UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [_]
[ ] Post-Effective Amendment No. [_]
(Check Appropriate Box or Boxes)
RiverSource Diversified Income Series, Inc.
(Exact Name of Registrant as Specified in Charter)
(612) 671-1947
(Area Code and Telephone Number)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
Scott R. Plummer
(Name and Address of Agent for Service)
5228 Ameriprise Financial Center Minneapolis MN 55474
(Number and Street) (City) (State) (Zip Code)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
Title of Securities Being Registered: Common Stock
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine. It is proposed that this filing will become effective on Nov. 20,
2007.
RIVERSOURCE(R) FUNDS
734 Ameriprise Financial Center
Minneapolis, Minnesota 55474
NOTICE OF A JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JAN. 29, 2008
RiverSource Core Bond Fund
RiverSource Fundamental Growth Fund
RiverSource International Equity Fund
RiverSource Massachusetts Tax-Exempt Fund
RiverSource Michigan Tax-Exempt Fund
RiverSource Minnesota Tax-Exempt Fund
RiverSource Ohio Tax-Exempt Fund
RiverSource Value Fund
A Joint Special Meeting of Shareholders (the "Meeting") of each of the Funds
listed above will be held at 10:00 a.m. on Jan. 29, 2008, in the Marquette
Hotel, 710 Marquette Avenue, Minneapolis, Minnesota 55402. At the meeting,
shareholders will consider the following proposals:
1. To approve an Agreement and Plan of Reorganization between RiverSource Core
Bond Fund ("Core Bond Fund" or the "Selling Fund") and RiverSource
Diversified Bond Fund ("Diversified Bond Fund" or the "Buying Fund"). Under
this Agreement, the Selling Fund will transfer all of its assets attributable
to Class A, B, C, I, R2, R3, R4, R5 and W shares to the Buying Fund in
exchange for corresponding Class A, B, C, I, R2, R3, R4, R5 and W shares of
the Buying Fund and the assumption by the Buying Fund of all liabilities of
the Selling Fund. These shares will be distributed proportionately to you and
the other shareholders of the Selling Fund.
2. To approve an Agreement and Plan of Reorganization between RiverSource
Fundamental Growth Fund ("Fundamental Growth Fund" or the "Selling Fund") and
RiverSource Growth Fund ("Growth Fund" or the "Buying Fund"). Under this
Agreement, the Selling Fund will transfer all of its assets attributable to
Class A, B, C, I and R4 shares to the Buying Fund in exchange for
corresponding Class A, B, C, I and R4 shares of the Buying Fund and the
assumption by the Buying Fund of all liabilities of the Selling Fund. These
shares will be distributed proportionately to you and the other shareholders
of the Selling Fund.
3. To approve an Agreement and Plan of Reorganization between RiverSource
International Equity Fund ("International Equity Fund" or the "Selling Fund")
and RiverSource Disciplined International Equity Fund ("Disciplined
International Equity" or the "Buying Fund"). Under this Agreement, the
Selling Fund will transfer all of its assets attributable to Class A, B, C, I
and R4 shares to the Buying Fund in exchange for corresponding Class A, B, C,
I and R4 shares of the Buying Fund and the assumption by the Buying Fund of
all liabilities of the Selling Fund. These shares will be distributed
proportionately to you and the other shareholders of the Selling Fund.
4. To approve an Agreement and Plan of Reorganization between RiverSource
Massachusetts Tax-Exempt Fund ("Massachusetts Tax-Exempt Fund" or the
"Selling Fund") and RiverSource Tax-Exempt High Income Fund ("Tax-Exempt High
Income Fund" or the "Buying Fund"). Under this Agreement, the Selling Fund
will transfer all of its assets attributable to Class A, B and C shares to
the Buying Fund in exchange for corresponding Class A, B and C shares of the
Buying Fund and the assumption by the Buying Fund of all liabilities of the
Selling Fund. These shares will be distributed proportionately to you and the
other shareholders of the Selling Fund.
5. To approve an Agreement and Plan of Reorganization between RiverSource
Michigan Tax-Exempt Fund ("Michigan Tax-Exempt Fund" or the "Selling Fund")
and RiverSource Tax-Exempt High Income Fund ("Tax-Exempt High Income Fund" or
the "Buying Fund"). Under this Agreement, the Selling Fund will transfer all
of its assets attributable to Class A, B and C shares to the Buying Fund in
exchange for corresponding Class A, B and C shares of the Buying Fund and the
assumption by the Buying Fund of all liabilities of the Selling Fund. These
shares will be distributed proportionately to you and the other shareholders
of the Selling Fund.
6. To approve an Agreement and Plan of Reorganization between RiverSource Ohio
Tax-Exempt Fund ("Ohio Tax-Exempt Fund" or the "Selling Fund") and
RiverSource Tax-Exempt High Income Fund ("Tax-Exempt High Income Fund" or the
"Buying Fund"). Under this Agreement, the Selling Fund will transfer all of
its assets attributable to Class A, B and C shares to the Buying Fund in
exchange for corresponding Class A, B and C shares of the Buying Fund and the
assumption by the
Buying Fund of all liabilities of the Selling Fund. These shares will be
distributed proportionately to you and the other shareholders of the Selling
Fund.
7. To approve an Agreement and Plan of Reorganization between RiverSource Value
Fund ("Value Fund" or the "Selling Fund") and RiverSource Diversified Equity
Income Fund ("Diversified Equity Income Fund" or the "Buying Fund"). Under
this Agreement, the Selling Fund will transfer all of its assets attributable
to Class A, B, C, I and R4 shares to the Buying Fund in exchange for
corresponding Class A, B, C, I and R4 shares of the Buying Fund and the
assumption by the Buying Fund of all liabilities of the Selling Fund. These
shares will be distributed proportionately to you and the other shareholders
of the Selling Fund.
8. To approve a change in the classification of RiverSource Minnesota Tax-Exempt
Fund ("Minnesota Tax-Exempt Fund") from a "diversified" fund to a
"non-diversified" fund, as such terms are defined under the Investment
Company Act of 1940, as amended.
9. Other business as may properly come before the Meeting, or any adjournment of
the Meeting.
Please take some time to read the proxy statement. It discusses these proposals
in more detail. If you were a shareholder on Nov. 30, 2007, you may vote at the
Meeting or any adjournment of the Meeting. We hope you can attend the Meeting.
If you cannot attend, please vote by mail, telephone or internet. Just follow
the instructions on the enclosed proxy card. If you have questions, please call
toll free at (866) 438-8932. It is important that you vote. The Board of
Directors/Trustees of each RiverSource Fund recommends that you vote FOR each of
the proposals. This proxy statement was first mailed to shareholders on or about
Dec. 1, 2007.
By order of the Boards of Directors/Trustees
Scott R. Plummer, Secretary
Dec. 1, 2007
RiverSource(R) Core Bond Fund
RiverSource Fundamental Growth Fund
RiverSource International Equity Fund
RiverSource Massachusetts Tax-Exempt Fund
RiverSource Michigan Tax-Exempt Fund
RiverSource Minnesota Tax-Exempt Fund
RiverSource Ohio Tax-Exempt Fund
RiverSource Value Fund
COMBINED PROXY STATEMENT/PROSPECTUS
DATED DEC. 1, 2007
This document is a proxy statement for each Selling Fund (as defined below) and
RiverSource Minnesota Tax-Exempt Fund (the "Minnesota Tax-Exempt Fund") and a
prospectus for each Buying Fund (as defined below). The address of each of the
funds is 734 Ameriprise Financial Center, Minneapolis, Minnesota 55474. This
combined proxy statement/prospectus contains information you should know before
voting on the following proposals:
<Table>
<Caption>
TO BE VOTED ON BY
PROPOSALS SHAREHOLDERS OF:
- --------------------------------------------------------------------------------------------------------
1. To approve an Agreement and Plan of Reorganization RiverSource Core Bond Fund
between RiverSource Core Bond Fund ("Core Bond Fund" or
the "Selling Fund") and RiverSource Diversified Bond Fund
("Diversified Bond Fund" or the "Buying Fund"). Under
this Agreement, the Selling Fund will transfer all of its
assets attributable to Class A, B, C, I, R2, R3, R4, R5
and W shares to the Buying Fund in exchange for
corresponding Class A, B, C, I, R2, R3, R4, R5 and W
shares of the Buying Fund and the assumption by the
Buying Fund of all liabilities of the Selling Fund. These
shares will be distributed proportionately to you and the
other shareholders of the Selling Fund.
- --------------------------------------------------------------------------------------------------------
2. To approve an Agreement and Plan of Reorganization RiverSource Fundamental Growth Fund
between RiverSource Fundamental Growth Fund ("Fundamental
Growth Fund" or the "Selling Fund") and RiverSource
Growth Fund ("Growth Fund" or the "Buying Fund"). Under
this Agreement, the Selling Fund will transfer all of its
assets attributable to Class A, B, C, I and R4 shares to
the Buying Fund in exchange for corresponding A, B, C, I
and R4 shares of the Buying Fund and the assumption by
the Buying Fund of all liabilities of the Selling Fund.
These shares will be distributed proportionately to you
and the other shareholders of the Selling Fund.
- --------------------------------------------------------------------------------------------------------
3. To approve an Agreement and Plan of Reorganization RiverSource International Equity Fund
between RiverSource International Equity Fund
("International Equity Fund" or the "Selling Fund") and
RiverSource Disciplined International Equity Fund
("Disciplined International Equity Fund" or the "Buying
Fund"). Under this Agreement, the Selling Fund will
transfer all of its assets attributable to Class A, B, C,
I and R4 shares to the Buying Fund in exchange for
corresponding Class A, B, C, I and R4 shares of the
Buying Fund and the assumption by the Buying Fund of all
liabilities of the Selling Fund. These shares will be
distributed proportionately to you and the other
shareholders of the Selling Fund.
- --------------------------------------------------------------------------------------------------------
4. To approve an Agreement and Plan of Reorganization RiverSource Massachusetts Tax-Exempt Fund
between RiverSource Massachusetts Tax-Exempt Fund
("Massachusetts Tax-Exempt Fund" or the "Selling Fund")
and RiverSource Tax-Exempt High Income Fund ("Tax-Exempt
High Income Fund" or the "Buying Fund"). Under this
Agreement, the Selling Fund will transfer all of its
assets attributable to Class A, B and C shares to the
Buying Fund in exchange for corresponding Class A, B and
C shares of the Buying Fund and the assumption by the
Buying Fund of all liabilities of the Selling Fund. These
shares will be distributed proportionately to you and the
other shareholders of the Selling Fund.
- --------------------------------------------------------------------------------------------------------
5. To approve an Agreement and Plan of Reorganization RiverSource Michigan Tax-Exempt Fund
between RiverSource Michigan Tax-Exempt Fund ("Michigan
Tax-Exempt Fund" or the "Selling Fund") and RiverSource
Tax-Exempt High Income Fund ("Tax-Exempt High Income
Fund" or the "Buying Fund"). Under this Agreement, the
Selling Fund will transfer all of its assets attributable
to Class A, B and C shares to the Buying Fund in exchange
for corresponding Class A, B and C shares of the Buying
Fund and the assumption by the Buying Fund of all
liabilities of the Selling Fund. These shares will be
distributed proportionately to you and the other
shareholders of the Selling Fund.
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 1
<Table>
<Caption>
TO BE VOTED ON BY
PROPOSALS SHAREHOLDERS OF:
- --------------------------------------------------------------------------------------------------------
6. To approve an Agreement and Plan of Reorganization RiverSource Ohio Tax-Exempt Fund
between RiverSource Ohio Tax-Exempt Fund ("Ohio
Tax-Exempt Fund" or the "Selling Fund") and RiverSource
Tax-Exempt High Income Fund ("Tax-Exempt High Income
Fund" or the "Buying Fund"). Under this Agreement, the
Selling Fund will transfer all of its assets attributable
to Class A, B and C shares to the Buying Fund in exchange
for corresponding A, B and C shares of the Buying Fund
and the assumption by the Buying Fund of all liabilities
of the Selling Fund. These shares will be distributed
proportionately to you and the other shareholders of the
Selling Fund.
- --------------------------------------------------------------------------------------------------------
7. To approve an Agreement and Plan of Reorganization RiverSource Value Fund
between RiverSource Value Fund ("Value Fund" or the
"Selling Fund") and RiverSource Diversified Equity Income
Fund ("Diversified Equity Income Fund" or the "Buying
Fund"). Under this Agreement, the Selling Fund will
transfer all of its assets attributable to Class A, B, C,
I and R4 shares to the Buying Fund in exchange for
corresponding Class A, B, C, I and R4 shares of the
Buying Fund and the assumption by the Buying Fund of all
liabilities of the Selling Fund. These shares will be
distributed proportionately to you and the other
shareholders of the Selling Fund.
- --------------------------------------------------------------------------------------------------------
8. To approve a change in the classification of RiverSource RiverSource Minnesota Tax-Exempt Fund
Minnesota Tax-Exempt Fund ("Minnesota Tax-Exempt Fund")
from a "diversified" fund to a "non-diversified" fund, as
such terms are defined under the Investment Company Act
of 1940, as amended (the "1940 Act").
- --------------------------------------------------------------------------------------------------------
</Table>
These proposals will be considered by shareholders of the Selling Funds and
Minnesota Tax-Exempt Fund at a special joint meeting of such shareholders (the
"Meeting") that will be held at 10:00 a.m. on Jan. 29, 2008, in the Marquette
Hotel, 710 Marquette Avenue, Minneapolis, Minnesota 55402. Each of the Minnesota
Tax-Exempt Fund, the Selling Funds and the Buying Funds (collectively, the
"Funds") is a series of a registered open-end management investment company.
Please read this proxy statement/prospectus and keep it for future reference.
Although the Board of Directors/Trustees of each of the Funds (the "Board")
proposes that each Selling Fund merge with the corresponding Buying Fund, the
reorganization of each Selling Fund (each a "Reorganization") is not conditioned
upon the Reorganization of any other Selling Fund. Accordingly, if shareholders
of one Selling Fund approve its Reorganization, but shareholders of another
Selling Fund do not approve that Fund's Reorganization, it is expected that the
Reorganization of the approved Selling Fund will take place as described in this
proxy statement/prospectus.
HOW EACH REORGANIZATION WILL WORK
- - Each Selling Fund will transfer all of its assets to the corresponding Buying
Fund in exchange for shares of such Buying Fund ("Reorganization Shares") and
the assumption of all of the Selling Fund's liabilities.
- - Each Buying Fund will issue Reorganization Shares in an amount equal to the
value of the assets of the shares that it receives from the Selling Fund, less
the liabilities it assumes. The Reorganization Shares of each class will be
distributed to the Selling Fund's shareholders of the corresponding class in
proportion to their holdings in the Selling Fund. For example, holders of
Class A shares of a Selling Fund will receive Class A shares of the
corresponding Buying Fund with the same aggregate net asset value as their
Selling Fund shares at the time of the Reorganization. You will not pay any
sales charge in connection with this distribution of shares. If you already
have a Buying Fund account, shares distributed in the Reorganization will be
added to that account. As a result, when average cost is calculated for income
tax purposes, the cost of the shares in the two accounts you owned will be
combined.
WHERE TO GET MORE INFORMATION
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated into this proxy statement/prospectus
by reference:
- - the prospectus of Core Bond Fund, dated Sept. 28, 2007;
- - the prospectus of Fundamental Growth Fund, dated July 30, 2007;
- - the prospectus of International Equity Fund, dated Dec. 29, 2006;
- - the prospectus of Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund and
Ohio Tax-Exempt Fund dated Oct. 30, 2007;
- - the prospectus of Value Fund, dated July 30, 2007;
- - the Statement of Additional Information of the Selling Funds, dated Nov. 29,
2007;
2 RIVERSOURCE FUNDS -- PROXY STATEMENT
- - the Statement of Additional Information relating to the Reorganizations, dated
Dec. 1, 2007 (the "Merger SAI");
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Core Bond Fund for the period ended July 31, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Diversified Bond Fund for the period ended Aug. 31, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Fundamental Growth Fund for the period ended May 31, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Growth Fund for the period ended July 31, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
International Equity Fund for the period ended Oct. 31, 2006 and the unaudited
financial statements included in the Semiannual Report to Shareholders of
International Equity Fund for the period ended April 30, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Disciplined International Equity Fund for the period ended Oct. 31, 2006 and
the unaudited financial statements included in the Semiannual Report to
Shareholders of Disciplined International Equity Fund for the period ended
April 30, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund and Ohio Tax-Exempt
Fund for the period ended Aug. 31, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Tax-Exempt High Income Fund for the period ended Nov. 30, 2006 and the
unaudited financial statements included in the Semiannual Report to
Shareholders of Tax-Exempt High Income Fund for the period ended May 31, 2007;
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Value Fund for the period ended May 31, 2007; and
- - the Report of the Independent Registered Public Accounting Firm and the
audited financial statements included in the Annual Report to Shareholders of
Diversified Equity Income Fund for the period ended Sept. 30, 2007.
For a copy at no charge of any of the documents listed above or to ask questions
about this proxy statement/prospectus, call toll-free (866) 438-8932 or write to
RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, Minnesota
55474.
Each of the Funds is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and files reports, proxy materials and
other information with the Securities and Exchange Commission ("SEC"). These
reports, proxy materials and other information can be inspected and copied at
the Public Reference Room maintained by the SEC. Copies may be obtained, after
paying a duplicating fee, by electronic request at
http://www.publicinfo@sec.gov, or by writing to the Public Reference Section of
the SEC, 100 F Street, N.E., Washington, D.C. 20549-0102. In addition, copies of
these documents may be viewed on-line or downloaded from the SEC's Web site at
http://www.sec.gov.
Please note that each Fund is not a bank deposit, is not federally insured, is
not endorsed by any bank or government agency and is not guaranteed to achieve
its goal.
As with all mutual funds, the SEC has not approved or disapproved these
securities or passed on the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
RIVERSOURCE FUNDS -- PROXY STATEMENT 3
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SECTION A -- REORGANIZATION PROPOSALS..................................................... 6
SUMMARY................................................................................ 6
How Each Reorganization Will Work................................................... 6
Fees and Expenses................................................................... 7
Core Bond Fund/Diversified Bond Fund............................................. 7
Fundamental Growth Fund/Growth Fund.............................................. 11
International Equity Fund/Disciplined International Equity Fund.................. 13
Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund and Ohio Tax-Exempt
Fund/Tax-Exempt High Income Fund................................................ 16
Value Fund/Diversified Equity Income Fund........................................ 22
Tax Consequences.................................................................... 24
PROPOSAL 1. REORGANIZATION OF CORE BOND FUND INTO DIVERSIFIED BOND FUND................ 25
Comparison of the Selling Fund and the Buying Fund.................................. 25
Comparison of Investment Objectives.............................................. 25
Comparison of Principal Investment Strategies.................................... 25
Comparison of Fundamental Policies............................................... 27
Comparison of Nonfundamental Policies............................................ 27
Comparison of Principal Risk Factors............................................. 28
Performance...................................................................... 29
PROPOSAL 2. REORGANIZATION OF FUNDAMENTAL GROWTH FUND INTO GROWTH FUND................. 32
Comparison of the Selling Fund and the Buying Fund.................................. 32
Comparison of Investment Objectives.............................................. 32
Comparison of Principal Investment Strategies.................................... 32
Comparison of Fundamental Policies............................................... 33
Comparison of Nonfundamental Policies............................................ 34
Comparison of Principal Risk Factors............................................. 34
Performance...................................................................... 35
PROPOSAL 3. REORGANIZATION OF INTERNATIONAL EQUITY FUND INTO DISCIPLINED INTERNATIONAL
EQUITY FUND.......................................................................... 39
Comparison of the Selling Fund and the Buying Fund.................................. 39
Comparison of Investment Objectives.............................................. 39
Comparison of Principal Investment Strategies.................................... 39
Comparison of Fundamental Policies............................................... 41
Comparison of Nonfundamental Policies............................................ 41
Comparison of Principal Risk Factors............................................. 42
Performance...................................................................... 43
</Table>
4 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
PAGE
----
PROPOSALS 4, 5 AND 6. REORGANIZATION OF MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN
TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND INTO TAX-EXEMPT HIGH INCOME FUND............ 46
Comparison of the Selling Funds and the Buying Fund................................. 46
Comparison of Investment Objectives.............................................. 46
Comparison of Principal Investment Strategies.................................... 46
Comparison of Fundamental Policies............................................... 48
Comparison of Nonfundamental Policies............................................ 49
Comparison of Principal Risk Factors............................................. 49
Performance...................................................................... 50
PROPOSAL 7. REORGANIZATION OF VALUE FUND INTO DIVERSIFIED EQUITY INCOME FUND........... 56
Comparison of the Selling Fund and the Buying Fund.................................. 56
Comparison of Investment Objectives.............................................. 56
Comparison of Principal Investment Strategies.................................... 56
Comparison of Fundamental Policies............................................... 58
Comparison of Nonfundamental Policies............................................ 59
Comparison of Principal Risk Factors............................................. 59
Performance...................................................................... 60
ADDITIONAL INFORMATION ABOUT EACH REORGANIZATION....................................... 63
Terms of the Reorganizations........................................................ 63
Conditions to Closing each Reorganization........................................... 63
Termination of the Agreement........................................................ 63
Tax Status of the Reorganizations................................................... 63
Reasons for the Proposed Reorganizations and Board Deliberations.................... 65
Boards' Determinations.............................................................. 68
Recommendation and Vote Required.................................................... 69
SECTION B -- PROPOSAL FOR MINNESOTA TAX-EXEMPT FUND....................................... 70
PROPOSAL 8. APPROVE OR REJECT CHANGE OF INVESTMENT COMPANY CLASSIFICATION TO
"NON-DIVERSIFIED" FOR MINNESOTA TAX-EXEMPT FUND...................................... 70
SECTION C -- PROXY VOTING AND SHAREHOLDER MEETING INFORMATION............................. 71
SECTION D -- CAPITALIZATION, OWNERSHIP OF FUND SHARES AND FINANCIAL HIGHLIGHTS............ 72
Capitalization...................................................................... 72
Ownership of Fund Shares............................................................ 75
Financial Highlights................................................................ 80
EXHIBITS
A. Form of Agreement and Plan of Reorganization........................................... A.1
B. Minnesota Business Corporation Act Sections 302A.471 and 302A.473...................... B.1
C. Additional Information Applicable to the Buying Funds.................................. C.1
D. Comparison of Organizational Documents................................................. D.1
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 5
SECTION A -- REORGANIZATION PROPOSALS
The following information describes the proposed reorganization of each Selling
Fund into a corresponding Buying Fund.
