474 Brian Joseph McGrane, Advisory Capital Strategies Group 100 Park Avenue, New York, Vice President and Chief Financial Director, Vice Inc. NY 10017 Officer President and Chief Financial Officer Advisory Select LLC Dissolved Vice President and Chief Financial Officer (resigned 5/1/07) Ameriprise Financial, Inc. 200 Ameriprise Financial Senior Vice President and Lead Center, Minneapolis, MN Financial Officer 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Financial Vice President and Lead Financial Center, Minneapolis, MN Officer - Finance 55474 Ameriprise Trust Company 200 Ameriprise Financial Director Center, Minneapolis, MN 55474 Boston Equity General Partner LLC Vice President and Chief Financial Officer RiverSource CDO Seed Investments, Board Member LLC RiverSource Life Insurance Company 829 Ameriprise Financial Director, Executive Vice President and Center, Minneapolis, MN Chief Financial Officer 55474 Ameriprise Certificate Company 70100 Ameriprise Financial Vice President and Chief Financial Center, Minneapolis, MN Officer (resigned 8/24/07) 55474 Thomas R. Moore, Advisory Capital Strategies Group 100 Park Avenue, New York, Secretary Secretary Inc. NY 10017 American Enterprise Investment 70400 AXP Financial Secretary Services Inc. Center, Minneapolis, MN 55474
Name and Title Other Companies Address* Title within other companies --------------------- ---------------------------------- --------------------------- -------------------------------------- Ameriprise Bank, FSB 9393 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 Ameriprise Captive Insurance Assistant Secretary Company Ameriprise Financial, Inc. 200 Ameriprise Financial Vice President, Chief Governance Center, Minneapolis, MN Officer and Corporate Secretary 55474 Ameriprise Financial Services, 5221 Ameriprise Financial Secretary Inc. Center, Minneapolis, MN 55474 Ameriprise Insurance Company 3500 Packerland Drive Secretary De Pere, WI 54115 Ameriprise Trust Company 200 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 IDS Capital Holdings Inc. Secretary IDS Futures Corporation 570 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 IDS Management Corporation Secretary IDS Property Casualty Insurance 3500 Packerland Drive Secretary Company De Pere, WI 54115 Investors Syndicate Development Secretary Corporation RiverSource CDO Seed Investments, Secretary LLC RiverSource Distributors, Inc. 50611 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 RiverSource Life Insurance Company 20 Madison Ave. Extension, Secretary of New York Albany, NY 12005 RiverSource Life Insurance Company 829 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 RiverSource Service Corporation 734 Ameriprise Financial Secretary Center, Minneapolis, MN 55474 RiverSource Tax Advantaged Secretary Investments, Inc. Securities America Financial 7100 W. Center Rd., Ste. Secretary (resigned 11/19/07) Corporation 500, Omaha, NE 68106-2716 Seligman Advisors, Inc. 100 Park Avenue, New York, Secretary Seligman Services, Inc. NY 10017 Scott Roane Plummer, Ameriprise Financial, Inc. 200 Ameriprise Financial Vice President - Asset Management Chief Legal Officer Center, Minneapolis, MN Compliance and Assistant 55474 Secretary Ameriprise Financial Services, Inc. 5221 Ameriprise Financial Vice President and Chief Counsel - Center, Minneapolis, MN Asset Management 55474 RiverSource Distributors, Inc. 50611 Ameriprise Financial Chief Counsel Center, Minneapolis, MN 55474
Name and Title Other Companies Address* Title within other companies --------------------- ---------------------------------- --------------------------- -------------------------------------- RiverSource Service Corporation 734 Ameriprise Financial Vice President, Chief Legal Officer Center, Minneapolis, MN and Assistant Secretary 55474 Ameriprise Certificate Company 70100 Ameriprise Financial Vice President, General Counsel and Center, Minneapolis, MN Secretary (resigned 8/24/07) 55474 Seligman Advisors, Inc. 100 Park Avenue, New York, Chief Counsel Seligman Services, Inc. NY 10017 William Frederick Advisory Capital Strategies Group 100 Park Avenue, New York, Director 'Ted' Truscott Inc. NY 10017 Chairman, Chief Investment Officer Ameriprise Certificate Company 70100 Ameriprise Financial Director, President and Chief and President Center, Minneapolis, MN Executive Officer (resigned 8/24/07) 55474 Ameriprise Financial, Inc. 200 Ameriprise Financial President - U.S. Asset Management, Center, Minneapolis, MN Annuities and Chief Investment Officer 55474 Ameriprise Financial Services, Inc. 5221 Ameriprise Financial Senior Vice President and Chief Center, Minneapolis, MN Investment Officer 55474 Ameriprise Trust Company 200 Ameriprise Financial Director Center, Minneapolis, MN 55474 IDS Capital Holdings Inc. Director and President Kenwood Capital Management LLC 333 S. 7th Street, Suite Board Member 2330, Minneapolis, MN 55402 RiverSource Distributors, Inc. 50611 Ameriprise Financial Chairman and Chief Executive Officer Center, Minneapolis, MN 55474 Seligman Advisors, Inc. 100 Park Avenue, New York, Chairman and Chief Executive Officer Seligman Services, Inc. NY 10017 Threadneedle Asset Management 60 St. Mary Axe, London Director Holdings Ltd. EC3A 8JQ