SUMMARY
This proxy statement/prospectus is being used by each Selling Fund to solicit
proxies to vote at a joint special meeting of shareholders. Shareholders of each
Selling Fund will consider a proposal to approve the Agreement and Plan of
Reorganization (the "Agreement") providing for the Reorganization of their
Selling Fund into the corresponding Buying Fund. A form of the Agreement is
included as Exhibit A.
The following is a summary. More complete information appears later in this
proxy statement/prospectus. You should read the entire proxy
statement/prospectus and the exhibits because they contain details that are not
in this summary.
HOW EACH REORGANIZATION WILL WORK
- - Each Selling Fund will transfer all of its assets to the corresponding Buying
Fund in exchange for shares of such Buying Fund ("Reorganization Shares") and
the assumption of all of the Selling Fund's liabilities.
- - Each Buying Fund will issue Reorganization Shares in an amount equal to the
value of the assets of the shares that it receives from the Selling Fund, less
the liabilities it assumes. The Reorganization Shares of each class will be
distributed to the Selling Fund's shareholders of the corresponding class in
proportion to their holdings in the Selling Fund. For example, holders of
Class A shares of a Selling Fund will receive Class A shares of the
corresponding Buying Fund with the same aggregate net asset value as their
Selling Fund shares at the time of the Reorganization. You will not pay any
sales charge in connection with this distribution of shares. If you already
have a Buying Fund account, shares distributed in the Reorganization will be
added to that account. As a result, when average cost is calculated for income
tax purposes, the cost of the shares in the two accounts you owned will be
combined.
- - As part of the Reorganization, systematic transactions (such as bank
authorizations and systematic payouts) currently set up for your Selling Fund
account may be transferred to your new Buying Fund account. Please contact
your financial institution for additional details.
- - Neither the Selling Fund nor the shareholders of the Selling Fund will pay any
sales charge in connection with the Reorganization.
- - After the Reorganization is completed, current Selling Fund shareholders will
be shareholders of the Buying Fund. The Selling Fund will be terminated.
6 RIVERSOURCE FUNDS -- PROXY STATEMENT
FEES AND EXPENSES
The following tables describe the fees and expenses that you pay if you buy and
hold shares of the Selling Fund or shares of the Buying Fund. The table also
shows pro forma expenses of the Buying Fund assuming the proposed Reorganization
had been effective at the beginning of the most recent fiscal year, adjusted to
reflect current fees, as applicable. The fees and expenses below exclude the
costs of this Reorganization, because these will be paid by RiverSource
Investments, LLC ("RiverSource Investments" or "investment manager") and its
affiliates.
REORGANIZATION OF CORE BOND FUND INTO DIVERSIFIED BOND FUND
ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<Table>
<Caption>
CLASS I, R2,
R3, R4, R5
CORE BOND FUND (SELLING FUND) CLASS A CLASS B CLASS C & 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 5% 1% None
DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 4.75%(a) None None None
Maximum deferred sales charge (load) imposed on sales
(as a percentage of offering price at time of purchase) None 5% 1% None
DIVERSIFIED BOND FUND (PRO FORMA COMBINED)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 4.75%(a) None None None
Maximum deferred sales charge (load) imposed on sales
(as a percentage of offering price at time of purchase) None 5% 1% None
</Table>
(a) This charge may be reduced depending on the value of your total investments
in RiverSource Funds. See Exhibit C "Sales Charges."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
<Table>
<Caption>
CORE BOND FUND (SELLING FUND) CLASS A CLASS B CLASS C CLASS W
Management fees 0.48% 0.48% 0.48% 0.48%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.25%
Other expenses(a) 0.36% 0.37% 0.37% 0.35%
Total annual fund operating expenses 1.09% 1.85% 1.85% 1.08%
Fee waiver/expense reimbursement 0.20% 0.20% 0.20% 0.13%
Total annual (net) fund operating expenses(b) 0.89% 1.65% 1.65% 0.95%
</Table>
<Table>
<Caption>
DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS W
Management fees 0.46% 0.46% 0.46% 0.46%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.25%
Other expenses(a) 0.26% 0.27% 0.27% 0.27%
Total annual fund operating expenses 0.97% 1.73% 1.73% 0.98%
Fee waiver/expense reimbursement 0.08% 0.08% 0.08% 0.00%
Total annual (net) fund operating expenses(c) 0.89% 1.65% 1.65% 0.98%
</Table>
<Table>
<Caption>
<Caption>
DIVERSIFIED BOND FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS W
Management fees 0.45% 0.45% 0.45% 0.45%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.25%
Other expenses(a) 0.27% 0.28% 0.28% 0.24%
Total annual fund operating expenses 0.97% 1.73% 1.73% 0.94%
Fee waiver/expense reimbursement 0.08% 0.08% 0.08% 0.00%
Total annual (net) fund operating expenses(c) 0.89% 1.65% 1.65% 0.94%
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 7
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(CONTINUED)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
<Table>
<Caption>
CORE BOND FUND (SELLING FUND) CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5
Management fees 0.48% 0.48% 0.48% 0.48% 0.48%
Distribution (12b-1) fees 0.00% 0.50% 0.25% 0.00% 0.00%
Other expenses(a) 0.18% 0.47% 0.46% 0.47% 0.23%
Total annual fund operating expenses 0.66% 1.45% 1.19% 0.95% 0.71%
Fee waiver/expense reimbursement 0.16% 0.15% 0.14% 0.18% 0.16%
Total annual (net) fund operating expenses(b) 0.50% 1.30% 1.05% 0.77% 0.55%
</Table>
<Table>
<Caption>
DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5
Management fees 0.46% 0.46% 0.46% 0.46% 0.46%
Distribution (12b-1) fees 0.00% 0.50% 0.25% 0.00% 0.00%
Other expenses(a) 0.10% 0.36% 0.35% 0.37% 0.13%
Total annual fund operating expenses 0.56% 1.32% 1.06% 0.83% 0.59%
Fee waiver/expense reimbursement 0.03% 0.00% 0.00% 0.06% 0.01%
Total annual (net) fund operating expenses(c) 0.53% 1.32% 1.06% 0.77% 0.58%
</Table>
<Table>
<Caption>
DIVERSIFIED BOND FUND (PRO FORMA COMBINED) CLASS I CLASS R2 CLASS R3 CLASS R4 CLASS R5
Management fees 0.45% 0.45% 0.45% 0.45% 0.45%
Distribution (12b-1) fees 0.00% 0.50% 0.25% 0.00% 0.00%
Other expenses(a) 0.13% 0.39% 0.39% 0.44% 0.17%
Total annual fund operating expenses 0.58% 1.34% 1.09% 0.89% 0.62%
Fee waiver/expense reimbursement 0.05% 0.01% 0.01% 0.12% 0.04%
Total annual (net) fund operating expenses(c) 0.53% 1.33% 1.08% 0.77% 0.58%
</Table>
(a) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee, other nonadvisory expenses and, for Class R2, Class R3
and Class R4, a plan administration services fee. 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. Because acquired funds will have varied expense and fee levels and
the Fund may own different proportions of acquired funds at different
times, the amount of fees and expenses incurred by the Fund with respect to
such investments will vary.
(b) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until July 31, 2008,
unless sooner terminated at the discretion of Core Bond Fund's Board. Any
amounts waived will not be reimbursed by Core Bond Fund. Under this
agreement, net Core Bond Fund expenses (excluding fees and expenses of
acquired funds) will not exceed 0.89% for Class A, 1.65% for Class B, 1.65%
for Class C, 0.50% for Class I, 1.30% for Class R2, 1.05% for Class R3,
0.77% for Class R4, 0.55% for Class R5 and 0.95% for Class W.
(c) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Aug. 31, 2008,
unless sooner terminated at the discretion of Diversified Bond Fund's
Board. Any amounts waived will not be reimbursed by Diversified Bond Fund.
Under this agreement, net Diversified Bond Fund expenses (excluding fees
and expenses of acquired funds) will not exceed 0.89% for Class A, 1.65%
for Class B, 1.65% for Class C, 0.53% for Class I, 1.33% for Class R2,
1.08% for Class R3, 0.77% for Class R4, 0.58% for Class R5 and 0.98% for
Class W.
EXAMPLE EXPENSES: 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 and
then redeem all of your shares at the end of those periods indicated under the
current arrangements and if the proposed Reorganization had been in effect.
These examples also assume that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
CORE BOND FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $562 $786 $1,030 $1,728
Class B $668(b) $963(b) $1,183(b) $1,958(c)
Class C $268(b) $563 $ 983 $2,158
Class I $ 51 $195 $ 353 $ 811
Class R2 $132 $444 $ 779 $1,728
Class R3 $107 $364 $ 642 $1,436
Class R4 $ 79 $285 $ 509 $1,154
Class R5 $ 56 $211 $ 380 $ 871
Class W $ 97 $331 $ 584 $1,310
</Table>
8 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $561 $761 $ 978 $1,602
Class B $667(b) $937(b) $1,131(b) $1,834(c)
Class C $267(b) $537 $ 931 $2,036
Class I $ 54 $176 $ 309 $ 698
Class R2 $134 $418 $ 723 $1,592
Class R3 $108 $337 $ 584 $1,295
Class R4 $ 78 $258 $ 454 $1,020
Class R5 $ 59 $187 $ 327 $ 737
Class W $100 $311 $ 541 $1,202
</Table>
<Table>
<Caption>
DIVERSIFIED BOND FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $562 $762 $ 979 $1,606
Class B $668(b) $937(b) $1,132(b) $1,837(c)
Class C $268(b) $537 $ 932 $2,039
Class I $ 54 $181 $ 319 $ 724
Class R2 $135 $424 $ 734 $1,617
Class R3 $110 $346 $ 601 $1,333
Class R4 $ 79 $272 $ 482 $1,089
Class R5 $ 59 $195 $ 342 $ 774
Class W $ 96 $300 $ 521 $1,159
</Table>
(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 at the
end of the periods indicated.
<Table>
<Caption>
CORE BOND FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $562 $786 $1,030 $1,728
Class B $168 $563 $ 983 $1,958(b)
Class C $168 $563 $ 983 $2,158
Class I $ 51 $195 $ 353 $ 811
Class R2 $132 $444 $ 779 $1,728
Class R3 $107 $364 $ 642 $1,436
Class R4 $ 79 $285 $ 509 $1,154
Class R5 $ 56 $211 $ 380 $ 871
Class W $ 97 $331 $ 584 $1,310
</Table>
<Table>
<Caption>
DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $561 $761 $978 $1,602
Class B $167 $537 $931 $1,834(b)
Class C $167 $537 $931 $2,036
Class I $ 54 $176 $309 $ 698
Class R2 $134 $418 $723 $1,592
Class R3 $108 $337 $584 $1,295
Class R4 $ 78 $258 $454 $1,020
Class R5 $ 59 $187 $327 $ 737
Class W $100 $311 $541 $1,202
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 9
<Table>
<Caption>
DIVERSIFIED BOND FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $562 $762 $979 $1,606
Class B $168 $537 $932 $1,837(b)
Class C $168 $537 $932 $2,039
Class I $ 54 $181 $319 $ 724
Class R2 $135 $424 $734 $1,617
Class R3 $110 $346 $601 $1,333
Class R4 $ 79 $272 $482 $1,089
Class R5 $ 59 $195 $342 $ 774
Class W $ 96 $300 $521 $1,159
</Table>
(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.
10 RIVERSOURCE FUNDS -- PROXY STATEMENT
REORGANIZATION OF FUNDAMENTAL GROWTH FUND INTO GROWTH FUND
ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<Table>
<Caption>
FUNDAMENTAL GROWTH FUND (SELLING FUND) CLASS A CLASS B CLASS C CLASS I & 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 5% 1% None
GROWTH FUND (ACTUAL) (BUYING FUND)
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 5% 1% None
GROWTH FUND (PRO FORMA COMBINED)
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 5% 1% None
</Table>
(a) This charge may be reduced depending on the value of your total investments
in RiverSource Funds. See Exhibit C "Sales Charges."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
<Table>
<Caption>
FUNDAMENTAL GROWTH FUND (SELLING FUND) CLASS A CLASS B CLASS C CLASS I CLASS R4
Management fees(a) 0.78% 0.78% 0.78% 0.78% 0.78%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(b) 0.38% 0.39% 0.38% 0.13% 0.44%
Total annual fund operating expenses(c) 1.41% 2.17% 2.16% 0.91% 1.22%
</Table>
<Table>
<Caption>
GROWTH FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS I CLASS R4
Management fees(d) 0.66% 0.66% 0.66% 0.66% 0.66%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(b) 0.28% 0.30% 0.29% 0.08% 0.38%
Total annual fund operating expenses 1.19% 1.96% 1.95% 0.74% 1.04%(e)
</Table>
<Table>
<Caption>
GROWTH FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS I CLASS R4
Management fees(d) 0.65% 0.65% 0.65% 0.65% 0.65%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(b) 0.28% 0.30% 0.30% 0.10% 0.39%
Total annual fund operating expenses 1.18% 1.95% 1.95% 0.75% 1.04%(e)
</Table>
(a) Includes the impact of a performance incentive adjustment fee that
increased the management fee by 0.001% for the most recent fiscal year. The
index against which Fundamental Growth Fund's performance is measured for
purposes of determining the performance incentive adjustment is the Lipper
Large-Cap Growth Funds Index.
(b) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee, other nonadvisory expenses and, for Class R4, a plan
administration services fee. 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. Because
acquired funds will have varied expense and fee levels and the Fund may own
different proportions of acquired funds at different times, the amount of
fees and expenses incurred by the Fund with respect to such investments
will vary.
(c) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until May 31, 2008,
unless sooner terminated at the discretion of Fundamental Growth Fund's
Board. Any amounts waived will not be reimbursed by Fundamental Growth
Fund. Under this agreement, net Fundamental Growth Fund expenses (excluding
fees and expenses of acquired funds), before giving effect to any
performance incentive adjustment, will not exceed 1.42% for Class A, 2.18%
for Class B, 2.18% for Class C, 0.99% for Class I and 1.29% for Class R4.
(d) Includes the impact of a performance incentive adjustment fee that
increased the management fee by 0.09% for the most recent fiscal year. The
index against which Growth Fund's performance is measured for purposes of
determining the performance incentive adjustment is the Lipper Large-Cap
Growth Funds Index.
(e) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until July 31, 2008,
unless sooner terminated at the discretion of Growth Fund's Board. Any
amounts waived will not be reimbursed by Growth Fund. Under this agreement,
net Growth Fund expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment, will not
exceed 0.97% for Class R4.
RIVERSOURCE FUNDS -- PROXY STATEMENT 11
EXAMPLE EXPENSES: 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 and
then redeem all of your shares at the end of those periods indicated under the
current arrangements and if the proposed Reorganization had been in effect.
These examples also assume that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
FUNDAMENTAL GROWTH FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $710 $ 996 $1,303 $2,173
Class B $720(b) $1,079(b) $1,365(b) $2,315(c)
Class C $319(b) $ 676 $1,160 $2,498
Class I $ 93 $ 290 $ 505 $1,124
Class R4 $124 $ 387 $ 671 $1,482
</Table>
<Table>
<Caption>
GROWTH FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $689 $ 931 $1,193 $1,940
Class B $699(b) $1,016(b) $1,258(b) $2,090(c)
Class C $298(b) $ 613 $1,053 $2,280
Class I $ 76 $ 237 $ 412 $ 922
Class R4 $106 $ 331 $ 575 $1,276
</Table>
<Table>
<Caption>
GROWTH FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $688 $ 928 $1,188 $1,929
Class B $698(b) $1,013(b) $1,253(b) $2,079(c)
Class C $298(b) $ 613 $1,053 $2,280
Class I $ 77 $ 240 $ 418 $ 934
Class R4 $106 $ 331 $ 575 $1,276
</Table>
(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 at the
end of the periods indicated.
<Table>
<Caption>
FUNDAMENTAL GROWTH FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $710 $996 $1,303 $2,173
Class B $220 $679 $1,165 $2,315(b)
Class C $219 $676 $1,160 $2,498
Class I $ 93 $290 $ 505 $1,124
Class R4 $124 $387 $ 671 $1,482
</Table>
<Table>
<Caption>
GROWTH FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $689 $931 $1,193 $1,940
Class B $199 $616 $1,058 $2,090(b)
Class C $198 $613 $1,053 $2,280
Class I $ 76 $237 $ 412 $ 922
Class R4 $106 $331 $ 575 $1,276
</Table>
<Table>
<Caption>
GROWTH FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $688 $928 $1,188 $1,929
Class B $198 $613 $1,053 $2,079(b)
Class C $198 $613 $1,053 $2,280
Class I $ 77 $240 $ 418 $ 934
Class R4 $106 $331 $ 575 $1,276
</Table>
(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.
12 RIVERSOURCE FUNDS -- PROXY STATEMENT
REORGANIZATION OF INTERNATIONAL EQUITY FUND INTO DISCIPLINED INTERNATIONAL
EQUITY FUND
ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<Table>
<Caption>
CLASS I &
INTERNATIONAL EQUITY FUND (SELLING FUND) CLASS A CLASS B CLASS C 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 5% 1% None
DISCIPLINED INTERNATIONAL EQUITY FUND (ACTUAL) (BUYING FUND)
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 5% 1% None
DISCIPLINED INTERNATIONAL EQUITY FUND (PRO FORMA COMBINED)
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 5% 1% None
</Table>
(a) This charge may be reduced depending on the value of your total investments
in RiverSource Funds. See Exhibit C "Sales Charges."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<Table>
<Caption>
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS
INTERNATIONAL EQUITY FUND (SELLING FUND) CLASS A CLASS B CLASS C CLASS I R4(A)
Management fees(b) 0.97% 0.97% 0.97% 0.97% 0.97%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(c) 0.47% 0.49% 0.49% 0.26% 0.56%
Total annual fund operating expenses 1.69% 2.46% 2.46% 1.23% 1.53%
Fee waiver/expense reimbursement 0.09% 0.09% 0.09% 0.00% 0.10%
Total annual (net) fund operating expenses(d) 1.60% 2.37% 2.37% 1.23% 1.43%
</Table>
<Table>
<Caption>
CLASS
DISCIPLINED INTERNATIONAL EQUITY FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS I R4(A)
Management fees(e) 0.80% 0.80% 0.80% 0.80% 0.80%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(c) 0.87% 0.89% 0.89% 0.77% 0.95%
Total annual fund operating expenses 1.92% 2.69% 2.69% 1.57% 1.75%
Fee waiver/expense reimbursement 0.42% 0.42% 0.42% 0.42% 0.42%
Total annual (net) fund operating expenses(f) 1.50% 2.27% 2.27% 1.15% 1.33%
</Table>
<Table>
<Caption>
CLASS
DISCIPLINED INTERNATIONAL EQUITY FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS I R4(A)
Management fees(e) 0.80% 0.80% 0.80% 0.80% 0.80%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(c) 0.53% 0.52% 0.52% 0.42% 0.60%
Total annual fund operating expenses 1.58% 2.32% 2.32% 1.22% 1.40%
Fee waiver/expense reimbursement 0.08% 0.06% 0.06% 0.10% 0.03%
Total annual (net) fund operating expenses(g) 1.50% 2.26% 2.26% 1.12% 1.37%
</Table>
(a) In September 2006, the Board approved renaming Class Y as Class R4,
terminating the shareholder servicing agreement, revising the fee structure
under the transfer agent agreement from account-based to asset-based, and
adopting a plan administration services agreement.
(b) Includes the impact of a performance incentive adjustment fee that
decreased the management fee by 0.002% for the most recent fiscal year. The
index against which International Equity Fund's performance is measured for
purposes of determining the performance incentive adjustment is the Lipper
International Funds Index.
(c) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee, other nonadvisory expenses and, for Class R4, a plan
administration services fee. 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. 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, 2007,
unless sooner terminated at the discretion of International Equity Fund's
Board. Any amounts waived will not be reimbursed by International Equity
Fund. Under this agreement, net International Equity Fund expenses
(excluding fees and expenses of acquired funds), before giving effect to
any performance incentive adjustment, will not exceed 1.60% for Class A,
2.37% for Class B, 2.37% for Class C, 1.25% for Class I and 1.43% for Class
R4.
RIVERSOURCE FUNDS -- PROXY STATEMENT 13
(e) Disciplined International Equity Fund's management fee may be increased or
decreased due to the effect of a performance incentive adjustment. During
the period May 18, 2006 (when shares became publicly available) to Oct. 31,
2006, the management fee was not adjusted. The index against which
Disciplined International Equity Fund's performance is measured for
purposes of determining the performance incentive adjustment is the Lipper
International Large-Cap Core Funds Index.
(f) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Oct. 31, 2007,
unless sooner terminated at the discretion of Disciplined International
Equity Fund's Board. Any amounts waived will not be reimbursed by
Disciplined International Equity Fund. Under this agreement, net
Disciplined International Equity Fund expenses (excluding fees and expenses
of acquired funds), before giving effect to any performance incentive
adjustment, will not exceed 1.50% for Class A, 2.27% for Class B, 2.27% for
Class C, 1.15% for Class I and 1.33% for Class R4.
(g) Effective Nov. 1, 2007, the investment manager and its affiliates have
contractually agreed to waive certain fees and to absorb certain expenses
until Oct. 31, 2008, unless sooner terminated at the discretion of
Disciplined International Equity Fund's Board. Any amounts waived will not
be reimbursed by Disciplined International Equity Fund. Under this
agreement, net Disciplined International Equity Fund expenses (excluding
fees and expenses of acquired funds), before giving effect to any
performance incentive adjustment, will not exceed 1.50% for Class A, 2.26%
for Class B, 2.26% for Class C, 1.12% for Class I and 1.37% for Class R4.
EXAMPLE EXPENSES: 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 and
then redeem all of your shares at the end of those periods indicated under the
current arrangements and if the proposed Reorganization had been in effect.
These examples also assume that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
INTERNATIONAL EQUITY FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $728 $1,069 $1,433 $2,456
Class B $740(b) $1,158(b) $1,503(b) $2,603(c)
Class C $340(b) $ 758 $1,303 $2,794
Class I $125 $ 391 $ 677 $1,494
Class R4 $146 $ 474 $ 826 $1,820
</Table>
<Table>
<Caption>
DISCIPLINED INTERNATIONAL EQUITY FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $719 $1,105 $1,516 $2,662
Class B $730(b) $1,196(b) $1,588(b) $2,809(c)
Class C $330(b) $ 796 $1,388 $2,995
Class I $117 $ 455 $ 817 $1,837
Class R4 $135 $ 511 $ 911 $2,033
</Table>
<Table>
<Caption>
DISCIPLINED INTERNATIONAL EQUITY FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $719 $1,038 $1,380 $2,344
Class B $729(b) $1,119(b) $1,436(b) $2,470(c)
Class C $329(b) $ 719 $1,236 $2,656
Class I $114 $ 378 $ 662 $1,473
Class R4 $139 $ 440 $ 764 $1,682
</Table>
(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 at the
end of the periods indicated.
<Table>
<Caption>
INTERNATIONAL EQUITY FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $728 $1,069 $1,433 $2,456
Class B $240 $ 758 $1,303 $2,603(b)
Class C $240 $ 758 $1,303 $2,794
Class I $125 $ 391 $ 677 $1,494
Class R4 $146 $ 474 $ 826 $1,820
</Table>
<Table>
<Caption>
DISCIPLINED INTERNATIONAL EQUITY FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $719 $1,105 $1,516 $2,662
Class B $230 $ 796 $1,388 $2,809(b)
Class C $230 $ 796 $1,388 $2,995
Class I $117 $ 455 $ 817 $1,837
Class R4 $135 $ 511 $ 911 $2,033
</Table>
14 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
DISCIPLINED INTERNATIONAL EQUITY FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $719 $1,038 $1,380 $2,344
Class B $229 $ 719 $1,236 $2,470(b)
Class C $229 $ 719 $1,236 $2,656
Class I $114 $ 378 $ 662 $1,473
Class R4 $139 $ 440 $ 764 $1,682
</Table>
(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.
RIVERSOURCE FUNDS -- PROXY STATEMENT 15
REORGANIZATION OF EACH OF MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN TAX-EXEMPT
FUND AND OHIO TAX-EXEMPT FUND INTO TAX-EXEMPT HIGH INCOME FUND
ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<Table>
<Caption>
MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN TAX-EXEMPT FUND AND
OHIO TAX-EXEMPT FUND (SELLING FUNDS) CLASS A CLASS B CLASS C
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.75%(a) None None
Maximum deferred sales charge (load) imposed on sales (as a
percentage of offering price at time of purchase) None 5% 1%
TAX-EXEMPT HIGH INCOME FUND (ACTUAL) (BUYING FUND)
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.75%(a) None None
Maximum deferred sales charge (load) imposed on sales (as a
percentage of offering price at time of purchase) None 5% 1%
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED)
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.75%(a) None None
Maximum deferred sales charge (load) imposed on sales (as a
percentage of offering price at time of purchase) None 5% 1%
</Table>
(a) This charge may be reduced depending on the value of your total investments
in RiverSource Funds. See Exhibit C "Sales Charges."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
<Table>
<Caption>
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND) CLASS A CLASS B CLASS C
Management fees 0.41% 0.41% 0.41%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.40% 0.41%
Total annual fund operating expenses 1.06% 1.81% 1.82%
Fee waiver/expense reimbursement 0.23% 0.23% 0.24%
Total annual (net) fund operating expenses(b) 0.83% 1.58% 1.58%
MICHIGAN TAX-EXEMPT FUND (SELLING FUND)
Management fees 0.41% 0.41% 0.41%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.42% 0.40% 0.42%
Total annual fund operating expenses 1.08% 1.81% 1.83%
Fee waiver/expense reimbursement 0.27% 0.24% 0.27%
Total annual (net) fund operating expenses(b) 0.81% 1.57% 1.56%
OHIO TAX-EXEMPT FUND (SELLING FUND)
Management fees 0.41% 0.41% 0.41%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.41% 0.40% 0.41%
Total annual fund operating expenses 1.07% 1.81% 1.82%
Fee waiver/expense reimbursement 0.26% 0.25% 0.26%
Total annual (net) fund operating expenses(b) 0.81% 1.56% 1.56%
TAX-EXEMPT HIGH INCOME FUND (ACTUAL) (BUYING FUND)
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(c) 0.39% 0.40% 0.40%
Total annual fund operating expenses 1.08% 1.84% 1.84%
Fee waiver/expense reimbursement 0.03% 0.03% 0.03%
Total annual (net) fund operating expenses(d) 1.05% 1.81% 1.81%
</Table>
(a) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee and other nonadvisory expenses. Other expenses also
include 0.04%, 0.02% and 0.02% for Massachusetts Tax-Exempt Fund, Michigan
Tax-Exempt Fund, and Ohio Tax-Exempt Fund, respectively, of interest and
fee expense related to the Fund's participation in certain inverse floater
programs where the Fund has transferred fixed rate municipal bonds it owns
to a trust in exchange for inverse floating rate securities and cash. The
trust funds the purchase of the fixed rate municipal bonds by issuing
related short-term floating rate notes to third parties (inverse floater
programs).
(b) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Aug. 31, 2008,
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 interest and fee expenses related to the Fund's
participation in certain inverse floater programs) for Massachusetts
Tax-Exempt Fund and Ohio Tax-Exempt Fund will not exceed 0.79% for Class A;
1.54% for Class B and 1.54% for Class C and for Michigan Tax-Exempt Fund
will not exceed 0.79% for Class A, 1.55% for Class B and 1.54% for Class C.
16 RIVERSOURCE FUNDS -- PROXY STATEMENT
(c) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee and other nonadvisory expenses. Other expenses also
include 0.26% of interest and fee expense related to Tax-Exempt High Income
Fund's participation in certain inverse floater programs where the Fund has
transferred fixed rate municipal bonds it owns to a trust in exchange for
inverse floating rate securities and cash. The trust funds the purchase of
the fixed rate municipal bonds by issuing related short-term floating rate
notes to third parties (inverse floater programs).
(d) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Nov. 30, 2007,
unless sooner terminated at the discretion of Tax-Exempt High Income Fund's
Board. Any amounts waived will not be reimbursed by Tax-Exempt High Income
Fund. Under this agreement, net Tax-Exempt High Income Fund expenses
(excluding interest and fee expenses related to the Fund's participation in
certain inverse floater programs) will not exceed 0.79% for Class A, 1.55%
for Class B and 1.55% for Class C.
The number of Reorganizations into the Tax-Exempt High Income Fund that occur
will affect the total Annual Fund Operating Expenses of the Acquiring Fund on a
pro forma combined basis after the Reorganizations. The tables below present the
pro forma combined Annual Fund Operating Expenses assuming in each case that
one, two or three of the Reorganizations into the Tax-Exempt High Income Fund
are consummated.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(CONTINUED)
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MASSACHUSETTS TAX-EXEMPT FUND IS
CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.41% 0.41%
Total annual fund operating expenses 1.09% 1.85% 1.85%
Fee waiver/expense reimbursement 0.04% 0.05% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MICHIGAN TAX-EXEMPT FUND IS
CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.41% 0.41%
Total annual fund operating expenses 1.09% 1.85% 1.85%
Fee waiver/expense reimbursement 0.04% 0.05% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE OHIO TAX-EXEMPT FUND IS
CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.40% 0.41%
Total annual fund operating expenses 1.09% 1.84% 1.85%
Fee waiver/expense reimbursement 0.04% 0.04% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
MICHIGAN TAX-EXEMPT FUND IS CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.40% 0.41%
Total annual fund operating expenses 1.09% 1.84% 1.85%
Fee waiver/expense reimbursement 0.04% 0.04% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
OHIO TAX-EXEMPT FUND IS CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.40% 0.41%
Total annual fund operating expenses 1.09% 1.84% 1.85%
Fee waiver/expense reimbursement 0.04% 0.04% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 17
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(CONTINUED)
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MICHIGAN TAX-EXEMPT FUND AND OHIO
TAX-EXEMPT FUND IS CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.40% 0.41%
Total annual fund operating expenses 1.09% 1.84% 1.85%
Fee waiver/expense reimbursement 0.04% 0.04% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN
TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND IS CONSUMMATED) CLASS A CLASS B CLASS C
Management fees 0.44% 0.44% 0.44%
Distribution (12b-1) fees 0.25% 1.00% 1.00%
Other expenses(a) 0.40% 0.40% 0.41%
Total annual fund operating expenses 1.09% 1.84% 1.85%
Fee waiver/expense reimbursement 0.04% 0.04% 0.05%
Total annual (net) fund operating expenses(b) 1.05% 1.80% 1.80%
</Table>
(a) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee and other nonadvisory expenses. Other expenses also
include 0.26% of interest and fee expense related to the Fund's
participation in certain inverse floater programs where the Fund has
transferred fixed rate municipal bonds it owns to a trust in exchange for
inverse floating rate securities and cash. The trust funds the purchase of
the fixed rate municipal bonds by issuing related short-term floating rate
notes to third parties (inverse floater programs).
(b) Effective Dec. 1, 2007, the investment manager and its affiliates have
contractually agreed to waive certain fees and to absorb certain expenses
until Nov. 30, 2008, unless sooner terminated at the discretion of
Tax-Exempt High Income Fund's Board. Any amounts waived will not be
reimbursed by Tax-Exempt High Income Fund. Under this agreement, net Fund
expenses (excluding interest and fee expenses related to the Fund's
participation in certain inverse floater programs) will not exceed 0.79%
for Class A, 1.54% for Class B and 1.54% for Class C.
18 RIVERSOURCE FUNDS -- PROXY STATEMENT
EXAMPLE EXPENSES: 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 and
then redeem all of your shares at the end of those periods indicated under the
current arrangements and if the proposed Reorganization had been in effect.
These examples also assume that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $556 $775 $1,012 $1,692
Class B $661(b) $947(b) $1,160(b) $1,915(c)
Class C $261(b) $550 $ 964 $2,123
MICHIGAN TAX-EXEMPT FUND (SELLING FUND)
Class A(a) $554 $777 $1,018 $1,711
Class B $660(b) $946(b) $1,159(b) $1,919(c)
Class C $259(b) $550 $ 966 $2,131
OHIO TAX-EXEMPT FUND (SELLING FUND)
Class A(a) $554 $775 $1,014 $1,701
Class B $659(b) $945(b) $1,158(b) $1,916(c)
Class C $259(b) $548 $ 962 $2,121
TAX-EXEMPT HIGH INCOME FUND (ACTUAL) (BUYING FUND)
Class A(a) $577 $800 $1,040 $1,732
Class B $684(b) $976(b) $1,194(b) $1,961(c)
Class C $284(b) $576 $ 994 $2,161
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MASSACHUSETTS TAX-EXEMPT FUND IS
CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $977(b) $1,197(b) $1,970(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MICHIGAN TAX-EXEMPT FUND IS
CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $977(b) $1,197(b) $1,970(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE OHIO TAX-EXEMPT FUND IS
CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $975(b) $1,193(b) $1,963(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
MICHIGAN TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $975(b) $1,193(b) $1,963(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
OHIO TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $975(b) $1,193(b) $1,963(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MICHIGAN TAX-EXEMPT FUND AND OHIO
TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $975(b) $1,193(b) $1,963(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 19
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN
TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $683(b) $975(b) $1,193(b) $1,963(c)
Class C $283(b) $577 $ 997 $2,170
</Table>
(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 at the
end of the periods indicated.
<Table>
<Caption>
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $556 $775 $1,012 $1,692
Class B $161 $547 $ 960 $1,915(b)
Class C $161 $550 $ 964 $2,123
</Table>
<Table>
<Caption>
MICHIGAN TAX-EXEMPT FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $554 $777 $1,018 $1,711
Class B $160 $546 $ 959 $1,919(b)
Class C $159 $550 $ 966 $2,131
</Table>
<Table>
<Caption>
OHIO TAX-EXEMPT FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $554 $775 $1,014 $1,701
Class B $159 $545 $ 958 $1,916(b)
Class C $159 $548 $ 962 $2,121
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $800 $1,040 $1,732
Class B $184 $576 $ 994 $1,961(b)
Class C $184 $576 $ 994 $2,161
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MASSACHUSETTS TAX-EXEMPT FUND IS
CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $577 $ 997 $1,970(b)
Class C $183 $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MICHIGAN TAX-EXEMPT FUND IS
CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $577 $ 997 $1,970(b)
Class C $183 $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE OHIO TAX-EXEMPT FUND IS
CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $575 $ 993 $1,963(b)
Class C $183 $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
MICHIGAN TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $575 $ 993 $1,963(b)
Class C $183 $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
OHIO TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $575 $ 993 $1,963(b)
Class C $183 $577 $ 997 $2,170
</Table>
20 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MICHIGAN TAX-EXEMPT FUND AND OHIO
TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $575 $ 993 $1,963(b)
Class C $183 $577 $ 997 $2,170
</Table>
<Table>
<Caption>
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN
TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND IS CONSUMMATED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $577 $802 $1,044 $1,742
Class B $183 $575 $ 993 $1,963(b)
Class C $183 $577 $ 997 $2,170
</Table>
(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.
RIVERSOURCE FUNDS -- PROXY STATEMENT 21
REORGANIZATION OF VALUE FUND INTO DIVERSIFIED EQUITY INCOME FUND
ACTUAL AND PRO FORMA FUND EXPENSES FOR THE MOST RECENT FISCAL YEAR
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<Table>
<Caption>
CLASS I &
VALUE FUND (SELLING FUND) CLASS A CLASS B CLASS C 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 5% 1% None
DIVERSIFIED EQUITY INCOME FUND (ACTUAL) (BUYING FUND)
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 5% 1% None
DIVERSIFIED EQUITY INCOME FUND (PRO FORMA COMBINED)
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 5% 1% None
</Table>
(a) This charge may be reduced depending on the value of your total investments
in RiverSource Funds. See Exhibit C "Sales Charges."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<Table>
<Caption>
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS:
CLASS
VALUE FUND (SELLING FUND) CLASS A CLASS B CLASS C CLASS I R4(A)
Management fees(b) 0.72% 0.72% 0.72% 0.72% 0.72%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(c) 0.32% 0.34% 0.33% 0.12% 0.42%
Total annual fund operating expenses 1.29% 2.06% 2.05% 0.84% 1.14%
Fee waiver/expense reimbursement 0.07% 0.08% 0.07% 0.01% 0.05%
Total annual (net) fund operating expenses(d) 1.22% 1.98% 1.98% 0.83% 1.09%
</Table>
<Table>
<Caption>
CLASS
DIVERSIFIED EQUITY INCOME FUND (ACTUAL) (BUYING FUND) CLASS A CLASS B CLASS C CLASS I R4(A)
Management fees(e) 0.65% 0.65% 0.65% 0.65% 0.65%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(c) 0.24% 0.25% 0.25% 0.09% 0.38%
Total annual fund operating expenses 1.14% 1.90% 1.90% 0.74% 1.03%
Fee waiver/expense reimbursement 0.00% 0.00% 0.00% 0.00% 0.04%
Total annual (net) fund operating expenses 1.14% 1.90% 1.90% 0.74% 0.99%(f)
</Table>
<Table>
<Caption>
CLASS
DIVERSIFIED EQUITY INCOME FUND (PRO FORMA COMBINED) CLASS A CLASS B CLASS C CLASS I R4(A)
Management fees(e) 0.65% 0.65% 0.65% 0.65% 0.65%
Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% 0.00%
Other expenses(c) 0.23% 0.25% 0.25% 0.09% 0.38%
Total annual fund operating expenses 1.13% 1.90% 1.90% 0.74% 1.03%
Fee waiver/expense reimbursement 0.00% 0.00% 0.00% 0.00% 0.04%
Total annual (net) fund operating expenses 1.13% 1.90% 1.90% 0.74% 0.99%(f)
</Table>
(a) Effective Dec. 11, 2006, the following changes were implemented: renaming
Class Y as Class R4, terminating the shareholder servicing agreement,
revising the fee structure under the transfer agent agreement from
account-based to asset-based, and adopting a plan administration services
agreement.
(b) Includes the impact of a performance incentive adjustment fee that
decreased the management fee by 0.01% for the most recent fiscal year. The
index against which Value Fund's performance is measured for purposes of
determining the performance incentive adjustment is the Lipper Large-Cap
Value Funds Index.
(c) Other expenses include an administrative services fee, a transfer agency
fee, a custody fee, other nonadvisory expenses and, for Class R4, a plan
administration services fee. 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. 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 May 31, 2008,
unless sooner terminated at the discretion of Value Fund's Board. Any
amounts waived will not be reimbursed by Value Fund. Under this agreement,
net Value Fund expenses (excluding fees and expenses of acquired funds),
before giving effect to any performance incentive adjustment, will not
exceed 1.23% for Class A, 1.99% for Class B, 1.99% for Class C, 0.84% for
Class I and 1.10% for Class R4.
(e) Includes the impact of a performance incentive adjustment fee that
increased the management fee by 0.10% for the most recent fiscal year. The
index against which Diversified Equity Income Fund's performance is
measured for purposes of determining the performance incentive adjustment
is the Lipper Equity Income Funds Index.
(f) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Sept. 30, 2007,
unless sooner terminated at the discretion of Diversified Equity Income
Fund's Board. Any amounts waived will not be reimbursed by Diversified
Equity Income Fund. Under this agreement, net Diversified Equity Income
Fund expenses, before giving effect to any performance incentive
adjustment, will not exceed 0.89% for Class R4.
22 RIVERSOURCE FUNDS -- PROXY STATEMENT
EXAMPLE EXPENSES: 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 and
then redeem all of your shares at the end of those periods indicated under the
current arrangements and if the proposed Reorganization had been in effect.
These examples also assume that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
VALUE FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $692 $ 954 $1,236 $2,041
Class B $701(b) $1,038(b) $1,302(b) $2,190(c)
Class C $301(b) $ 636 $1,098 $2,379
Class I $ 85 $ 267 $ 466 $1,040
Class R4 $111 $ 358 $ 624 $1,386
</Table>
<Table>
<Caption>
DIVERSIFIED EQUITY INCOME FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $685 $917 $1,167 $1,886
Class B $693(b) $997(b) $1,227(b) $2,028(c)
Class C $293(b) $597 $1,027 $2,227
Class I $ 76 $237 $ 412 $ 922
Class R4 $101 $324 $ 566 $1,260
</Table>
<Table>
<Caption>
DIVERSIFIED EQUITY INCOME FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $684 $914 $1,162 $1,875
Class B $693(b) $997(b) $1,227(b) $2,026(c)
Class C $293(b) $597 $1,027 $2,227
Class I $ 76 $237 $ 412 $ 922
Class R4 $101 $324 $ 566 $1,260
</Table>
(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 at the
end of the periods indicated.
<Table>
<Caption>
VALUE FUND (SELLING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $692 $954 $1,236 $2,041
Class B $201 $638 $1,102 $2,190(b)
Class C $201 $636 $1,098 $2,379
Class I $ 85 $267 $ 466 $1,040
Class R4 $111 $358 $ 624 $1,386
</Table>
<Table>
<Caption>
DIVERSIFIED EQUITY INCOME FUND (ACTUAL) (BUYING FUND) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $685 $917 $1,167 $1,886
Class B $193 $597 $1,027 $2,028(b)
Class C $193 $597 $1,027 $2,227
Class I $ 76 $237 $ 412 $ 922
Class R4 $101 $324 $ 566 $1,260
</Table>
<Table>
<Caption>
DIVERSIFIED EQUITY INCOME FUND (PRO FORMA COMBINED) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A(a) $684 $914 $1,162 $1,875
Class B $193 $597 $1,027 $2,026(b)
Class C $193 $597 $1,027 $2,227
Class I $ 76 $237 $ 412 $ 922
Class R4 $101 $324 $ 566 $1,260
</Table>
(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.
RIVERSOURCE FUNDS -- PROXY STATEMENT 23
TAX CONSEQUENCES
Each Reorganization is expected to be tax-free for federal income tax purposes
and will not take place unless the Selling Fund and the corresponding Buying
Fund receive a satisfactory opinion of tax counsel, substantially to that
effect. Accordingly, no gain or loss is expected to be recognized by the Selling
Fund or its shareholders as a direct result of a Reorganization. However,
because the Reorganization will end the tax year of each Selling Fund, it will
accelerate distributions to shareholders from the Selling Fund for its short tax
year ending on the date of the Reorganization. Those tax year-end distributions,
which are taxable, will include any net capital gains realized prior to the
implementation of a Reorganization and not previously distributed. At any time
prior to the consummation of a Reorganization, a shareholder may redeem shares.
This would likely result in recognition of gain or loss to the shareholder for
federal income tax purposes if the shareholder holds the shares in a taxable
account.
The tax basis and holding period of the shareholders' Selling Fund shares is
expected to carry over to the shareholders' new shares in the Buying Fund.
For more information about the federal income tax consequences of the
Reorganization, see the section entitled "Tax Status of the Reorganizations."
24 RIVERSOURCE FUNDS -- PROXY STATEMENT
PROPOSAL 1. REORGANIZATION OF CORE BOND FUND INTO DIVERSIFIED BOND FUND
COMPARISON OF THE SELLING FUND AND THE BUYING FUND
Both the Selling Fund and the Buying Fund:
- - Have RiverSource Investments as an investment adviser.
- - Have the same policies for buying and selling shares and the same exchange
rights.
- - Have the same distribution policies.
- - Offer the same classes of shares: Classes A, B, C, I, R2, R3, R4, R5 and W.
- - Are structured as a series of capital stock of an open-end management
investment company organized as a Minnesota corporation.
COMPARISON OF INVESTMENT OBJECTIVES
The investment objectives for the Funds are as follows:
SELLING FUND: Core Bond Fund seeks to provide shareholders with a high
total return through current income and capital
appreciation.
BUYING FUND: Diversified Bond Fund seeks to provide shareholders with a
high level of current income while conserving the value of
the investment for the longest period of time.
COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES
Each Fund seeks to achieve its investment objective by investing 80% of its net
assets in bonds and other debt securities. The Selling Fund invests primarily,
and the Buying Fund invests at least 50%, in securities included in the Lehman
Brothers Aggregate Bond Index, which are investment grade and denominated in
U.S. dollars. Unlike the Selling Fund, which does not invest in securities rated
below investment grade, the Buying Fund may invest up to 50% in lower-quality
(junk) bonds. Each of the Selling Fund and the Buying Fund may invest up to 25%
in foreign investments, which may include investments in emerging markets. Both
Funds target an average portfolio duration within one year of the Lehman
Brothers Aggregate Bond Index.