* Unless otherwise noted, address is 50605 Ameriprise Financial Center, Minneapolis, MN 55474 Item 27. Principal Underwriter (a) RiverSource Distributors, Inc. acts as principal underwriter for the following investment companies: RiverSource Bond Series, Inc.; RiverSource California Tax-Exempt Trust; RiverSource Dimensions Series, Inc.; RiverSource Diversified Income Series, Inc.; RiverSource Equity Series, Inc.; RiverSource Global Series, Inc.; RiverSource Government Income Series, Inc.; RiverSource High Yield Income Series, Inc.; RiverSource Income Series, Inc.; RiverSource International Managers Series, Inc.; RiverSource International Series, Inc.; RiverSource Investment Series, Inc.; RiverSource Large Cap Series, Inc.; RiverSource Managers Series, Inc.; RiverSource Market Advantage Series, Inc.; RiverSource Money Market Series, Inc.; RiverSource Sector Series, Inc.; RiverSource Selected Series, Inc.; RiverSource Series Trust; RiverSource Short Term Investments Series, Inc.; RiverSource Special Tax-Exempt Series Trust; RiverSource Strategic Allocation Series; Inc., RiverSource Strategy Series, Inc.; RiverSource Tax-Exempt Income Series, Inc.; RiverSource Tax-Exempt Money Market Series, Inc.; RiverSource Tax-Exempt Series, Inc.; RiverSource Variable Series Trust. Seligman Advisors, Inc. acts as principal underwriter for the following investment companies: THE SELIGMAN FAMILY OF FUNDS: Seligman Asset Allocation Series, Inc., Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Core Fixed Income Fund, Inc., Seligman Frontier Fund, Inc., Seligman Growth Fund, Inc., Seligman Global Fund Series, Inc., Seligman High Income Fund Series, Seligman Income and Growth Fund, Inc., Seligman LaSalle Real Estate Fund Series, Inc., Seligman Municipal Fund Series, Inc., Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series, Seligman Portfolios, Inc., Seligman TargetHorizon ETF Portfolios, Inc. and Seligman Value Fund Series, Inc. THE RIVERSOURCE FAMILY OF FUNDS: RiverSource Bond Series, Inc.; RiverSource California Tax-Exempt Trust; RiverSource Dimensions Series, Inc.; RiverSource Diversified Income Series, Inc.; RiverSource Equity Series, Inc.; RiverSource Global Series, Inc.; RiverSource Government Income Series, Inc.; RiverSource High Yield Income Series, Inc.; RiverSource Income Series, Inc.; RiverSource International Managers Series, Inc.; RiverSource International Series, Inc.; RiverSource Investment Series, Inc.; RiverSource Large Cap Series, Inc.; RiverSource Managers Series, Inc.; RiverSource Market Advantage Series, Inc.; RiverSource Money Market Series, Inc.; RiverSource Sector Series, Inc.; RiverSource Selected Series, Inc.; RiverSource Series Trust; RiverSource Special Tax-Exempt Series Trust; RiverSource Strategic Allocation Series; Inc., RiverSource Strategy Series, Inc.; RiverSource Tax-Exempt Income Series, Inc.; RiverSource Tax-Exempt Money Market Series, Inc. and RiverSource Tax-Exempt Series, Inc.. (b) As to each director, principal officer or partner of RiverSource Distributors, Inc.
Name and Principal Business Address Positions and Offices with Underwriter Positions and Offices with Fund --------------------------------- -------------------------------------- ------------------------------- Gumer C. Alvero* Director and Vice President None Patrick Thomas Bannigan* Director and Vice President President Timothy V. Bechtold* Director and Vice President None Paul J. Dolan* Chief Operating Officer and Chief None Administrative Officer Jeffrey P. Fox* Chief Financial Officer Treasurer Jeffrey Lee McGregor, Sr.* President None Scott Roane Plummer* Chief Counsel Vice President, General Counsel and Secretary Julie A. Ruether* Chief Compliance Officer None William Frederick 'Ted' Truscott* Chairman and Chief Executive Officer Board Member and Vice President
As to each director, principal officer or partner of Seligman Advisors, Inc.