Detailed strategies for the Selling Fund and the Buying Fund are set forth
below:
CORE BOND FUND (SELLING FUND):
Under normal market conditions, Core Bond Fund invests at least 80% of its net
assets in bonds and other debt securities. Although the Fund is not an index
fund, it invests primarily in securities like those included in the Lehman
Brothers Aggregate Bond Index (the Index), which are investment grade and
denominated in U.S. dollars. The Index includes securities issued by the U.S.
government, corporate bonds, and mortgage- and asset-backed securities. The Fund
will not invest in securities rated below investment grade, although it may hold
securities that have been downgraded. The Fund will provide shareholders with at
least 60 days' notice of any change in the 80% policy.
In pursuit of Core Bond Fund's objective, the investment manager chooses
investments by:
- - Evaluating the portfolio's total exposure to sectors, industries and
securities relative to the Index.
- - Analyzing factors such as credit quality, interest rate outlook and price to
select the most attractive securities within each sector (for example,
identifying securities that have the opportunity to appreciate in value or
provide income based on duration, expectations of changes in interest rates or
credit quality).
- - Targeting an average portfolio duration within one year of the duration of the
Index which, as of July 31, 2007, was 4.67 years. Duration measures the
sensitivity of bond prices to changes in interest rates. The longer the
duration of a bond, the longer it will take to repay the principal and
interest obligations and the more sensitive it will be to changes in interest
rates. For example, a five-year duration means a bond is expected to decrease
in value by 5% if interest rates rise 1% and increase in value by 5% if
interest rates fall 1%.
The Fund's investment process employs risk controls that are designed to
maintain risk levels comparable to the Index. These controls include review of
effective duration and limitation on sector allocations, industry concentration
and the size of individual positions.
In evaluating whether to sell a security, the investment manager considers,
among other factors:
- - The portfolio's total exposure to sectors, industries and securities relative
to the Index.
- - Whether a security's rating has changed or is vulnerable to a change.
- - Whether a sector or industry is experiencing change.
- - Changes in the interest rate or economic outlook.
- - Identification of a more attractive opportunity.
RIVERSOURCE FUNDS -- PROXY STATEMENT 25
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.
DIVERSIFIED BOND FUND (BUYING FUND):
Under normal market conditions, Diversified Bond Fund invests at least 80% of
its net assets in bonds and other debt securities. At least 50% of the Fund's
net assets will be invested in securities like those included in the Lehman
Brothers Aggregate Bond Index (the Index), which are investment grade and
denominated in U.S. dollars. The Index includes securities issued by the U.S.
government, corporate bonds, and mortgage- and asset-backed securities. Although
the Fund emphasizes high- and medium-quality debt securities, it will assume
some credit risk in an effort to achieve higher yield and/or capital
appreciation by buying lower-quality (junk) bonds. Up to 25% of the Fund's net
assets may be invested in foreign investments, which may include investments in
emerging markets. The Fund will provide shareholders with at least 60 days'
notice of any change in the 80% policy.
The selection of debt obligations is the primary decision in building the
investment portfolio. In pursuit of Diversified Bond Fund's objective, the
investment manager chooses investments by:
- - Evaluating the portfolio's total exposure to sectors, industries and
securities relative to the Index.
- - Analyzing factors such as credit quality, interest rate outlook and price in
seeking to select the most attractive securities within each sector.
- - Investing in lower-quality (junk) bonds and foreign investments as attractive
opportunities arise.
- - Targeting an average portfolio duration within one year of the duration of the
Index which, as of Aug. 31, 2007 was 4.64 years. Duration measures the
sensitivity of bond prices to changes in interest rates. The longer the
duration of a bond, the longer it will take to repay the principal and
interest obligations and the more sensitive it will be to changes in interest
rates. For example, a five-year duration means a bond is expected to decrease
in value by 5% if interest rates rise 1% and increase in value by 5% if
interest rates fall 1%.
In evaluating whether to sell a security, the investment manager considers,
among other factors:
- - Identification of more attractive investments based on relative value.
- - The portfolio's total exposure to sectors, industries and securities relative
to the Index.
- - Whether a security's rating has changed or is vulnerable to a change.
- - Whether a sector or industry is experiencing change.
- - Changes in the interest rate or economic outlook.
The investment manager may use derivatives such as futures, options, forward
contracts and swaps, including credit default swaps, in an effort to produce
incremental earnings, to hedge existing positions, to increase market exposure
and investment flexibility, or to obtain or reduce credit exposure.
BOTH FUNDS:
- - 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 Merger SAI and
the Fund's 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 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.
- - 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
26 RIVERSOURCE FUNDS -- PROXY STATEMENT
the Buying Fund's securities transactions and the dollar value of brokerage
commissions paid by the Buying Fund is set forth in the Merger 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 Merger SAI do not include implied
commissions or mark-ups (implied commissions) paid by the Buying Fund for
principal transactions (transactions made directly with a dealer or other
counterparty), including most fixed income securities (and certain other
instruments, including derivatives). Brokerage commissions do not reflect
other elements of transaction costs, including the extent to which the Fund's
purchase and sale transactions may cause the market to move and change the
market price for an investment.
Although brokerage commissions and implied commissions are not reflected in
the expense table under "Fees and Expenses," they are reflected in the total
return of the Fund.
- - Portfolio Turnover. Trading of securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of brokerage commissions paid or mark-ups to broker-dealers that the
Fund pays when it buys and sells securities. Capital gains and increased
brokerage commissions or mark-ups paid to broker-dealers may adversely affect
a fund's performance. The Buying Fund's historical portfolio turnover rate,
which measures how frequently the Buying Fund buys and sells investments, is
shown in Section D -- "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.
COMPARISON OF FUNDAMENTAL POLICIES
The Selling Fund and the Buying Fund have substantially similar fundamental
investment policies. The investment manager does not believe that the
differences between the fundamental investment policies will result in any
material difference in the way the Funds are managed.
If shareholders of the Selling Fund approve the Reorganization, they will be
subject to the fundamental investment policies of the Buying Fund.
The fundamental policies of the Funds are set forth below. Neither of the Funds
will:
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
In addition, neither Fund may issue senior securities, except as permitted under
the 1940 Act.
COMPARISON OF NONFUNDAMENTAL POLICIES
Both Funds are also subject to the following nonfundamental policies:
- - Up to 25% of the Fund's net assets may be invested in foreign investments.
- - No more than 15% of the Fund's net assets will be held in securities and other
instruments that are illiquid.
RIVERSOURCE FUNDS -- PROXY STATEMENT 27
COMPARISON OF PRINCIPAL RISK FACTORS
The Selling Fund and the Buying Fund are subject to similar principal risks.
Although the Buying Fund discloses liquidity as a principal risk, each of the
Selling Fund and the Buying Fund are exposed to liquidity risk. The Buying Fund
discloses liquidity risk as an increased exposure as a result of its ability to
invest in lower quality (junk) bonds.
The principal risks of investing in each of the Selling Fund and the Buying Fund
are shown below:
<Table>
<Caption>
PRINCIPAL RISK CORE BOND FUND DIVERSIFIED BOND FUND
Active Management Risk X X
Credit Risk X X
Derivatives Risk X X
Interest Rate Risk X X
Liquidity Risk X
Market Risk X X
Prepayment and Extension Risk X X
</Table>
- - ACTIVE MANAGEMENT RISK. The Fund is actively managed and its performance
therefore will reflect in part the ability of the portfolio managers to make
investment decisions that are suited to achieving the Fund's investment
objective. Due to its active management, the Fund could underperform other
mutual funds with similar investment objectives.
- - 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. For the Buying Fund,
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. Because the Buying
Fund may invest in lower-rated (junk) bonds, it may be subject to greater
credit risk than the Selling Fund.
- - 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
Merger SAI for more information on derivative instruments and related risks.
- - INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to
changes in interest rates. Interest rate risk is generally associated with
bond prices: when interest rates rise, bond prices fall. In general, the
longer the maturity or duration of a bond, the greater its sensitivity to
changes in interest rates.
- - LIQUIDITY RISK. The risk associated from a lack of marketability of securities
which may make it difficult or impossible to sell at desirable prices in order
to minimize loss. The Fund may have to lower the selling price, sell other
investments, or forego another, more appealing investment opportunity.
- - MARKET RISK. The market value of securities may fall or fail to rise. Market
risk may affect a single issuer, sector of the economy, industry, or the
market as a whole. The market value of securities may fluctuate, sometimes
rapidly and unpredictably.
- - PREPAYMENT AND EXTENSION RISK. Prepayment and extension risk is the risk that
a bond or other security might be called, or otherwise converted, prepaid, or
redeemed, before maturity. This risk is primarily associated with asset-backed
securities, including mortgage backed securities. If a security is converted,
prepaid, or redeemed, before maturity, particularly during a
28 RIVERSOURCE FUNDS -- PROXY STATEMENT
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.
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.
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.
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.
- --------------------------------------------------
CORE BOND FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+3.76% +1.86% +3.77%
2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +3.38% (quarter ended Sept. 30, 2006) and the lowest return for a
calendar quarter was -2.45% (quarter ended June 30, 2004).
RIVERSOURCE FUNDS -- PROXY STATEMENT 29
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, 2007 was +3.35%.
- --------------------------------------------------------------------------------
DIVERSIFIED BOND FUND (BUYING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+9.94% +5.86% -0.22% +7.03% +7.33% +5.63% +4.61% +4.41% +2.09% +5.37%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +3.80% (quarter ended June 30, 1997) and the lowest return for a
calendar quarter was -2.53% (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, 2007 was +3.34%.
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006)
<Table>
<Caption>
SINCE
INCEPTION SINCE
(CLASSES A, B, INCEPTION
1 YEAR 5 YEARS 10 YEARS C & R4) (CLASS I)
CORE BOND FUND (SELLING FUND):
Class A
Return before taxes -1.16% N/A N/A +0.91%(a) N/A
Return after taxes on distributions -2.61% N/A N/A -0.27%(a) N/A
Return after taxes on distributions and sale of Fund
shares -0.78% N/A N/A +0.09%(a) N/A
Class B
Return before taxes -2.00% N/A N/A +0.77%(a) N/A
Class C
Return before taxes +1.98% N/A N/A +1.56%(a) N/A
Class I
Return before taxes +4.12% N/A N/A N/A +3.05%(b)
Class R4*
Return before taxes +3.94% N/A N/A +2.46%(a) N/A
Lehman Brothers Aggregate Bond Index (reflects no deduction
for fees, expenses or taxes) +4.33% N/A N/A +3.21%(c) +3.23%(d)
Lipper Intermediate Investment Grade Debt Funds Index +4.47% N/A N/A +3.30%(c) +3.25%(d)
</Table>
30 RIVERSOURCE FUNDS -- PROXY STATEMENT
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006) (CONTINUED)
<Table>
<Caption>
SINCE SINCE
INCEPTION INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS I)
DIVERSIFIED BOND (BUYING FUND):
Class A
Return before taxes +0.37% +3.40% +4.66% N/A N/A
Return after taxes on distributions -1.16% +1.88% +2.45% N/A N/A
Return after taxes on distributions and sale of Fund shares +0.21% +1.98% +2.59% N/A N/A
Class B
Return before taxes -0.64% +3.28% +4.38% N/A N/A
Class C
Return before taxes +3.35% +3.62% N/A +4.68%(e) N/A
Class I
Return before taxes +5.73% N/A N/A N/A +4.05%(b)
Class R4*
Return before taxes +5.55% +4.58% +5.32% N/A N/A
Lehman Brothers Aggregate Bond Index (reflects no deduction for fees,
expenses or taxes) +4.33% +5.06% +6.24% +6.33%(f) +3.23%(d)
Lipper Intermediate Investment Grade Index +4.47% +4.93% +5.87% +6.15%(f) +3.25%(d)
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) Inception date is June 19, 2003.
(b) Inception date is March 4, 2004.
(c) Measurement period started July 1, 2003.
(d) Measurement period started March 1, 2004.
(e) Inception date is June 26, 2000.
(f) Measurement period started July 1, 2000.
The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a
representative list of government, corporate, asset-backed and mortgage-backed
securities.
The index is frequently used as a general measure of bond market performance.
The index reflects reinvestment of all distributions and changes in market
prices.
The Lipper Intermediate Investment Grade Debt Funds Index includes the 30
largest investment grade funds tracked by Lipper Inc. The index's returns
include net reinvested dividends.
Classes R2, R3, R5 and W have not been in existence for a full calendar year and
therefore performance information for these classes is not shown.
RIVERSOURCE FUNDS -- PROXY STATEMENT 31
PROPOSAL 2. REORGANIZATION OF FUNDAMENTAL GROWTH FUND INTO GROWTH FUND
COMPARISON OF THE SELLING FUND AND THE BUYING FUND
Both the Selling Fund and the Buying Fund:
- - Have RiverSource Investments as an investment adviser.
- - Are structured as a series of capital stock of an open-end management
investment company organized as a Minnesota corporation.
- - Have the same policies for buying and selling shares and the same exchange
rights.
- - Have the same distribution policies.
- - Offer classes A, B, C, I and R4 (the Buying Fund also offers classes R2, R3,
R5 and W).
COMPARISON OF INVESTMENT OBJECTIVES
Both Funds seek to provide shareholders with long-term capital growth.
COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES
The Selling Fund and the Buying Fund have similar principal investment
strategies. Both Funds invest primarily in U.S. equity securities, although each
may invest up to 25% of its net assets in foreign investments. Although
RiverSource Investments serves as investment manager of both Funds, the Selling
Fund was, until Nov. 16, 2007, subadvised by Goldman Sachs Asset Management,
L.P. (GSAM) and Wellington Management Company, LLP (Wellington Management). The
Selling Fund's Board of Directors terminated the contracts of GSAM and
Wellington Management. Since Nov. 16, 2007, RiverSource Investments has solely
managed the Selling Fund. Current detailed strategies for the Selling Fund and
the Buying Fund are set forth below:
FUNDAMENTAL GROWTH FUND (SELLING FUND):
Fundamental Growth Fund invests primarily in common stocks and securities
convertible into common stocks that appear to offer growth opportunities. These
growth opportunities could result from new management, market developments, or
technological superiority. The Fund may invest up to 25% of its net assets in
foreign investments.
In pursuit of Fundamental Growth Fund's objective, the investment manager
chooses investments by identifying companies that the investment manager
believes have above-average long-term growth potential based, among other
factors, on:
- - Management's track record.
- - Financial strength.
- - Competitive market or product position.
- - Technological advantage (more advanced technology or proven technological
advantage) over competitors.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to other potential investments.
- - The security has reached the investment manager's price objective.
- - The company has met the investment manager's earnings and/or growth
expectations.
- - The investment manager identifies a more attractive opportunity.
The investment manger may use derivatives such as futures, options, forward
contracts and structured investments, to produce incremental earnings, to hedge
existing positions, or to increase flexibility.
GROWTH FUND (BUYING FUND):
Growth Fund invests primarily in common stocks and securities convertible into
common stocks that appear to offer growth opportunities. These growth
opportunities could result from new management, market developments, or
technological superiority. The Growth Fund may invest up to 25% of its net
assets in foreign investments.
In pursuit of Growth Fund's objective, the investment manager chooses
investments by identifying companies that the investment manager believes have
above-average long-term growth potential based, among other factors, on:
- - Management's track record.
- - Financial strength.
- - Competitive market or product position.
- - Technological advantage (more advanced technology or proven technological
advantage) over competitors.
32 RIVERSOURCE FUNDS -- PROXY STATEMENT
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to other potential investments.
- - The security has reached the investment manager's price objective.
- - The company has met the investment manager's earnings and/or growth
expectations.
- - The investment manager identifies a more attractive opportunity.
The investment manger may use derivatives such as futures, options, forward
contracts and structured investments, to produce incremental earnings, to hedge
existing positions, or to increase flexibility.
BOTH FUNDS:
- - 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 Merger SAI and
the Fund's 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.
- - 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 Buying
Fund's securities transactions and the dollar value of brokerage commissions
paid by the Buying Fund is set forth in the Merger SAI. The brokerage
commissions set forth in the Merger SAI do not include implied commissions or
mark-ups (implied commissions) paid by the Buying Fund for principal
transactions (transactions made directly with a dealer or other counterparty),
including most fixed income securities (and certain other instruments,
including derivatives). Brokerage commissions do not reflect other elements of
transaction costs, including the extent to which the Fund's purchase and sale
transactions may cause the market to move and change the market price for an
investment.
Although brokerage commissions and implied commissions are not reflected in
the expense table under "Fees and Expenses," they are reflected in the total
return of the Fund.
- - Portfolio Turnover. Trading of securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of brokerage commissions paid or mark-ups to broker-dealers that the
Fund pays when it buys and sells securities. For subadvised funds, a change in
a subadviser may result in increased portfolio turnover, which increase may be
substantial, as the new subadviser realigns the portfolio, or if the
subadviser(s) trades portfolio securities more frequently. A realignment or
more active strategy could produce higher than expected capital gains. Capital
gains and increased brokerage commissions or mark-ups paid to broker-dealers
may adversely affect a Fund's performance. The Buying Fund's historical
portfolio turnover rate, which measures how frequently the Buying Fund buys
and sells investments, is shown in Section D -- "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.
COMPARISON OF FUNDAMENTAL POLICIES
The Selling Fund and the Buying Fund have substantially similar fundamental
investment policies. The investment manager does not believe that the
differences between the fundamental investment policies will result in any
material difference in the way the Funds are managed.
If shareholders of the Selling Fund approve the Reorganization, they will be
subject to the fundamental investment policies of the Buying Fund.
RIVERSOURCE FUNDS -- PROXY STATEMENT 33
The fundamental policies of the Funds are set forth below. Neither of the Funds
will:
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
In addition, neither Fund may issue senior securities, except as permitted under
the 1940 Act.
COMPARISON OF NONFUNDAMENTAL POLICIES
Both Funds are also subject to the following nonfundamental policies:
- - Up to 25% of the Fund's net assets may be invested in foreign investments.
- - No more than 15% of the Fund's net assets will be held in securities and other
instruments that are illiquid.
COMPARISON OF PRINCIPAL RISK FACTORS
The Selling Fund and the Buying Fund are subject to similar principal risks.
The principal risks of investing in each of the Selling Fund and the Buying Fund
are shown below:
<Table>
<Caption>
PRINCIPAL RISK FUNDAMENTAL GROWTH FUND GROWTH FUND
Active Management Risk X X
Derivatives Risk X X
Foreign Risk X X
Issuer Risk X X
Market Risk X X
Small and Mid-Sized Company Risk X X
</Table>
- - 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
34 RIVERSOURCE FUNDS -- PROXY STATEMENT
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 Merger SAI for more information on derivative
instruments and related risks.
- - FOREIGN RISK. The following are all components of foreign risk:
Country risk includes the political, economic, and other conditions of the
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets. The liquidity of foreign investments may
be more limited than for most U.S. investments, which means that, at times it
may be difficult to sell foreign securities at desirable prices.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add to or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater
the likelihood of problems occurring.
- - 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.
- - 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.
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.
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;
RIVERSOURCE FUNDS -- PROXY STATEMENT 35
- - 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.
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 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.
- --------------------------------------------------------------------------------
FUNDAMENTAL GROWTH FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE*
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+1.54% +2.98% +5.99%
2004 2005 2006
</Table>
* For the periods prior to Nov. 16, 2007, Fundamental Growth Fund was
subadvised.
During the periods shown in the bar chart, the highest return for a calendar
quarter was +10.28% (quarter ended Dec. 31, 2004) and the lowest return for a
calendar quarter was -6.51% (quarter ended Sept. 30, 2004).
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, 2007 was +13.28%.
36 RIVERSOURCE FUNDS -- PROXY STATEMENT
- --------------------------------------------------------------------------------
GROWTH FUND (BUYING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+20.65% +22.56% +39.51% -19.02% -31.30% -24.09% +20.75% +8.49% +8.42% +10.91%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +27.10% (quarter ended Dec. 31, 1998) and the lowest return for a
calendar quarter was -28.16% (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, 2007 was +8.70%.
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.
RIVERSOURCE FUNDS -- PROXY STATEMENT 37
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006)
<Table>
<Caption>
SINCE
INCEPTION SINCE
(CLASSES A, INCEPTION
1 YEAR 5 YEARS 10 YEARS B, C & R4) (CLASS I)
FUNDAMENTAL GROWTH FUND (SELLING FUND):
Class A
Return before taxes -0.11% N/A N/A +5.96%(a) N/A
Return after taxes on distributions -0.61% N/A N/A +5.57%(a) N/A
Return after taxes on distributions and sale of Fund
shares +0.12% N/A N/A +4.92%(a) N/A
Class B
Return before taxes +0.12% N/A N/A +6.13%(a) N/A
Class C
Return before taxes +4.28% N/A N/A +6.86%(a) N/A
Class I
Return before taxes +6.42% N/A N/A N/A +3.15%(b)
Class R4*
Return before taxes +6.11% N/A N/A +7.90%(a) N/A
Russell 1000(R) Growth Index (reflects no deduction for
fees, expenses or taxes) +9.07% N/A N/A +11.50%(c) +6.28%(d)
Lipper Large-Cap Growth Funds Index +4.72% N/A N/A +10.76%(c) +6.10%(d)
</Table>
<Table>
<Caption>
SINCE SINCE
INCEPTION INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASS C) (CLASS I)
GROWTH FUND (BUYING FUND):
Class A
Return before taxes +4.53% +2.42% +2.61% N/A N/A
Return after taxes on distributions +4.27% +2.37% +2.26% N/A N/A
Return after taxes on distributions and sale of Fund
shares +2.94% +2.04% +2.16% N/A N/A
Class B
Return before taxes +5.09% +2.48% +2.43% N/A N/A
Class C
Return before taxes +9.09% +2.84% N/A -7.87%(e) N/A
Class I
Return before taxes +11.45% N/A N/A N/A +9.02%(b)
Class R4*
Return before taxes +11.11% +3.82% +3.37% N/A N/A
Russell 1000(R) Growth Index (reflects no deduction for
fees, expenses or taxes) +9.07% +2.69% +5.44% -5.84%(f) +6.28%(d)
Lipper Large-Cap Growth Funds Index +4.72% +2.01% +4.72% -5.89%(f) +6.10%(d)
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) Inception date is April 24, 2003.
(b) Inception date is March 4, 2004.
(c) Measurement period started May 1, 2003.
(d) Measurement period started March 1, 2004.
(e) Inception date is June 26, 2000.
(f) Measurement period started July 1, 2000.
The Russell 1000 Growth Index, an unmanaged index, measures the performance of
those stocks in the Russell 1000 Index with higher price-to-book ratios and
higher forecasted growth values. The index reflects reinvestment of all
distributions and changes in market prices.
The Lipper Large-Cap Growth Funds Index includes the 30 largest large-cap growth
funds tracked by Lipper Inc. The index's returns include net reinvested
dividends. Fundamental Growth Fund's and Growth Fund's performance is currently
measured against this index for purposes of determining the performance
incentive adjustment.
38 RIVERSOURCE FUNDS -- PROXY STATEMENT
PROPOSAL 3. REORGANIZATION OF INTERNATIONAL EQUITY FUND INTO DISCIPLINED
INTERNATIONAL EQUITY FUND
COMPARISON OF THE SELLING FUND AND THE BUYING FUND
Both the Selling Fund and the Buying Fund:
- - Have RiverSource Investments as an investment adviser.
- - Are structured as a series of capital stock of an open-end management
investment company organized as a Minnesota corporation.
- - Have the same policies for buying and selling shares and the same exchange
rights.
- - Have the same distribution policies.
- - Offer classes A, B, C, I and R4 (the Buying Fund also offers Class W).
COMPARISON OF INVESTMENT OBJECTIVES
Both Funds seek to provide shareholders with long-term growth of capital.
COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES
Both Funds invest primarily in equity securities of foreign issuers. Both Funds
may invest in securities of or instruments that provide exposure to both
developed and emerging markets issuers. Both Funds may invest in companies of
any size, and will typically invest in a blend of both value and growth stocks.
Although RiverSource Investments serves as investment manager of both Funds, the
Selling Fund was, until Nov. 16, 2007, subadvised by The Boston Company Asset
Management, LLC (Boston Company) and Marsico Capital Management, LLC (Marsico).
The Selling Fund's Board of Directors terminated the contracts of the Boston
Company and Marsico. Since Nov. 16, 2007, RiverSource Investments has solely
managed the Selling Fund. Detailed strategies for the Selling Fund and the
Buying Fund are set forth below:
INTERNATIONAL EQUITY FUND (SELLING FUND):
Under normal market conditions, at least 80% of International Equity Fund's
assets will be invested in equity securities. The Fund's assets are primarily
invested in equity securities of foreign issuers or in instruments that provide
exposure to foreign equity markets. The Fund may invest in securities of or
instruments that provide exposure to both developed and emerging markets
issuers. The Fund will provide shareholders with at least 60 days' notice of any
change in the 80% policy.
In pursuit of International Equity Fund's objective, the investment manager will
choose equity investments by employing proprietary, disciplined quantitative
methods.
The investment manager's disciplined quantitative approach is designed to
identify companies with:
- - Attractive valuations, based on factors such as price-to-earnings ratios;
- - Sound balance sheets; or
- - Improving outlooks, based on an analysis of return patterns over time.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to other potential investments.
- - The company does not meet the investment manager's performance expectations.
The universe of stocks from which the investment manager selects the Fund's
investments primarily will be those included in the Fund's benchmark, the Morgan
Stanley Capital International (MSCI) EAFE Index (MSCI EAFE Index).
In selecting stocks for the Fund to purchase or to sell, the investment manager
also employs a rigorous process for evaluating the relationship between the risk
associated with each security and its potential for positive returns. This
process takes into account factors such as:
- - Limits on positions relative to weightings in the benchmark index.
- - Limits on country and region allocations relative to the benchmark index.
- - Limits on size of holdings relative to market liquidity.
The Fund will normally have exposure to foreign currencies. The investment
manager closely monitors the Fund's exposure to foreign currency. From time to
time, the investment manager may use forward currency transactions or other
derivative instruments on a limited basis to hedge against currency
fluctuations. The investment manager may also use derivative instruments, such
as options, futures, forward contracts, swaps or structured notes, to produce
incremental earnings, to increase flexibility, to gain exposure to a segment of
the market or to hedge against existing positions.
RIVERSOURCE FUNDS -- PROXY STATEMENT 39
DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND):
Under normal market conditions, at least 80% of Disciplined International Equity
Fund's assets will be invested in equity securities of foreign issuers or in
instruments that provide exposure to foreign equity markets. The Fund may invest
in securities of or instruments that provide exposure to both developed and
emerging markets issuers. The Fund will provide shareholders with at least 60
days' notice of any change in the 80% policy.
In pursuit of Disciplined International Equity Fund's objective, the investment
manager will choose equity investments by employing proprietary, disciplined
quantitative methods.
The investment manager's disciplined quantitative approach is designed to
identify companies with:
- - Attractive valuations, based on factors such as price-to-earnings ratios;
- - Sound balance sheets; or
- - Improving outlooks, based on an analysis of return patterns over time.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to other potential investments.
- - The company does not meet the investment manager's performance expectations.
The universe of stocks from which the investment manager selects the Fund's
investments primarily will be those included in the Fund's benchmark, the Morgan
Stanley Capital International (MSCI) EAFE Index (MSCI EAFE Index).
In selecting stocks for the Fund to purchase or to sell, the investment manager
also employs a rigorous process for evaluating the relationship between the risk
associated with each security and its potential for positive returns. This
process takes into account factors such as:
- - Limits on positions relative to weightings in the benchmark index.
- - Limits on country and region allocations relative to the benchmark index.
- - Limits on size of holdings relative to market liquidity.
The Fund will normally have exposure to foreign currencies. The investment
manager closely monitors the Fund's exposure to foreign currency. From time to
time, the investment manager may use forward currency transactions or other
derivative instruments on a limited basis to hedge against currency
fluctuations. The investment manager may also use derivative instruments, such
as options, futures, forward contracts, swaps or structured notes, to produce
incremental earnings, to increase flexibility, to gain exposure to a segment of
the market or to hedge against existing positions.
BOTH FUNDS:
- - Other Investment Strategies. In addition to the principal investment
strategies previously described, the Fund may invest in other securities and
may use other investment strategies that are not principal investment
strategies. Additionally, the Fund may use derivatives (financial instruments
where the value depends upon, or is derived from, the value of something else)
such as futures, options and forward contracts, to produce incremental
earnings, to hedge existing positions or to increase flexibility. Just as with
securities in which the Fund invests directly, derivatives are subject to a
number of risks, including market, liquidity, interest rate and credit risk.
In addition, a relatively small price movement in the underlying security,
currency or index may result in a substantial gain or loss for the Fund using
derivatives. Even though the Fund's policies permit the use of derivatives in
this manner, the portfolio managers are not required to use derivatives. For
more information on strategies and holdings, and the risks of such strategies,
including other derivative instruments that the Buying Fund may use, see the
Merger SAI.
- - Unusual Market Conditions. During unusual market conditions, the Fund may
temporarily invest more of its assets in money market securities than during
normal market conditions. Although investing in these securities would serve
primarily to 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.
- - Portfolio Turnover. Trading of securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of brokerage commissions paid or mark-ups to broker-dealers that the
Fund pays when it buys and sells securities. For subadvised funds, a change in
the subadviser(s) may result in increased portfolio turnover, which increase
may be substantial, as the new subadviser(s) realign the portfolio, or if the
subadviser(s) trades portfolio securities more frequently. A realignment or
more active strategy could produce higher than expected capital gains. Capital
gains and increased brokerage commissions or mark-ups paid to broker-dealers
may adversely affect a fund's
40 RIVERSOURCE FUNDS -- PROXY STATEMENT
performance. The Buying Fund's historical portfolio turnover rate, which
measures how frequently the Buying Fund buys and sells investments, is shown
in Section D -- "Financial Highlights."
- - 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 Buying
Fund's securities transactions and the dollar value of brokerage commissions
paid by the Buying Fund is set forth in the Merger SAI. The brokerage
commissions set forth in the Merger SAI do not include implied commissions or
mark-ups (implied commissions) paid by the Buying 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.
- - 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.
COMPARISON OF FUNDAMENTAL POLICIES
The Selling Fund and the Buying Fund have similar fundamental policies. The
Selling Fund, however, 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 Selling 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. The Buying Fund has a similar
policy, except that the policy also does not extend to entering into forward
currency contracts.
If shareholders of the Selling Fund approve the Reorganization, they will be
subject to the fundamental policies of the Buying Fund.
The remaining fundamental policies of the Funds are identical. Each of the Funds
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.
- - 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.
- - 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.
- - Issue senior securities, except as permitted under the 1940 Act.
- - 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.
- - 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.
- - 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.
COMPARISON OF NONFUNDAMENTAL POLICIES
Both Funds are also subject to the following nonfundamental policy:
- - No more than 15% of the Fund's net assets will be held in securities and other
instruments that are illiquid.
RIVERSOURCE FUNDS -- PROXY STATEMENT 41
COMPARISON OF PRINCIPAL RISK FACTORS
The Selling Fund and the Buying Fund are subject to identical principal risks.
The principal risks of investing in each of the Selling Fund and the Buying Fund
are shown below:
<Table>
<Caption>
INTERNATIONAL DISCIPLINED INTERNATIONAL
PRINCIPAL RISK EQUITY FUND EQUITY FUND
Active Management Risk X X
Derivatives Risk X X
Foreign/Emerging Markets Risk X X
Issuer Risk X X
Market Risk X X
Quantitative Model Risk X X
</Table>
- - 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
Merger SAI for more information on derivative instruments and related risks.
- - FOREIGN/EMERGING MARKETS RISK. The following are all components of
foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of the
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets. The liquidity of foreign investments may
be more limited than for most U.S. investments, which means that, at times it
may be difficult to sell foreign securities at desirable prices.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add to or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater
the likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in these countries as well as the other considerations listed
above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring
countries.
- - 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.
42 RIVERSOURCE FUNDS -- PROXY STATEMENT
- - 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.
- - QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may
perform differently from the market as a whole for many reasons, including the
factors used in building the quantitative analytical framework, the weights
placed on each factor, and changing sources of market returns, among others.
There can be no assurance that the methodology will enable the Fund to achieve
its objective.
PERFORMANCE
Because Disciplined International Equity Fund commenced operations on May 18,
2006, no calendar year performance is available. The following bar chart and
table provide some illustration of the risks of investing in International
Equity Fund by showing, respectively:
- - how International Equity Fund's performance has varied for each full calendar
year shown on the bar chart; and
- - how International Equity 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 International Equity Fund has
performed in the past (before and after taxes) does not indicate how
International Equity Fund will perform in the future. Performance reflects any
fee waivers/expense caps in effect for the periods reported. In the absence of
such fee waivers/expense caps, performance would have been lower.
Bar 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 International Equity Fund.
These returns are compared to the indexes shown for the same periods. For
purposes of the performance calculation in the table we assumed:
- - the maximum sales charge 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 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.
RIVERSOURCE FUNDS -- PROXY STATEMENT 43
AFTER-TAX RETURNS
After-tax returns are shown only for Class A shares. After-tax returns for the
other classes will vary. After-tax returns are calculated using the highest
historical individual federal marginal income tax rate and do not reflect the
impact of state and local taxes. Actual after-tax returns will depend on your
tax situation and most likely will differ from the returns shown in the table.
If you hold your shares in a tax-deferred account, such as a 401(k) plan or an
IRA, the after-tax returns do not apply to you since you will not incur taxes
until you begin to withdraw from your account.
The return after taxes on distributions for a period may be the same as the
return before taxes for the same period if there were no distributions or if the
distributions were small. The return after taxes on distributions and sale of
Fund shares for a period may be greater than the return before taxes for the
same period if there was a tax loss realized on sale of Fund shares. The benefit
of the tax loss (since it can be used to offset other gains) may result in a
higher return.
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)*
(BAR CHART)
<Table>
+32.07% +16.26% +15.28% +23.02%
2003 2004 2005 2006
</Table>
* For the periods prior to Nov. 16, 2007, International Equity Fund was
subadvised.
During the periods shown in the bar chart, the highest return for a calendar
quarter was +18.35% (quarter ended June 30, 2003) and the lowest return for a
calendar quarter was -9.54% (quarter ended March 31, 2003).
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, 2007 was +12.55%.
44 RIVERSOURCE FUNDS -- PROXY STATEMENT
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006)
<Table>
<Caption>
SINCE SINCE
INCEPTION INCEPTION
1 YEAR (A, B, C & R4) (CLASS I)
INTERNATIONAL EQUITY FUND (SELLING FUND):
Class A
Return before taxes +15.95% +19.68%(a) N/A
Return after taxes on distributions +11.50% +17.03%(a) N/A
Return after taxes on distributions and sale of Fund
shares +12.42% +16.06%(a) N/A
Class B
Return before taxes +17.17% +20.18%(a) N/A
Class C
Return before taxes +21.12% +20.43%(a) N/A
Class I
Return before taxes +23.78% N/A +18.37%(b)
Class R4*
Return before taxes +23.44% +21.59%(a) N/A
MSCI EAFE Index (reflects no deduction for fees, expenses
or taxes) +26.86% +25.06%(c) +20.15%(d)
Lipper International Funds Index +25.89% +24.12%(c) +19.41%(d)
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) Inception date is Oct. 3, 2002.
(b) Inception date is March 4, 2004.
(c) Measurement period started Oct. 1, 2002.
(d) Measurement period started March 1, 2004.
The Morgan Stanley Capital International (MSCI) EAFE Index, an unmanaged index,
is compiled from a composite of securities markets of Europe, Australia and the
Far East. The index is widely recognized by investors in foreign markets as the
measurement index for portfolios of non-North American securities. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
The Lipper International Funds Index includes the 30 largest international funds
(growth and value) tracked by Lipper Inc. The index's returns include net
reinvested dividends. International Equity Fund's performance is currently
measured against this index for purposes of determining the performance
incentive adjustment.
DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND):
When available, Disciplined International Equity Fund intends to compare its
performance to the Morgan Stanley Capital International EAFE Index and the
Lipper International Large-Cap Core Funds Index.
RIVERSOURCE FUNDS -- PROXY STATEMENT 45
PROPOSALS 4, 5 AND 6. REORGANIZATIONS OF EACH OF MASSACHUSETTS TAX-EXEMPT FUND,
MICHIGAN TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND INTO TAX-EXEMPT HIGH INCOME
FUND
COMPARISON OF THE SELLING FUNDS AND THE BUYING FUND
The Selling Funds and the Buying Fund each:
- - Have RiverSource Investments as an investment adviser.
- - Have the same policies for buying and selling shares and the same exchange
rights.
- - Have the same distribution policies.
- - Offer the same classes of shares: Classes A, B and C
- - Are structured as series of an open-end management investment company
registered under the 1940 Act. The Buying Fund is a series of a Minnesota
corporation, whereas the Selling Funds are each a series of a Massachusetts
business trust. Please see Exhibit D to this proxy statement/prospectus for
more information regarding the differences between the rights of shareholders
of the Buying Fund and shareholders of the Selling Fund.
COMPARISON OF INVESTMENT OBJECTIVES
The investment objectives for the Funds are as follows:
SELLING FUNDS: Each Selling Fund seeks to provide shareholders with a
high level of income generally exempt from federal income
tax as well as from the respective state and local income
tax.
BUYING FUND: Tax-Exempt High Income Fund seeks to provide shareholders
with a high yield generally exempt from federal income
taxes.
COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES
The Selling Funds and the Buying Fund have similar principal investment
strategies, except for the items noted below. First, whereas the Selling Funds
seek to provide income exempt from federal income taxes, as well as state and
local taxes, the Buying Fund seeks only to provide income exempt from federal
income taxes. In pursuit of their respective investment objectives, each of the
Funds normally invests at least 80% of its assets in municipal obligations.
However, as noted, because the Buying Fund does not seek to provide income
exempt from state and local taxes, it may invest in a broader geographic range
of the municipal securities market. Second, the Buying Fund is a "diversified"
fund, while each Selling Fund is a "non-diversified" fund, which means that a
Selling Fund can invest more of its assets in the securities of fewer issuers.
Third, whereas each Selling Fund may invest only up to 25% of its net assets in
lower-quality bonds (junk bonds), the Buying Fund is not subject to such a
limitation.
Despite these differences, each of the Selling Funds and the Buying Fund target
an average portfolio duration within one year of the duration of the primary
index against which it measures performance, which for the Selling Funds are:
the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, the
Lehman Brothers Michigan Municipal Bond Index and the Lehman Brothers Ohio 4
Plus Year Enhanced Municipal Bond Index for Massachusetts Tax-Exempt Fund,
Michigan Tax-Exempt Fund and Ohio Tax-Exempt Fund, respectively, and for the
Buying Fund is the Lehman Brothers 3 Plus Year Municipal Bond Index.
Furthermore, the Selling Funds and the Buying Fund may each invest up to 20% of
its net assets in debt obligations whose interest is subject to federal
alternative minimum tax.
Detailed strategies for the Selling Funds and the Buying Fund are set forth
below:
MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND
(EACH A SELLING FUND):
Each Selling Fund is a non-diversified mutual fund. Under normal market
conditions, each Selling Fund invests at least 80% of its net assets in
municipal obligations that are generally exempt from federal income tax as well
as from the respective state and local income tax. Each Selling Fund may invest
more than 25% of its total assets in a particular segment of the municipal
securities market or in industrial revenue bonds. Each Selling Fund also may
invest up to 20% of its net assets in debt obligations whose interest is subject
to the alternative minimum tax computation. Additionally, each Selling Fund may
invest up to 25% of its net assets in lower-quality bonds (junk bonds).
In pursuit of each Selling Fund's objective, the investment manager chooses
investments by:
- - Considering opportunities and risks given current and expected interest rates.
- - Targeting an average portfolio duration within one year of the duration of the
index against which the Fund measures its performance. Duration measures the
sensitivity of bond prices to changes in interest rates. The longer the
duration of a bond, the longer it will take to repay the principal and
interest obligations and the more sensitive it will be to changes in interest
rates. For example, a three-year duration means a bond is expected to decrease
in value by 3% if interest rates rise 1% and increase in value by 3% if
interest rates fall 1%.
- - Identifying obligations in sectors which, due to supply and demand, are
offering higher yields than comparable instruments.
46 RIVERSOURCE FUNDS -- PROXY STATEMENT
- - Identifying obligations that:
- are investment-grade,
- have coupons and/or maturities that are consistent with the investment
manager's interest rate outlook, and
- are expected to outperform other securities on a risk-adjusted basis
(i.e., after considering coupon, sinking fund provision, call
protection, and quality).
- - The terms of a municipal security determine the issuer.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to alternative investments.
- - The issuer's credit rating declines or the investment manager expects a
decline (the Massachusetts Tax-Exempt Fund may continue to own securities that
are downgraded until the investment manager believes it is advantageous to
sell).
- - Political, economic, or other events could affect the issuer's performance.
- - The investment manager expects the issuer to call the security.
- - The investment manager identifies a more attractive opportunity.
The investment manager may use derivatives such as futures, options, forward
contracts and swaps, including credit default swaps, structured notes, including
inverse floaters, 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.
TAX-EXEMPT HIGH INCOME FUND (BUYING FUND):
Under normal market conditions, Tax-Exempt High Income Fund will invest at least
80% of its net assets in municipal bonds and in other debt obligations issued by
or on behalf of state or local governmental units whose interest is exempt from
federal income tax and is not subject to the alternative minimum tax (AMT).
However, Tax-Exempt High Income Fund may invest up to 20% of its net assets in
debt obligations the interest from which is subject to AMT. Tax-Exempt High
Income Fund invests its assets in medium and higher quality municipal bonds and
other debt obligations. Tax-Exempt High Income Fund may also invest in
lower-quality bonds which help to obtain a higher portfolio yield. Lower-quality
bonds, often called "junk bonds" include securities that are rated below
investment grade, commonly defined as bonds receiving a Standard & Poor's rating
below BBB or a Moody's rating below Baa or non-rated securities of comparable
quality.
In pursuit of Tax-Exempt High Income Fund's objective, the Fund's investment
manager chooses investments by:
- - Considering opportunities and risks in municipal obligations given current and
expected interest rates.
- - Targeting an average portfolio duration within one year of the duration of the
Lehman Brothers 3 Plus Year Municipal Bond Index. Duration measures the
sensitivity of bond prices to changes in interest rates. The longer the
duration of a bond, the longer it will take to pay the principal and interest
on the bond and the more sensitive it will be to changes in interest rates.
For example, a five-year duration means a bond is expected to decrease in value
by 5% if interest rates rise 1% and increase in value by 5% if interest rates
fall 1%.
- - Identifying municipal obligations that it believes:
- range from high to lower credit quality, including non-rated
securities;
- have maturities that represent the full spectrum of the municipal yield
curve;
- represent strong relative value; and
- have characteristics (coupon, call, maturity, etc.) that fit Tax-Exempt
High Income Fund's investment strategy at the time of purchase.
- - Seeking to identify investments that contribute to portfolio diversification.
The investment manager attempts to modify relative exposure to certain
credits, sectors, maturities, states, or bond structures based on the
investment manager's opinion of relative value and expected market trends.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to alternative investments.
- - The issuer's credit rating declines or the investment manager expects a
decline in the issuer's creditworthiness (the Fund may continue to own
securities that are downgraded until the investment manager believes it is
advantageous to sell).
- - Political, economic, or other events could negatively affect the issuer's
performance.
- - The investment manager expects the issuer to call the security.
RIVERSOURCE FUNDS -- PROXY STATEMENT 47
- - The investment manager identifies a more attractive investment opportunity.
- - The issuer or the security continues to meet the security selection criteria
described above.
The investment manager may use derivatives such as futures, options, forward
contracts and swaps, including credit default swaps, structured notes, including
inverse floaters, 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.
EACH OF THE SELLING FUNDS AND THE BUYING FUND:
- - 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 Buying Fund may use, see the Fund's
Merger SAI and the Fund's 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.
- - 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 Buying Fund's historical portfolio turnover rate,
which measures how frequently the Buying Fund buys and sells investments, is
shown in Section D -- "Financial Highlights."
- - 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 Buying
Fund's securities transactions and the dollar value of brokerage commissions
paid by the Buying Fund is set forth in the Merger 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 Buying 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.
- - 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.
COMPARISON OF FUNDAMENTAL POLICIES
The Selling Funds and the Buying Fund have similar fundamental policies, except
for the items noted below. First, whereas the Buying Fund has a policy that it
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, the Selling Funds
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 the respective state and local income tax. Second, the Selling Fund, as
a "non-diversified fund" may invest more of its assets in the securities of
fewer issuers.
If shareholders of a Selling Fund approve the Reorganization, they will be
subject to the fundamental policies of the Buying Fund.
The other fundamental policies of the Funds are set forth below. Each of the
Funds 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.
48 RIVERSOURCE FUNDS -- PROXY STATEMENT
- - 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.
- - 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.
- - 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.
- - 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.
In addition, neither Fund may issue senior securities, except as permitted under
the 1940 Act.