Name and Principal Business Address Positions and Offices with Underwriter Positions and Offices with Fund --------------------------------- -------------------------------------- ------------------------------- William Frederick "Ted" Truscott* Chairman and Chief Executive Officer Director and Vice President Patrick Thomas Bannigan* Director and Vice President President Jeffrey Lee McGregor, Sr.* Director and President None Paul J. Dolan* Chief Operating Officer and Chief None Administrative Officer Peter A. Gallus* Vice President and Chief Operating None Officer Jeffrey P. Fox* Chief Financial Officer Treasurer Christopher P. Keating* Vice President None Scott Roane Plummer* Chief Counsel Vice President, General Counsel and Secretary Brian Mitchell** Chief Compliance Officer None Thomas R. Moore* Secretary None Walter Berman* Treasurer None Eleanor T. M. Hoagland** Anti-Money Laundering Officer None
* Business address is: 50611 Ameriprise Financial Center, Minneapolis, MN 55474 ** Business address is: 100 Park Avenue, New York, NY 10017. (c) Not Applicable Item 28. Location of Accounts and Records Ameriprise Financial, Inc. 707 Second Avenue, South Minneapolis, MN 55402 Iron Mountain Records Management 920 & 950 Apollo Road Eagan, MN 55121 Iron Mountain Records Management is an off-site storage facility housing historical records that are no longer required to be maintained on-site. Records stored at this facility include various trading and accounting records, as well as other miscellaneous records. Item 29. Management Services Not Applicable Item 30. Undertakings Not Applicable SIGNATURES Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant, RIVERSOURCE 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 23rd day of Dec., 2008. RIVERSOURCE GLOBAL SERIES, INC. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President By /s/ Jeffrey P. Fox ---------------------------------- Jeffrey P. Fox Treasurer Pursuant to the requirements of the Securities Act, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on the 23rd day of Dec., 2008.
Signature Capacity --------- ------------------ /s/ Stephen R. Lewis, Jr.* Chair of the Board ------------------------------------- Stephen R. Lewis, Jr. /s/ Kathleen A. Blatz* Director ------------------------------------- Kathleen A. Blatz /s/ Arne H. Carlson* Director ------------------------------------- Arne H. Carlson /s/ Pamela G. Carlton* Director ------------------------------------- Pamela G. Carlton /s/ Patricia M. Flynn* Director ------------------------------------- Patricia M. Flynn /s/ Anne P. Jones* Director ------------------------------------- Anne P. Jones /s/ Jeffrey Laikind* Director ------------------------------------- Jeffrey Laikind
Signature Capacity --------- ------------------ Director ------------------------------------- John F. Maher /s/ Catherine James Paglia* Director ------------------------------------- Catherine James Paglia /s/ Leroy C. Richie* Director ------------------------------------- Leroy C. Richie /s/ Alison Taunton-Rigby* Director ------------------------------------- Alison Taunton-Rigby /s/ William F. Truscott* Director ------------------------------------- William F. Truscott
* Signed pursuant to Directors/Trustees Power of Attorney, dated Nov. 13, 2008, filed electronically herewith as Exhibit (q) to Registrant's Post-Effective Amendment No. 58 to Registration Statement No. 33-25824, by: /s/ Scott R. Plummer ------------------------------------- Scott R. Plummer Contents of this Post-Effective Amendment No. 58 to Registration Statement No. 33-25824 This Post-Effective Amendment comprises the following papers and documents: The facing sheet. Part A. The prospectuses for: RiverSource Absolute Return Currency and Income Fund. RiverSource Emerging Markets Bond Fund. RiverSource Global Bond Fund. RiverSource Global Technology Fund. Threadneedle Emerging Markets Fund. The combined prospectus for: Threadneedle Global Equity Fund. Threadneedle Global Equity Income Fund. Threadneedle Global Extended Alpha Fund. Part B. Statement of Additional Information. Financial Statements. Part C. Other information. The signatures. EXHIBIT INDEX (h)(10) Form of License Agreement, dated July 10, 2004, between Threadneedle Asset Management Holdings Limited and the Registrant. (i) Opinion and consent of counsel as to the legality of the securities being registered. (j) Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP). (q) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated Nov. 13, 2008.