As a "diversified fund," the Buying Fund is subject to the following additional
fundamental investment policies:
- - 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.
- - 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.
COMPARISON OF NONFUNDAMENTAL POLICIES
Both Funds are also subject to the following nonfundamental policy:
- - No more than 15% of the Fund's net assets will be held in securities and other
instruments that are illiquid.
COMPARISON OF PRINCIPAL RISK FACTORS
Each of the Selling Funds and the Buying Fund are subject to similar principal
risks. The Selling Funds are subject to the additional principal risks related
to diversification and geographic concentration because each Selling Fund
focuses its investments within a specific geographic region (state) and each is
a "non-diversified" fund.
The principal risks of investing in each of the Selling Funds and the Buying
Fund are shown below:
<Table>
<Caption>
PRINCIPAL RISK SELLING FUNDS BUYING FUND
Active Management Risk X X
Credit Risk X X
Derivatives Risk X X
Diversification Risk X
Geographic Concentration Risk X
Interest Rate Risk X X
Market Risk X X
Prepayment and Extension Risk X X
</Table>
- - 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
RIVERSOURCE FUNDS -- PROXY STATEMENT 49
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
Merger SAI for more information on derivative instruments and related risks.
- - 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 then a Fund that invests more broadly.
- - GEOGRAPHIC CONCENTRATION RISK. 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 the
Merger SAI 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 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 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.
- - INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to
changes in interest rates. Interest rate risk is generally associated with
bond prices: when interest rates rise, bond prices fall. In general, the
longer the maturity or duration of a bond, the greater its sensitivity to
changes in interest rates.
- - MARKET RISK. The market value of securities may fall or fail to rise. Market
risk may affect a single issuer, sector of the economy, industry, or the
market as a whole. The market value of securities may fluctuate, sometimes
rapidly and unpredictably.
- - PREPAYMENT AND EXTENSION RISK. Prepayment and extension risk is the risk that
a bond or other security might be called or otherwise converted, prepaid, or
redeemed before maturity. This risk is primarily associated with asset-backed
securities, including mortgage-backed securities. If a security is converted,
prepaid, or redeemed before maturity, particularly during a time of declining
interest rates, the investment manager may not be able to reinvest in
securities providing as high a level of income, resulting in a reduced yield
to the Fund. Conversely, as interest rates rise, the likelihood of prepayment
decreases. The investment manager may be unable to capitalize on securities
with higher interest rates because the Fund's investments are locked in at a
lower rate for a longer period of time.
PERFORMANCE
The following bar chart and table provide some illustration of the risks of
investing in the Funds by showing, respectively:
- - how a Fund's performance has varied for each full calendar year shown on the
bar chart; and
- - how a 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 a Fund has performed in the
past (before and after taxes) does not indicate how the Fund will perform in the
future. Performance reflects any fee waivers/expense caps in effect for the
periods reported. In the absence of such fee waivers/expense caps, performance
would have been lower.
Bar 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.
50 RIVERSOURCE FUNDS -- PROXY STATEMENT
Table. The table shows total returns from hypothetical investments in Class A,
Class B and Class C 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; and
- - no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
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.
- --------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+8.31% +5.79% -4.56% +10.11% +5.13% +6.91% +3.71% +3.92% +2.19% +3.93%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +5.38% (quarter ended Sept. 30, 2002) and the lowest return for a
calendar quarter was -2.67% (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, 2007 was +1.43%.
RIVERSOURCE FUNDS -- PROXY STATEMENT 51
- --------------------------------------------------------------------------------
MICHIGAN TAX-EXEMPT FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+7.53% +5.73% -4.16% +9.13% +5.14% +8.02% +4.32% +3.88% +2.71% +4.10%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +5.39% (quarter ended Sept. 30, 2002) and the lowest return for a
calendar quarter was -2.29% (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, 2007 was +1.59%.
- --------------------------------------------------------------------------------
OHIO TAX-EXEMPT FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+7.95% +5.77% -3.74% +9.94% +4.73% +7.01% +4.10% +3.17% +2.07% +4.05%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +5.39% (quarter ended Sept. 30, 2002) and the lowest return for a
calendar quarter was -2.43% (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, 2007 was +1.28%.
52 RIVERSOURCE FUNDS -- PROXY STATEMENT
- --------------------------------------------------------------------------------
TAX-EXEMPT HIGH INCOME FUND (BUYING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+9.37% +5.58% -2.69% +9.51% +3.94% +8.27% +4.66% +3.58% +2.91% +4.47%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +4.58% (quarter ended Sept. 30, 2002) and the lowest return for a
calendar quarter was -2.32% (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, 2007 was +0.95%.
The Fund formerly was a "feeder" fund in a master/feeder arrangement where the
Fund invested all of its assets in a corresponding "master" fund with an
identical investment objective and investment strategies. As of Oct. 18, 2005,
the Fund became a stand-alone Fund that invests directly in a portfolio of
securities. The information shown in the table and in the financial highlights
for the Fund includes the activity of the Fund when it was a feeder in a
master/feeder arrangement.
RIVERSOURCE FUNDS -- PROXY STATEMENT 53
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006)
<Table>
<Caption>
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASS C)
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND):
Class A
Return before taxes -1.00% +3.11% +3.97% N/A
Return after taxes on distributions -1.00% +2.76% +3.79% N/A
Return after taxes on distributions and sale of Fund shares +0.53% +2.87% +3.85% N/A
Class B
Return before taxes -1.85% +2.98% +3.69% N/A
Class C
Return before taxes +2.15% +3.34% N/A +4.17%(a)
Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond
Index (reflects no deduction for fees, expenses or taxes) +4.87% +5.75% +5.91% +6.40%(b)
Lehman Brothers Municipal Bond Index (reflects no deduction for fees,
expenses or taxes) +4.84% +5.53% +5.76% +6.12%(b)
Lipper Massachusetts Municipal Debt Funds Index +4.56% +5.16% +5.16% +5.76%(b)
</Table>
<Table>
<Caption>
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASS C)
MICHIGAN TAX-EXEMPT FUND (SELLING FUND):
Class A
Return before taxes -0.84% +3.58% +4.07% N/A
Return after taxes on distributions -0.84% +3.13% +3.84% N/A
Return after taxes on distributions and sale of Fund shares +0.62% +3.26% +3.93% N/A
Class B
Return before taxes -1.70% +3.45% +3.79% N/A
Class C
Return before taxes +2.31% +3.80% N/A +4.45%(a)
Lehman Brothers Michigan Municipal Bond Index (reflects no deduction
for fees, expenses or taxes) +4.67% +5.53% +5.77% +6.17%(b)
Lehman Brothers Municipal Bond Index (reflects no deduction for fees,
expenses or taxes) +4.84% +5.53% +5.76% +6.12%(b)
Lipper Michigan Municipal Debt Funds Index +4.28% +4.71% +4.80% +5.35%(b)
</Table>
<Table>
<Caption>
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASS C)
OHIO TAX-EXEMPT FUND (SELLING FUND):
Class A
Return before taxes -0.90% +3.06% +3.94% N/A
Return after taxes on distributions -0.89% +2.67% +3.74% N/A
Return after taxes on distributions and sale of Fund shares +0.57% +2.80% +3.82% N/A
Class B
Return before taxes -1.73% +2.93% +3.66% N/A
Class C
Return before taxes +2.07% +3.28% N/A +3.95%(a)
Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index
(reflects no deduction for fees, expenses or taxes) +4.82% +5.81% +5.81% +6.34%(b)
Lehman Brothers Municipal Bond Index (reflects no deduction for fees,
expenses or taxes) +4.84% +5.53% +5.76% +6.12%(b)
Lipper Ohio Municipal Debt Funds Index +4.32% +4.94% +5.01% +5.54%(b)
</Table>
54 RIVERSOURCE FUNDS -- PROXY STATEMENT
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006) (CONTINUED)
<Table>
<Caption>
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASS C)
TAX-EXEMPT HIGH INCOME FUND (BUYING FUND):
Class A
Return before taxes -0.50% +3.75% +4.40% N/A
Return after taxes on distributions -0.50% +3.41% +4.22% N/A
Return after taxes on distributions and sale of Fund shares +1.01% +3.51% +4.31% N/A
Class B
Return before taxes -1.32% +3.63% +4.12% N/A
Class C
Return before taxes +2.69% +3.93% N/A +4.46%(a)
Lehman Brothers 3-Plus Year Municipal Bond Index(reflects no
deduction for fees, expenses or taxes) +5.05% +5.87% +5.97% +6.43%(b)
Lipper General Municipal Debt Funds Index +5.10% +5.37% +5.24% +5.82%(b)
</Table>
(a) Inception date is June 26, 2000.
(b) Measurement period started July 1, 2000.
The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, an
unmanaged index, is a market value-weighted index of Massachusetts
investment-grade fixed-rate municipal bonds with maturities of three years or
more.
The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is a
subset of the Lehman Brothers Municipal Bond Index. The index is made up of
investment-grade, tax-exempt, and fixed-rate bonds issued in the state of
Michigan. All securities have effective maturities greater than one year and are
selected from issues larger than $50 million.
The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, an unmanaged
index, is a market value-weighted index of Ohio investment-grade fixed-rate
municipal bonds with maturities of four years or more.
The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a
representative list of general obligation, revenue, insured and pre-refunded
bonds. The index is frequently used as a general measure of tax-exempt bond
market performance.
The Lehman Brothers 3 Plus Year Municipal Bond Index, an unmanaged index, is a
market value-weighted index of investment-grade fixed-rate municipal bonds with
maturities of three years or more.
The Lehman Brothers indices reflect reinvestment of all distributions and
changes in market prices.
The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Massachusetts tracked by Lipper Inc.
The Lipper Michigan Municipal Debt Funds Index includes the 10 largest municipal
debt funds in Michigan tracked by Lipper Inc.
The Lipper Ohio Municipal Debt Funds Index includes the 10 largest municipal
debt funds in Ohio tracked by Lipper Inc.
The Lipper General Municipal Debt Funds Index includes the 30 largest municipal
debt funds tracked by Lipper Inc.
The Lipper indices' returns include net reinvested dividends.
RIVERSOURCE FUNDS -- PROXY STATEMENT 55
PROPOSAL 7. REORGANIZATION OF VALUE FUND INTO DIVERSIFIED EQUITY INCOME FUND
COMPARISON OF THE SELLING FUND AND THE BUYING FUND
Both the Selling Fund and the Buying Fund:
- - Have RiverSource Investments as an investment adviser.
- - Have the same policies for buying and selling shares and the same exchange
rights.
- - Have the same distribution policies.
- - Offer Classes A, B, C, I and R4 (the Buying Fund also offers Classes R2, R3,
R5 and W).
- - Are structured as a series of capital stock of an open-end management
investment company organized as a Minnesota corporation.
COMPARISON OF INVESTMENT OBJECTIVES
The investment objectives for the Funds are similar. Whereas the Selling Fund
seeks to provide shareholders with long-term capital growth as a primary
objective, this is a secondary objective of the Buying Fund, and whereas the
Buying Fund seeks to provide a high level of current income, income is a
secondary objective of the Selling Fund. This difference has not materially
affected the way that the Funds have been managed.
SELLING FUND: Value Fund seeks to provide shareholders with long-term
capital growth. Income is a secondary objective.
BUYING FUND: Diversified Equity Income Fund seeks to provide
shareholders with a high level of current income and, as a
secondary objective, steady growth of capital.
COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES
The Buying Fund will invest at least 80% of its net assets in dividend-paying
common and preferred stocks. Each Fund may invest up to 25% of its net assets in
foreign investments. The Selling Fund invests primarily in securities of large,
well established U.S. and multinational companies. Although RiverSource
Investments serves as investment manager of both Funds, the Selling Fund was,
until Nov. 16, 2007, sub-advised by Lord, Abbett & Co. LLC (Lord Abbett). The
Selling Fund's Board of Directors terminated the contract of Lord Abbett. Since
Nov. 16, 2007, RiverSource Investments has solely managed the Selling Fund.
Detailed strategies for the Selling Fund and the Buying Fund are set forth
below:
VALUE FUND (SELLING FUND):
Value Fund's assets primarily are invested in equity securities. This Fund may
invest up to 25% of its net assets in foreign investments. The Fund can invest
in any economic sector and, at times, it may emphasize one or more particular
sectors.
In pursuit of Value Fund's objectives, the investment manager chooses equity
investments by seeking to:
- - Identify stocks that are selling at low prices in relation to:
- current and projected earnings;
- current and projected dividends; and
- historic price levels.
- - Identify companies with moderate growth potential based on:
- effective management, as demonstrated by overall performance; and
- financial strength.
- - Identify companies with dividend-paying stocks.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to alternative investments.
- - The security has reached the investment manager's price objective.
- - The company has met the investment manager's earnings and/or growth
expectations.
- - The company or the security continues to meet the other standards described
above.
DIVERSIFIED EQUITY INCOME FUND (BUYING FUND):
Diversified Equity Income Fund's assets primarily are invested in equity
securities. Under normal market conditions, the Fund will invest at least 80% of
its net assets in dividend-paying common and preferred stocks. This Fund may
invest up to 25% of its net assets in foreign investments. The Fund can 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.
56 RIVERSOURCE FUNDS -- PROXY STATEMENT
In pursuit of Diversified Equity Income Fund's objectives, the investment
manager chooses equity investments by seeking to:
- - Identify stocks that are selling at low prices in relation to:
- current and projected earnings;
- current and projected dividends; and
- historic price levels.
- - Identify companies with moderate growth potential based on:
- effective management, as demonstrated by overall performance; and
- financial strength.
- - Identify companies with dividend-paying stocks.
In evaluating whether to sell a security, the investment manager considers,
among other factors, whether:
- - The security is overvalued relative to alternative investments.
- - The security has reached the investment manager's price objective.
- - The company has met the investment manager's earnings and/or growth
expectations.
- - The company or the security continues to meet the other standards described
above.
BOTH FUNDS:
- - 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.
Additionally, the Fund may use derivatives such as futures, options, forward
contracts, and swaps (which 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, indexes or currencies). These
derivative instruments are used to produce incremental earnings, to hedge
existing positions, to increase or reduce market or credit exposure, or to
increase flexibility. Derivative instruments will typically increase the
Fund's exposure to the 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 or subadviser would not otherwise choose, including,
accepting a lower price for the derivative instrument, selling other
investments, or foregoing another, more appealing investment opportunity.
Leverage risk is the risk that losses from the derivative instrument may be
greater than the amount invested in the derivative instrument. In addition, a
relatively small price movement in the underlying security, currency or index
may result in a substantial gain or loss for the Fund using derivatives and
certain derivatives have the potential for unlimited losses, regardless of the
size of the initial investment. Even though the Fund's policies permit the use
of derivatives in this manner, the portfolio managers are not required to use
derivatives. For more information on strategies and holdings, and the risks of
such strategies, including derivative instruments that the Buying Fund may
use, see the Merger SAI.
- - Unusual Market Conditions. During unusual market conditions, the Fund may
temporarily invest more of its assets in money market securities than during
normal market conditions. Although investing in these securities would serve
primarily to attempt to avoid losses, this type of investing also could
prevent the Fund from achieving its investment objective. During these times,
the portfolio managers may make frequent securities trades that could result
in increased fees, expenses and taxes, and decreased performance. Instead of
investing in money market securities directly, the Fund may invest in shares
of an affiliated money market fund.
- - 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 Buying
Fund's securities transactions and the dollar value of brokerage commissions
paid by the Buying Fund is set forth
RIVERSOURCE FUNDS -- PROXY STATEMENT 57
in the Merger SAI. The brokerage commissions set forth in the Merger SAI do
not include implied commissions or mark-ups (implied commissions) paid by the
Buying Fund for principal transactions (transactions made directly with a
dealer or other counterparty), including most fixed income securities (and
certain other instruments, including derivatives). Brokerage commissions do
not reflect other elements of transaction costs, including the extent to which
the Fund's purchase and sale transactions may cause the market to move and
change the market price for an investment.
Although brokerage commissions and implied commissions are not reflected in
the expense table under "Fees and Expenses," they are reflected in the total
return of the Fund.
- - Portfolio Turnover. Trading of securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of brokerage commissions paid or mark-ups to broker-dealers that the
Fund pays when it buys and sells securities. For subadvised funds, a change in
a subadviser may result in increased portfolio turnover, which increase may be
substantial, as the new subadviser realigns the portfolio, or if the
subadviser(s) trades portfolio securities more frequently. A realignment or
more active strategy could produce higher than expected capital gains. Capital
gains and increased brokerage commissions or mark-ups paid to broker-dealers
may adversely affect a Fund's performance. The Buying Fund's historical
portfolio turnover rate, which measures how frequently the Buying Fund buys
and sells investments, is shown in Section C -- "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.
COMPARISON OF FUNDAMENTAL POLICIES
The Selling Fund and the Buying Fund have substantially similar fundamental
investment policies. The investment manager does not believe that the
differences between the fundamental investment policies will result in any
material difference in the way the Funds are managed.
If shareholders of the Selling Fund approve the Reorganization, they will be
subject to the fundamental investment policies of the Buying Fund.
The fundamental policies of the Funds are set forth below. Neither of the Funds
will:
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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.
In addition, neither Fund may issue senior securities, except as permitted under
the 1940 Act.
58 RIVERSOURCE FUNDS -- PROXY STATEMENT
COMPARISON OF NONFUNDAMENTAL POLICIES
Both Funds are also subject to the following nonfundamental policies:
- - No more than 15% of the Fund's net assets will be held in securities and other
instruments that are illiquid.
- - Up to 25% of the Buying fund's net assets may be invested in foreign
investments.
COMPARISON OF PRINCIPAL RISK FACTORS
The Selling Fund and the Buying Fund are subject to identical principal risks.
Principal risks of investing in each of the Selling Fund and the Buying Fund,
are shown below:
<Table>
<Caption>
DIVERSIFIED EQUITY
PRINCIPAL RISK VALUE FUND INCOME FUND
Active Management Risk X X
Foreign Risk X X
Issuer Risk X X
Market Risk X X
Sector Risk X X
Small and Mid-Sized Company Risk X X
</Table>
- - 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.
- - FOREIGN RISK. The following are all components of foreign risk:
Country risk includes the political, economic, and other conditions of a
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.
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.
- - ISSUER RISK. An issuer may perform poorly, and therefore, the value of its
stocks and bonds may decline. Poor performance may be caused by poor
management decisions, competitive pressures, breakthroughs in technology,
reliance on suppliers, labor problems or shortages, corporate restructurings,
fraudulent disclosures or other factors.
- - MARKET RISK. The market value of securities may fall or fail to rise. Market
risk may affect a single issuer, sector of the economy, industry, or the
market as a whole. The market value of securities may fluctuate, sometimes
rapidly and unpredictably. This risk is generally greater for small and
mid-sized companies, which tend to be more vulnerable to adverse developments.
In addition, focus on a particular style, for example, investment in growth or
value securities, may cause the Fund to underperform other mutual funds if
that style falls out of favor with the market.
- - SECTOR RISK. If a Fund emphasizes one or more economic sectors, it may be more
susceptible to the financial, market or economic events affecting the
particular issuers and industries in which it invests than funds that do not
emphasize particular sectors. The more a Fund diversifies, the more it spreads
risk and potentially reduces the risks of loss and volatility.
- - 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.
RIVERSOURCE FUNDS -- PROXY STATEMENT 59
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.
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 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.
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.
- --------------------------------------------------------------------------------
VALUE FUND (SELLING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)*
(BAR CHART)
<Table>
-18.96% +31.04% +11.94% +2.72% +17.65%
2002 2003 2004 2005 2006
</Table>
* For periods prior to Nov. 16, 2007, Value Fund was subadvised.
During the periods shown in the bar chart, the highest return for a calendar
quarter was +18.06% (quarter ended June 30, 2003) and the lowest return for a
calendar quarter was -19.58% (quarter ended Sept. 30, 2002).
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, 2007 was +7.87%.
60 RIVERSOURCE FUNDS -- PROXY STATEMENT
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY INCOME FUND (BUYING FUND)
CLASS A SHARE PERFORMANCE
(BASED ON CALENDAR YEARS)
(BAR CHART)
<Table>
+20.30% +11.58% +9.22% -1.78% +2.70% -18.40% +41.89% +18.23% +13.33% +19.66%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</Table>
During the periods shown in the bar chart, the highest return for a calendar
quarter was +22.66% (quarter ended June 30, 2003) and the lowest return for a
calendar quarter was -21.13% (quarter ended Sept. 30, 2002).
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, 2007 was +12.42%.
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.
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006)
<Table>
<Caption>
SINCE
INCEPTION SINCE
(CLASSES A, INCEPTION
1 YEAR 5 YEARS 10 YEARS B, C & R4) (CLASS I)
VALUE FUND (SELLING FUND):
Class A
Return before taxes +10.89% +6.25% N/A +5.17%(a) N/A
Return after taxes on distributions +8.68% +5.42% N/A +4.42%(a) N/A
Return after taxes on distributions and sale of Fund
shares +9.14% +5.23% N/A +4.31%(a) N/A
Class B
Return before taxes +11.63% +6.40% N/A +5.37%(a) N/A
Class C
Return before taxes +15.66% +6.71% N/A +5.56%(a) N/A
Class I
Return before taxes +18.04% N/A N/A N/A +10.05%(b)
Class R4*
Return before taxes +17.83% +7.70% N/A +6.46%(a) N/A
Russell 1000(R) Value Index (reflects no deduction for
fees, expenses or taxes) +22.25% +10.86% N/A +8.94%(c) +14.48%(d)
Lipper Large-Cap Value Funds Index +18.28% +7.67% N/A +5.94%(c) +11.41%(d)
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 61
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIODS ENDED DEC. 31, 2006) (CONTINUED)
<Table>
<Caption>
SINCE SINCE
INCEPTION INCEPTION
1 YEAR 5 YEARS 10 YEARS (CLASSES C) (CLASS I)
DIVERSIFIED EQUITY INCOME FUND (BUYING FUND):
Class A
Return before taxes +12.78% +11.84% +9.97% N/A N/A
Return after taxes on distributions +10.85% +10.88% +8.19% N/A N/A
Return after taxes on distributions and sale of Fund
shares +10.11% +9.98% +7.79% N/A N/A
Class B
Return before taxes +13.83% +12.06% +9.78% N/A N/A
Class C
Return before taxes +17.72% +12.30% N/A +10.16%(e) N/A
Class I
Return before taxes +20.13% N/A N/A N/A +16.72%(b)
Class R4*
Return before taxes +19.83% +13.36% +10.79% N/A N/A
Russell 1000(R) Value Index (reflects no deduction for
fees, expenses or taxes) +22.25% +10.86% +11.00% +9.15%(f) +14.48%(d)
Lipper Equity Income Funds Index +18.40% +8.28% +8.43% +6.99%(f) +11.70%(d)
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) Inception date is June 18, 2001.
(b) Inception date is March 4, 2004.
(c) Measurement period started July 1, 2001.
(d) Measurement period started March 1, 2004.
(e) Inception date is June 26, 2000.
(f) Measurement period started July 1, 2000.
The Russell 1000 Value Index, an unmanaged index, measures the performance of
those stocks in the Russell 1000 Index with lower price-to-book ratios and lower
forecasted growth values. The index reflects reinvestment of all distributions
and changes in market prices.
The Lipper Large-Cap Value Funds Index includes the 30 largest large-cap value
funds tracked by Lipper Inc. The index's returns include net reinvested
dividends. Value Fund's performance is currently measured against this index for
purposes of determining the performance incentive adjustment.
The Lipper Equity Income Funds Index includes the 30 largest equity income funds
tracked by Lipper Inc. The index's returns include net reinvested dividends.
Diversified Equity Income Fund's performance is currently measured against this
index for purposes of determining the performance incentive adjustment.
62 RIVERSOURCE FUNDS -- PROXY STATEMENT
ADDITIONAL INFORMATION ABOUT EACH REORGANIZATION
TERMS OF THE REORGANIZATIONS
The Board has approved the Agreement, a copy of which is attached as Exhibit A.
The Agreement provides for each Reorganization on the following terms:
- - The Reorganization is expected to occur in the first quarter of 2008, pending
shareholder approval and receipt of any necessary regulatory approvals.
However, following shareholder approval, the Reorganization may happen at any
time as agreed to between the Selling Fund and the Buying Fund.
- - The Selling Fund will transfer all of its assets to the Buying Fund and, in
exchange, the Buying Fund will assume all the Selling Fund's liabilities and
will issue to the Selling Fund, as applicable, Class A, B, C, I, R2, R3, R4,
R5 and W shares with an aggregate net asset value at the time of the
Reorganization equal to the value of the assets of Classes A, B, C, I, R2, R3,
R4, R5 and W shares that it receives from the Selling Fund, less the
liabilities assumed by the Buying Fund in the transaction. These shares will
immediately be distributed by the Selling Fund to its shareholders in
proportion to their holdings in the Selling Fund. As a result, shareholders of
the Selling Fund will become Class A, B, C, I, R2, R3, R4, R5 or W
shareholders of the Buying Fund.
- - Neither the Selling Fund nor the shareholders of the Selling Fund will pay any
sales charge in connection with the Reorganization.
- - The net asset value of the Selling Fund and the Buying Fund will be computed
as of 3:00 p.m. Central time, on the business day immediately preceding the
closing date.
- - After the Reorganization, the Selling Fund will be terminated.
CONDITIONS TO CLOSING EACH REORGANIZATION
The completion of each Reorganization is subject to certain conditions described
in the Agreement, including:
- - The Selling Fund will have declared and paid a dividend that will distribute
all of the Fund's taxable income, if any, to the shareholders of the Fund for
the taxable years ending at or prior to the closing.
- - The Funds will have received any approvals, consents or exemptions from the
SEC or any regulatory body necessary to carry out the Reorganization.
- - A registration statement on Form N-14 will have been filed with the SEC and
declared effective.
- - The shareholders of the Selling Fund will have approved the Agreement.
- - The Selling Fund will have received an opinion of tax counsel that, although
not entirely free from doubt, the proposed Reorganization will not result in
gain or loss to any shareholder for federal income tax purposes.
TERMINATION OF THE AGREEMENT
The Agreement and the transactions contemplated by it may be terminated and
abandoned with respect to any Reorganization by resolutions of the Board of the
Selling Fund or the Buying Fund at any time prior to closing. In the event of a
termination, there will be no liability for damages on the part of either the
Selling Fund or the Buying Fund or any of their affiliates.
TAX STATUS OF THE REORGANIZATIONS
Each Reorganization is expected to be tax-free for federal income tax purposes
and will not take place in any case unless the Selling Fund and the Buying Fund
receive a satisfactory opinion of tax counsel (which opinion will be based on
certain factual representations and certain customary assumptions), to the
effect that, although not entirely free from doubt, on the basis of existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code", U.S.
Treasury regulations issued thereunder ("Regulations"), current administrative
rules, pronouncements and court decisions, for federal income tax purposes):
- - The transfer of the Selling Fund's assets to the Buying Fund in exchange for
Class A, B, C, I, R2, R3, R4, R5 and W shares, as applicable, of the Buying
Fund and the assumption of the Selling Fund's liabilities, followed by the
distribution of those Class A, B, C, I, R2, R3, R4, R5 and W shares, as
applicable, to the Selling Fund's shareholders and the termination of the
Selling Fund will be a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Selling Fund and the Buying Fund will each be a
"party to the reorganization" within the meaning of Section 368(b) of the
Code.
- - Under Section 361 of the Code, no gain or loss will be recognized by the
Selling Fund upon the transfer of all of its assets to the Buying Fund or on
the distribution by the Selling Fund of Class A, B, C, I, R2, R3, R4, R5 and W
shares, as applicable, of the Buying Fund to Selling Fund shareholders in
liquidation.
- - Under Section 354 of the Code, the shareholders of the Selling Fund will not
recognize gain or loss upon the exchange of their Class A, B, C, I, R2, R3,
R4, R5 and W shares, as applicable, of the Selling Fund solely for Buying Fund
Class A, B, C, I, R2, R3, R4, R5 and W shares, as applicable, as part of the
Reorganization.
RIVERSOURCE FUNDS -- PROXY STATEMENT 63
- - Under Section 358 of the Code, the aggregate basis of the Class A, B, C, I,
R2, R3, R4, R5 and W shares, as applicable, of the Buying Fund that a Selling
Fund shareholder receives in the Reorganization will be the same as the
aggregate basis of the Class A, B, C, I, R2, R3, R4, R5 and W shares, as
applicable, of the Selling Fund exchanged therefor.
- - Under Section 1223(1) of the Code, the tax holding period for the Class A, B,
C, I, R2, R3, R4, R5 and W shares, as applicable, of the Buying Fund that a
Selling Fund shareholder receives in the Reorganization will include the
period for which he or she held the Class A, B, C, I, R2, R3, R4, R5 and W
shares, as applicable, of the Selling Fund exchanged therefor, provided that
on the date of the exchange he or she held such Selling Fund shares as capital
assets.
- - Under Section 1032 of the Code, no gain or loss will be recognized by the
Buying Fund upon the receipt of the Selling Fund's assets solely in exchange
for the issuance of Buying Fund's Class A, B, C, I, R2, R3, R4, R5 and W
shares, as applicable, to the Selling Fund and the assumption of all of the
Selling Fund's liabilities by the Buying Fund.
- - Under Section 362(b) of the Code, the Buying Fund's tax basis in the assets
that the Buying Fund received from the Selling Fund will be the same as the
Selling Fund's tax basis in those assets immediately prior to the transfer.
- - Under Section 1223(2) of the Code, the Buying Fund's holding periods in the
assets received from the Selling Fund will include the Selling Fund's holding
periods in such assets.
- - Under Section 381 of the Code, the Buying Fund will succeed to and take into
account the items of the Selling Fund described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code and Regulations thereunder.
The opinion will note and distinguish certain published precedent; it is
possible that the Internal Revenue Service (the "IRS") could disagree with tax
counsel's opinion.
Tax counsel will express no view with respect to the effect of the
Reorganization on any transferred assets as to which any unrealized gain or loss
is required to be recognized at the end of a taxable year (or on the termination
or transfer thereof) under federal income tax principles.
A portion of the portfolio assets of the Selling Fund may be sold in connection
with the Reorganization. The actual tax impact of such sales will depend on the
difference between the price at which such portfolio assets are sold and the
Selling Fund's basis in such assets. Any net capital gains recognized in these
sales will be distributed to Selling Fund shareholders as capital gain dividends
(to the extent of net realized long-term capital gains) and/or ordinary
dividends (to the extent of net realized short-term capital gains) during or
with respect to year of sale, and such distributions will be taxable to
shareholders.
Prior to the closing of each Reorganization, the Selling Fund will, and the
Buying Fund may, declare a distribution to shareholders, which together with all
previous distributions, will have the effect of distributing to shareholders all
of its investment company taxable income (computed without regard to the
deduction for dividends paid) and net realized capital gains (after reduction by
any available capital loss carryforwards), if any, through the closing of the
Reorganization. These distributions will be taxable to shareholders.
A Fund's ability to carry forward capital losses and use them to offset future
gains may be limited. First, one Fund's "pre-acquisition losses" (including
capital loss carryforwards, net current-year capital losses, and unrealized
losses that exceed certain thresholds) cannot be used to offset unrealized gains
in another Fund that are "built in" at the time of the Reorganization and that
exceed certain thresholds ("non-de minimis built-in gains") for five calendar
years. Second, a portion of a Fund's pre-acquisition losses may become
unavailable to offset any gains at all. Third, any remaining pre-acquisition
losses will offset capital gains realized after the Reorganization and thus will
reduce subsequent capital gain distributions to a broader group of shareholders
than would have been the case absent such Reorganization. Therefore, in certain
circumstances, former shareholders of a Fund may pay taxes sooner, or pay more
taxes, than they would have had a Reorganization not occurred.
In addition, in each case the combined Fund resulting from each Reorganization
will have tax attributes that reflect a blending of the tax attributes of the
two Funds at the time of the Reorganization (including as affected by the rules
set forth above). Therefore, the shareholders of the Selling Fund will in each
case receive a proportionate share of any "built-in" (unrealized) gains in the
Buying Fund's assets, as well as any taxable gains realized by the Buying Fund
but not distributed to its shareholders prior to the Reorganization, when such
gains are eventually distributed by the Buying Fund.
The impact of the rules described above will depend on the relative sizes of,
and the losses and gains (both realized and unrealized) in, each Fund at the
time of the Reorganization and thus cannot be calculated precisely at this time.
As stated above, for five years beginning after the closing date, the combined
Fund will not be allowed to offset gains "built in" to either Fund at the time
of the Reorganization against capital losses (including capital loss
carryforwards) built in to the other Fund.
The realized and unrealized gains and losses of each Fund at the time of each
Reorganization will determine the extent to which the combining Funds'
respective losses, both realized and unrealized, will be available to reduce
gains realized by the combined Fund following the Reorganization, and
consequently the extent to which the combined Fund may be required to distribute
gains to its shareholders earlier than would have been the case absent the
Reorganization. The following paragraphs provide a brief
64 RIVERSOURCE FUNDS -- PROXY STATEMENT
summary of the tax impact of each Reorganization had it occurred on June 30,
2007. As noted above, the tax impact of the Reorganization depends on each
Fund's relative tax situations at the time of the Reorganization and cannot be
calculated precisely at this time.
Proposal 1; Reorganization of Core Bond Fund into Diversified Bond Fund. As of
June 30, 2007, Core Bond Fund and Diversified Bond Fund had net realized capital
losses (including capital loss carryforwards) of approximately $2.51 million
(1.03% of the Fund's net assets) and $143.18 million (4.68% of the Fund's net
assets), respectively. If the Reorganization had occurred on June 30, 2007, the
combined fund would have had gross losses equal to approximately 4.76% of its
net assets, and the loss-limitation rules would not have affected the funds'
ability to use their losses, and the losses of Diversified Bond Fund would
potentially have protected gains recognized by the combined fund.
Proposal 2; Reorganization of Fundamental Growth Fund into Growth Fund. As of
June 30, 2007, Fundamental Growth Fund and Growth Fund had net unrealized
built-in gains equal to 10.5% and 9.1% of net assets, respectively, and Growth
Fund had losses (including capital loss carryforwards) of approximately $344.8
million (10% of the Fund's net assets). If the Reorganization had occurred on
that date, it is possible that it would have permitted the shareholders of
Fundamental Growth Fund to spread some of the tax cost associated with those
unrealized gains to the other shareholders of the combined fund, and
shareholders of Fundamental Growth Fund might also have benefited from the use
of Growth Fund's losses to reduce or eliminate the tax cost associated with
Growth Fund's unrealized gains.
Proposal 3; Reorganization of International Equity Fund into Disciplined
International Equity Fund. As of June 30, 2007, International Equity Fund and
Disciplined International Equity Fund had net unrealized built-in gains of 13.6%
and 7.4% of net assets, respectively. Neither Fund had any capital loss
carryforwards to help offset its gains. If the Reorganization had occurred on
June 30, 2007, it is possible that it would have permitted the shareholders of
International Equity Fund to spread some of the tax cost of their Fund's
unrealized gains to the other shareholders of the combined Fund.
Proposals 4, 5 and 6; Reorganizations of each of Massachusetts Tax-Exempt Fund,
Michigan Tax-Exempt Fund and Ohio Tax-Exempt Fund into Tax-Exempt High Income
Fund. As of June 30, 2007 of the Selling Funds and Tax-Exempt High Income Fund,
only Massachusetts Tax-Exempt Fund had net realized capital losses (that is,
capital loss carryforwards, net of gains recognized year to date), and those
were extremely modest. Its losses (including capital loss carryforwards) were
$0.13 million (0.26% of the Fund's net assets). At that time, the Buying Fund,
which is considerably larger than any of the Selling Funds, had modest
unrealized ("built-in") capital gains. If any or all the Reorganizations of
these Funds into Tax-Exempt High Income Fund had occurred on June 30, 2007, the
combined fund would have been technically subject to the loss-limitation rules
described above, but those rules would not likely have prevented the use of such
losses; Tax-Exempt High Income Fund's built-in gains would potentially have
caused the shareholders of the Selling Fund in each case to receive
distributions somewhat earlier, and in higher amounts than they would have
absent the Reorganization.
Proposal 7; Reorganization of Value Fund into Diversified Equity Income Fund. As
of June 30, 2007, Value Fund and Diversified Equity Income Fund had net
unrealized built-in gains equal to 12.9% and 24.8% of net assets, respectively.
Neither Fund had any capital loss carryforwards to help offset its gains. If the
Reorganization had occurred on June 30, 2007, the combined fund's built-in gains
would have been substantially larger, both in absolute terms and as a percentage
of net assets, than those of Value Fund, and so it is possible that the
Reorganization would potentially have caused Value Fund shareholders to receive
distributions somewhat earlier, and in higher amounts, than they would have
absent the Reorganization.
The tax principles described above will remain true; their application and, at a
minimum, the specific percentages noted above will change prior to each
Reorganization, because of market developments, any pre-Reorganization
realignments (including, in the case of Fundamental Growth Fund, International
Equity Fund and Value Fund, realignments anticipated in connection with the
termination of the funds' subadvisers on or about Nov. 16, 2007) or other sales
of portfolio securities and shareholder activity in the Funds, among other
changes.
This description of the federal income tax consequences of the Reorganizations
does not take into account your particular facts and circumstances. Consult your
own tax adviser about the effect of state, local, foreign, and other tax laws.
REASONS FOR THE PROPOSED REORGANIZATIONS AND BOARD DELIBERATIONS
The Board believes that each proposed Reorganization will be advantageous to
Selling Fund shareholders based on its consideration of the following matters:
- - TERMS AND CONDITIONS OF THE REORGANIZATION. The Board considered the terms and
conditions of each Reorganization as described in the previous paragraphs.
- - TAX CONSEQUENCES. The Board considered the tax-free nature of each
Reorganization. The Board also considered the relative tax situations of each
Fund and the resulting tax impact of the Reorganization to Selling Fund
shareholders, and noted that the benefits of each Reorganization will outweigh
any resulting tax cost to shareholders. With respect to the proposed
Reorganizations of Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund and
Ohio Tax-Exempt Fund ("Single State
RIVERSOURCE FUNDS -- PROXY STATEMENT 65
Funds") into Tax-Exempt High Income Fund, the Board considered the impact on
shareholders of the Single State Funds of the expected taxability of
distributions from the Buying Fund for state and local tax purposes. In this
regard, the Board also considered the historic performance of the Funds and
noted that, even when taking into account the state and local taxes to which
shareholders of Tax-Exempt High Income Fund would be subject on distributions
from the Fund, the after-tax performance of Tax-Exempt High Income Fund was
higher than that of the Single State Funds (see "Performance and Other
Factors" below).
- - CONTINUITY OF INVESTMENT. The Board took into account the fact that,
currently, each Selling Fund and the corresponding Buying Fund have similar or
identical investment objectives and, except as noted below and as discussed in
more detail under each proposal, similar investment strategies. In particular,
for each Reorganization:
Core Bond Fund into Diversified Bond Fund: The Board noted that Diversified
Bond Fund's primary objective of providing shareholders with a high level of
current income, while conserving the value of the investment for the longest
period of time, is similar to that of Core Bond Fund, which is to provide
shareholders with a high total return through current income and capital
appreciation. The Board also noted that the Funds shared a common benchmark,
the Lehman Brothers Aggregate Bond Index.
Fundamental Growth Fund into Growth Fund: The Board considered that the Funds
shared a common investment objective of providing shareholders with long-term
capital growth. The Board also noted the similarity in investment strategies
(considering that, although both Funds had RiverSource Investments as an
investment adviser, Fundamental Growth Fund had been subadvised by GSAM and
Wellington Management). In this regard, the Board noted that both Funds shared
a common benchmark, the Russell 1000 Growth Index.
International Equity Fund into Disciplined International Equity Fund: The
Board considered that the Funds shared a common investment objective of
providing shareholders with long-term capital growth. The Board also noted the
similarity in investment strategies (considering that, although both Funds had
RiverSource Investments as an investment adviser, International Equity Fund
had been subadvised by The Boston Company and Marsico). In this regard, the
Board noted that both Funds shared a common benchmark, the MSCI EAFE Index.
Single State Funds into Tax-Exempt High Income Fund: The Board considered the
principal difference between the Funds, that unlike Tax-Exempt High Income
Fund, each Single State Fund, as its investment objective, seeks to generate
income that is exempt not only from federal income taxes but also state and
local taxes. The Board further considered that, whereas each of the Single
State Funds invest in securities exempt from a particular state or local tax,
the combined portfolio would continue to consist of municipal securities which
are generally exempt from federal tax, and that the holdings of each of the
Single State Funds are eligible holdings of Tax-Exempt High Income Fund. In
this regard, however, the Board noted that the Single State Funds continue to
be faced with a limited supply of investment opportunities in these states,
whereas, Tax-Exempt High Income Fund, as a national tax-exempt fund, has a
much broader investment universe from which to seek to generate high current
income.
Value Fund into Diversified Equity Income Fund: The Board considered that
Diversified Equity Income Fund had a primary objective of seeking a high level
of current income, whereas this was a secondary objective for Value Fund. In
this regard, the Board considered that, although both Funds had RiverSource
Investments as an investment adviser, Value Fund had been subadvised by Lord
Abbett, but observed that both Funds were managed against the same benchmark,
the Russell 1000(R) Value Index, and that a substantial portion of Value
Fund's holdings pay a dividend and thus are eligible holdings for Diversified
Equity Income Fund.
- - EXPENSE RATIOS. The Board considered the relative expenses of the Funds.
Specifically, the Board considered that, as of the end of each Fund's most
recent fiscal year, the net expense ratios for each Selling Fund's Class A
shares (before giving effect to any applicable performance incentive
adjustment and excluding interest and fee expenses related to participation in
certain inverse floater programs) were higher than or equal to the pro forma
expense ratios for the corresponding Buying Fund's Class A shares (adjusted to
reflect current fees, before giving effect to any applicable performance
incentive adjustment and excluding interest and fee expenses related to
participation in certain inverse floater programs). The Board also evaluated
the anticipated expense ratio impacts to each Funds' other share classes. In
particular, for each Reorganization (unless otherwise specified, discussion of
expense ratio impacts are with respect to a Fund's Class A shares):
Core Bond Fund into Diversified Bond Fund: The Board considered that, based on
current commitments of the investment manager and its affiliates to waive fees
and cap expenses, net expense ratios for Class A shares, Class B shares, Class
C shares, Class R4 and Class W shares of Core Bond Fund would remain the same
or fall slightly after the Reorganization. Although modest increases in
expense ratios for Class R2 shares, Class R3 shares and Class R5 shares of
Core Bond Fund are expected as a result of the Reorganization, the Board
observed that there are no current public shareholders that own such share
classes. With respect to Class I shares, the Board considered that the only
shareholders are affiliated funds-of-funds, and although the expense ratio of
Class I shares is expected to increase modestly as a result of the
Reorganization, and such
66 RIVERSOURCE FUNDS -- PROXY STATEMENT
increase will contribute to a modest increase in the overall underlying
expenses realized by the funds-of-funds investing in the Fund, such increases
would not be material to the overall expense ratios for the funds-of-funds.
The Board also considered that, based on current commitments of the investment
manager and its affiliates to waive fees and cap expenses, similar impacts are
expected for Diversified Bond Fund, specifically, that in share classes where
there are public shareholders, expense ratios would remain the same or fall
slightly, in share classes where there are no public shareholders, expense
ratios may increase modestly, but that in Class I shares, expense ratios are
expected to remain the same (approximately 0.53%).
Fundamental Growth Fund into Growth Fund: The Board considered that Growth
Fund is not currently subject to any commitment by the investment manager and
its affiliates to waive fees or cap expenses, and although the investment
manager and its affiliates have agreed to waive fees and cap expenses on
Fundamental Growth Fund to 1.42%, Fundamental Growth Fund's total expense
ratio (before giving effect to any performance incentive adjustment) was
1.41%. The Board observed that total expenses (before giving effect to any
applicable performance incentive adjustment) of Fundamental Growth Fund would
decline significantly (approximately 0.31%) as a result of the Reorganization,
while total expenses of Growth Fund would remain the same or fall slightly.
International Equity Fund into Disciplined International Equity Fund: The
Board considered that the expenses of International Equity Fund (before giving
effect to any applicable performance incentive adjustment) would decline
significantly (approximately 0.13%) on a gross or total expense basis and
(approximately 0.10%) on a net basis (based on current commitments of the
investment manager and its affiliates to waive fees and cap expenses, and on
new commitments scheduled to go effective on Nov. 1, 2007), as a result of the
Reorganization. The Board also considered that, based on current commitments
of the investment manager and its affiliates, the expenses of Disciplined
International Equity Fund would remain the same or fall slightly as a result
of the Reorganization, but noted that, under new commitments scheduled to go
effective on Nov. 1, 2007 (unrelated to and irrespective of the
Reorganization), Class R4 shares would experience a modest increase in
expenses.
Single State Funds into Tax-Exempt High Income Fund: The Board considered
that, based both on current commitments of the investment manager and its
affiliates to waive fees and cap expenses, and on new commitments to waive
fees and cap expenses scheduled to go effective on Dec. 1, 2007 (excluding
interest and fee expenses associated with the Funds' participation in inverse
floater programs), total expenses on a net basis would be the same for each
Single State Fund (equal to 0.79%) both prior to and following these
Reorganizations. The Board also considered that investment in inverse floater
programs by each Fund will vary, and that, for the most recent fiscal year,
each of the Single State Funds include in its expense ratio between 0.02% and
0.04% of expenses related to participation in inverse floater programs,
whereas Tax-Exempt High Income Fund included 0.26% of such expenses. The Board
recognized that, when a fund participates in an inverse floater program, the
fee and interest expenses associated with participation in inverse floater
programs are typically offset by incremental interest income earned through
such programs. In this regard, the Board considered that, excluding these
inverse floater program expenses, total expenses of the Single State Funds,
which range from 1.02% to 1.06%, would decline significantly to approximately
0.83%.
Value Fund into Diversified Equity Income Fund: The Board considered that
total expenses (before giving effect to any applicable performance incentive
adjustment) of Value Fund would decline significantly (approximately 0.37% on
a gross or total expense basis and approximately 0.20% on a net basis (based
on current commitments of the investment manager and its affiliates to waive
fees and cap expenses)) as a result of the Reorganization, while total
expenses of Diversified Equity Income Fund would remain the same or fall
slightly.
- - ECONOMIES OF SCALE. The Board observed that by combining the Funds, in
addition to potential immediate economies of scale of a larger fund, the
combined Fund would be able take advantage of other economies of scale
associated with a larger fund. For example, a larger fund may realize
breakpoints more quickly and it should have an enhanced ability to effect
portfolio transactions on more favorable terms and should have greater
investment flexibility. Furthermore, the Board also considered that higher
aggregate net assets resulting from each Reorganization and the opportunity
for net cash inflows (or reduced outflows) may reduce the risk that, if net
assets of the Selling Fund fail to grow, or diminish, its total expense ratio
could rise from current levels as fixed expenses, such as audit expenses and
accounting expenses that are charged on a per Fund basis, become a larger
percentage of net assets.
- - COSTS. The Board considered the fact that the investment manager and its
affiliates have agreed to bear all solicitation expenses in order to achieve
shareholder approval of the Reorganization and to bear any other costs of
effecting each Reorganization (other than any brokerage or other transaction
costs associated with the sale or purchase of portfolio securities in
connection with the Reorganization).
- - DILUTION. The Board considered the fact that the Reorganization will not
dilute the interests of the current shareholders because it would be effected
on the basis of the relative net asset value per share of the Selling Fund and
Buying Fund, respectively. Thus, for example, a Class A shareholder of a
Selling Fund will receive Class A shares of the corresponding Buying Fund
equal in value to his or her Class A shares in the Selling Fund at the time of
the Reorganization.
RIVERSOURCE FUNDS -- PROXY STATEMENT 67
- - PERFORMANCE AND OTHER FACTORS. The Board considered the relative performance
records of each of the Funds, noting, however, that past performance is no
guarantee of future results. The Board also considered the fact that the
Reorganizations should allow for a more concentrated selling effort by the
Funds' underwriter, thereby potentially benefiting each of the Funds, and that
reduced outflows or increased inflows could help the Selling Fund shareholders
achieve further economies of scale (see "Economies of Scale" above). The Board
further took into account the investment manager's belief that each Selling
Fund, as a stand-alone fund, was unlikely to experience any growth in assets
from investor inflows in the near term. In particular, for each
Reorganization, the Board observed:
Core Bond Fund into Diversified Bond Fund: The Board noted that, on an
absolute basis, the performance of Diversified Bond Fund was substantially
stronger than the performance of Core Bond Fund. The Board noted the weak
asset level of Core Bond Fund and its relatively weak prospects for asset
growth, particularly compared to Diversified Bond Fund. The Board accorded
particular weight to the fact that Diversified Bond Fund had substantially
greater assets than Core Bond Fund, noting that Diversified Bond Fund was more
than 10 times the size of Core Bond Fund.
Fundamental Growth Fund into Growth Fund: The Board noted that Growth Fund's
performance was substantially stronger than that of Fundamental Growth Fund
for both the one and three year periods (both on an absolute basis and when
compared to their respective peer groups). The Board also noted Fundamental
Growth Fund's small asset size and its relatively weak prospects for asset
growth, particularly compared to Growth Fund. The Board accorded particular
weight to the fact that Growth Fund was more than 10 times the size of
Fundamental Growth Fund.
International Equity Fund into Disciplined International Equity Fund: The
Board noted that although Disciplined International Equity Fund has a shorter
period of operations than International Equity Fund, its performance during
this brief period has been strong and significantly better than that of
International Equity Fund for the same period. The Board also noted that,
notwithstanding its short period of operations, Disciplined International
Equity Fund has garnered more assets relative to International Equity Fund.
Single State Funds into Tax-Exempt High Income Fund: The Board noted that
Tax-Exempt High Income Fund's performance was stronger than the performance
for each of the Single State Funds for both the one and three year periods
(both on an absolute basis and when compared to their respective peer groups).
The Board also observed that Tax-Exempt High Income Fund's performance was
stronger than that of the Single State Funds even when taking into account
state and local taxes (i.e., of each relevant state covered by the Single
State Funds) to which shareholders of Tax-Exempt High Income Fund would be
subject. In this regard, it was noted that Tax-Exempt High Income Fund's
relatively strong performance, when compared to the performance of the Single
State Funds, may reflect the benefits of having access to a broader investment
universe. The Board further observed that due to the relatively small asset
size of each Single State Fund (each has less than $60 million of assets), the
continued strength and viability of the single-state products were
questionable and that, in this regard, Tax-Exempt High Income Fund had grown
to more than 15 times the size of the largest of the Single State Funds.
Value Fund into Diversified Equity Income Fund: The Board noted that
Diversified Equity Income Fund's performance was substantially stronger than
that of Value Fund (both on an absolute basis and compared to their respective
peer groups). The Board also discussed Value Fund's small asset level and its
relatively weak prospects for asset growth, particularly compared to
Diversified Equity Income Fund. The Board accorded particular weight to the
fact that Diversified Equity Income Fund was almost 20 times the size of Value
Fund.
- - POTENTIAL BENEFITS TO THE INVESTMENT MANAGER AND ITS AFFILIATES. The Board
considered the potential benefits from the Reorganization that could be
realized by the investment manager and its affiliates. For Funds that are
currently sub-advised, the Board recognized that potential benefits to the
investment manager consist principally of the savings associated with the
elimination of the expense of paying the subadviser(s) and, for all Funds, the
elimination of expenses incurred in duplicative efforts to administer separate
Funds. The Board also noted, however, that shareholders of the Selling Fund
are expected to benefit over time from any decrease in overall operating
expense ratios resulting from the proposed Reorganization.
BOARDS' DETERMINATIONS
After considering the factors described above and other relevant information, at
meetings held on July 10-12, 2007, Sept. 10-11, 2007, [and Nov. 7-8, 2007] each
Selling Fund Board, including a majority of the independent Board members, found
that participation in the Reorganization is in the best interests of the Selling
Fund and that the interests of existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
The Board of Directors of each Buying Fund approved the Agreement at a meeting
held on Sept. 10-11, 2007. Among other factors, the Board members considered the
terms of the Agreement, the provisions intended to avoid the dilution of
shareholder interests and the anticipated tax consequences of the
Reorganization. The Board found that participation in each Reorganization is in
the best interests of the Buying Fund and that the interests of existing
shareholders of the Buying Fund will not be diluted as a result of the
Reorganization.
68 RIVERSOURCE FUNDS -- PROXY STATEMENT
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that shareholders approve the proposed Agreement. The
Agreement must be approved by a majority of the voting power of all shares
entitled to vote. If the Agreement is not approved, the Board will consider what
further action should be taken.
If shareholders approve the Reorganization, it will take place shortly after the
shareholder meeting, currently anticipated for the first quarter of 2008.
RIVERSOURCE FUNDS -- PROXY STATEMENT 69
SECTION B -- PROPOSAL FOR MINNESOTA TAX-EXEMPT FUND
PROPOSAL 8. APPROVE OR REJECT CHANGE OF INVESTMENT COMPANY CLASSIFICATION TO
"NON-DIVERSIFIED" FOR MINNESOTA TAX-EXEMPT FUND
Reference to the "Fund" in this proposal is a reference to Minnesota Tax-Exempt
Fund.
The Board has approved, and recommends that shareholders approve, a proposal to
change the classification of the Fund from a "diversified" fund to a
"non-diversified" fund, as such terms are defined under the Investment Company
Act of 1940, as amended.
FUND CLASSIFICATION. The Fund is currently classified as a diversified fund
under the 1940 Act. This means that the Fund may not, with respect to 75% of its
total assets, invest more than 5% of its total assets in any one issuer or
purchase more than 10% of the outstanding voting securities of any one issuer.
With respect to the remaining 25% of the Fund's total assets, there is no
limitation on the amount of assets the Fund may invest in any one issuer.
Section 13(a)(1) of the 1940 Act and Rule 13a-1 thereunder generally provide
that if a non-diversified fund actually operates as if it were a diversified
fund for a period of three years, its classification under the 1940 Act will
convert automatically from non-diversified to diversified. The Fund's current
classification as a diversified fund resulted from its operating as a
diversified fund for more than three years. The Fund is seeking shareholder
approval to restore its non-diversified classification because its investment
manager believes that the Fund will benefit from the additional investment
flexibility of investing in a smaller number of issuers, and because a
diversified fund may convert to non-diversified status only with shareholder
approval.
The Fund is also subject to certain additional diversification requirements
under the Internal Revenue Code of 1986, as amended (the "Code"). With respect
to 50% of the Fund's total assets, the Fund may not invest more than 5% of its
total assets in any one issuer and may not purchase more than 10% of the
outstanding voting securities of any one issuer. With respect to the remaining
50% of the Fund's total assets, the Fund may not invest more than 25% of its
assets in any one issuer. If this proposal is approved, the Fund will continue
to be subject to the Code's diversification requirements with respect to
regulated investment companies.
REASONING AND POTENTIAL RISK. The Fund's investment manager is seeking to regain
the flexibility to invest more of the Fund's assets in a small number of
issuers. The Fund's investment manager believes this flexibility will allow the
Fund to better pursue its investment objective of providing shareholders with a
high level of income generally exempt from federal income tax, as well as from
Minnesota state and local tax. Even if this proposal is approved, the Fund's
investment manager may or may not operate the Fund as non-diversified, depending
on its assessment of the investment opportunities available to the Fund from
time to time. (Of course, pursuant to Rule 13a-1, should the Fund operate as a
"diversified" fund for a period of three years, it would revert to its
diversified status).
A non-diversified Fund is subject to greater risk. The Fund may invest more of
its assets in fewer issuers than if it were a diversified fund. Because each
investment may have 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.
BOARD RECOMMENDATION AND VOTE REQUIRED. The Board recommends that you vote to
approve to change the classification of the Fund to non-diversified. Approval of
the proposed change requires the favorable vote of the lesser of (a) a majority
of the Fund's outstanding voting securities or (b) 67% or more of the voting
securities present at the meeting, so long as more than 50% of the outstanding
voting securities are present. If shareholders approve the proposed change, it
will take effect shortly after the shareholder meeting. If the proposed change
is not approved, the Fund will continue to operate as a diversified fund.
70 RIVERSOURCE FUNDS -- PROXY STATEMENT
SECTION C -- PROXY VOTING AND SHAREHOLDER MEETING INFORMATION
Reference to the "Fund" in this section is a reference to each Selling Fund and
Minnesota Tax-Exempt Fund.
VOTING. You are entitled to vote based on your total dollar interest in the
Fund. Each dollar is entitled to one vote. For those of you who cannot come to
the meeting, the Board is asking permission to vote for you. The shares will be
voted as you instruct either by mail, telephone or internet. Signed proxy cards
returned without instructions will be voted in favor of all proposals of Fund(s)
for which you own shares.
All votes count toward a quorum, regardless of how they are voted (For, Against
or Abstain). Broker non-votes will be counted toward a quorum but not toward the
approval of any proposals. (Broker non-votes are shares for which the underlying
owner has not voted and the broker holding the shares does not have authority to
vote.)
If your shares are held in an IRA account with Ameriprise Trust Company as
custodian, you have the right to instruct the IRA Custodian how to vote those
shares. The IRA Custodian will vote any shares for which it has not received
voting instructions in proportionately the same manner -- either For, Against,
or Abstain -- as other Fund shareholders have voted.
REVOKING YOUR PROXY. If you change your mind after you vote and you can attend
the meeting, simply inform the Secretary at the meeting that you will be voting
your shares in person. Also, if you change your mind after you vote, but cannot
attend the meeting, you may change your vote or revoke it by mail, telephone or
internet.
SIMULTANEOUS MEETINGS. The meeting will be held simultaneously with meetings of
other RiverSource mutual funds. Each proposal will be voted on separately by
shareholders of a Fund. If any shareholder objects to the holding of
simultaneous meetings, the shareholder may move for an adjournment of his or her
Fund's meeting to a time immediately after the simultaneous meetings so that a
meeting of that Fund may be held separately. If a shareholder makes this motion,
the persons named as proxies will take into consideration the reasons for the
objection in deciding whether to vote in favor of the adjournment.
SOLICITATION OF PROXIES. The Board is asking for your vote and for you to vote
as promptly as possible. The investment manager will pay the expenses of the
solicitation. Supplementary solicitations may be made by mail, telephone,
electronic means or personal contact.
SHAREHOLDER PROPOSALS. No proposals were received from shareholders. RiverSource
Funds are not required to hold regular meetings of shareholders each year.
However, meetings of shareholders are held from time to time and proposals of
shareholders that are intended to be presented at future shareholder meetings
must be submitted in writing to RiverSource Funds in reasonable time prior to
the solicitation of proxies for the meeting.
DISSENTERS' RIGHT OF APPRAISAL. Under Sections 302A.471 and 302A.473 of the
Minnesota Business Corporation Act, Selling Fund shareholders (except Michigan
Tax-Exempt Fund, Ohio Tax-Exempt Fund and Michigan Tax-Exempt Fund, which are
organized as Massachusetts business trusts) are entitled to assert dissenters'
rights in connection with the Reorganization and obtain payment of the "fair
value" of their shares, provided that they comply with the requirements of
Minnesota law. A copy of the relevant provisions is attached as Exhibit B.
Notwithstanding the provisions of Minnesota law, the SEC has taken the position
that use of state appraisal procedures by a mutual fund would be a violation of
Rule 22c-1, the forward pricing rule, under the 1940 Act. This rule states that
no mutual fund may redeem its shares other than at net asset value next computed
after receipt of a request for redemption. It is the SEC's position that Rule
22c-1 supersedes appraisal provisions in state statutes.
In the interest of ensuring equal valuation for all shareholders, dissenters'
rights will be determined in accordance with the SEC's interpretation. As a
result, if any shareholder elects to exercise dissenters' rights under Minnesota
law, the Selling Fund intends to submit this question to a court of competent
jurisdiction. In that event, a dissenting shareholder would not receive any
payment until the end of the court proceeding.
OTHER BUSINESS. The Board does not know at this time of any other business to
come before the meetings. If something does come up, the proxies will use their
best judgment to vote for you on the matter.
ADJOURNMENT. In the event that not enough votes are received by the time
scheduled for the meeting, the persons named as proxies may move for one or more
adjournments of the meeting for a period of not more than 120 days in the
aggregate to allow further solicitation of shareholders on the proposals. Any
adjournment requires the affirmative vote of a majority of the voting power of
the shares present at the meeting. The persons named as proxies will vote in
favor of adjournment those shares they are entitled to vote that have voted in
favor of the proposal. They will vote against any adjournment those shares that
have voted against the proposal. The investment manager will pay the costs of
any additional solicitation and of any adjourned meeting. A shareholder vote may
be taken on one or more of the items in this proxy statement prior to
adjournment if sufficient votes have been received.
RIVERSOURCE FUNDS -- PROXY STATEMENT 71
SECTION D -- CAPITALIZATION, OWNERSHIP OF FUND SHARES AND FINANCIAL HIGHLIGHTS
This section contains the following information about the Funds:
<Table>
<Caption>
TABLE CONTENT
(all information is shown for the last fiscal year unless
noted otherwise)
Actual and pro forma capitalization of each Selling Fund and
D-1 each Buying Fund
Actual and pro forma ownership of Selling Fund and Buying
D-2 Fund shares
D-3 Capitalization and ownership of Minnesota Tax-Exempt Fund
D-4 Financial Highlights of each Buying Fund
</Table>
THE FUND'S INVESTMENT MANAGER AND DISTRIBUTOR. RiverSource Investments is the
investment manager for each fund. RiverSource Distributors, Inc., a wholly owned
subsidiary of Ameriprise Financial, is the distributor for the funds. The
address for RiverSource Investments and RiverSource Distributors is 200
Ameriprise Financial Center, Minneapolis, MN 55474.
CAPITALIZATION OF SELLING FUNDS AND BUYING FUNDS
The following table shows the capitalization of the Funds as of Sept. 30, 2007
and on a pro forma basis, assuming the proposed Reorganization had taken place.
TABLE D-1. ACTUAL AND PRO FORMA CAPITALIZATION OF EACH SELLING FUND AND EACH
BUYING FUND
<Table>
<Caption>
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
CORE BOND FUND (SELLING FUND)
Class A $ 42,708,879 $ 9.58 4,460,032
Class B 10,869,457 9.58 1,134,347
Class C 836,113 9.59 87,231
Class I 274,336,374 9.57 28,680,524
Class R2 4,964 9.58 518
Class R3 4,964 9.58 518
Class R4 9,576 9.57 1,000
Class R5 4,964 9.58 518
Class W 4,941 9.57 516
DIVERSIFIED BOND FUND (ACTUAL) (BUYING FUND)
Class A $1,948,219,755 $ 4.84 402,607,422
Class B 304,200,631 4.84 62,868,798
Class C 17,227,253 4.84 3,559,322
Class I 392,127,542 4.85 80,928,718
Class R2 5,022 4.83 1,040
Class R3 5,022 4.83 1,040
Class R4 77,569,937 4.83 16,051,007
Class R5 5,023 4.83 1,040
Class W 260,597,795 4.84 53,834,982
DIVERSIFIED BOND FUND (PRO FORMA COMBINED)
Class A $1,990,928,634 $ 4.84 411,431,571
Class B 315,070,088 4.84 65,114,554
Class C 18,063,366 4.84 3,732,073
Class I 666,463,916 4.85 137,492,919
Class R2 9,986 4.83 2,068
Class R3 9,986 4.83 2,068
Class R4 77,579,513 4.83 16,052,990
Class R5 9,987 4.83 2,068
Class W 260,602,736 4.84 53,836,003
</Table>
72 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
FUNDAMENTAL GROWTH FUND (SELLING FUND)
Class A $ 19,560,822 $ 7.25 2,696,272
Class B 5,104,382 7.00 729,158
Class C 829,186 7.01 118,287
Class I 192,605,990 7.37 26,127,981
Class R4 50,123 7.33 6,840
GROWTH FUND (ACTUAL) (BUYING FUND)
Class A $2,464,860,973 $34.49 71,463,417
Class B 379,772,808 31.36 12,111,368
Class C 21,185,694 31.33 676,134
Class I 316,923,720 35.37 8,959,939
Class R4 150,624,163 35.14 4,286,189
GROWTH FUND (PRO FORMA COMBINED)
Class A $2,484,421,795 $34.49 72,030,562
Class B 384,877,190 31.36 12,274,135
Class C 22,014,880 31.33 702,600
Class I 509,529,710 35.37 14,405,401
Class R4 150,674,286 35.14 4,287,615
INTERNATIONAL EQUITY FUND (SELLING FUND)
Class A $ 106,806,505 $ 8.52 12,529,871
Class B 22,818,683 8.38 2,723,649
Class C 1,807,796 8.38 215,757
Class I 77,955,698 8.57 9,093,112
Class R4 137,212 8.53 16,093
DISCIPLINED INTERNATIONAL EQUITY FUND (ACTUAL) (BUYING FUND)
Class A $ 19,839,939 $12.33 1,609,317
Class B 2,532,930 12.21 207,465
Class C 377,032 12.21 30,879
Class I 186,292,184 12.37 15,062,828
Class R4 64,000 12.34 5,187
DISCIPLINED INTERNATIONAL EQUITY FUND (PRO FORMA COMBINED)
Class A $ 126,646,444 $12.33 10,271,645
Class B 25,351,613 12.21 2,076,317
Class C 2,184,828 12.21 178,938
Class I 264,247,882 12.37 21,364,825
Class R4 201,212 12.34 16,306
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND)
Class A $ 40,623,765 $ 5.27 7,712,751
Class B 5,738,114 5.27 1,089,492
Class C 567,447 5.26 107,789
MICHIGAN TAX-EXEMPT FUND (SELLING FUND)
Class A $ 37,385,393 $ 5.21 7,177,184
Class B 1,232,293 5.21 236,449
Class C 1,016,118 5.21 195,052
OHIO TAX-EXEMPT FUND (SELLING FUND)
Class A $ 38,038,296 $ 5.21 7,301,879
Class B 3,184,066 5.21 611,028
Class C 963,105 5.21 184,802
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 73
<Table>
<Caption>
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
TAX-EXEMPT HIGH INCOME FUND (ACTUAL) (BUYING FUND)
Class A $2,658,677,627 $ 4.32 615,646,120
Class B 83,083,815 4.32 19,243,741
Class C 14,391,682 4.32 3,331,223
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MASSACHUSETTS TAX-EXEMPT FUND IS
CONSUMMATED)
Class A $2,699,301,392 $ 4.32 625,049,769
Class B 88,821,929 4.32 20,572,008
Class C 14,959,129 4.32 3,462,576
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE MICHIGAN TAX-EXEMPT FUND IS
CONSUMMATED)
Class A $2,696,063,020 $ 4.32 624,300,146
Class B 84,316,108 4.32 19,528,994
Class C 15,407,800 4.32 3,566,436
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY THE OHIO TAX-EXEMPT FUND IS
CONSUMMATED)
Class A $2,696,715,923 $ 4.32 624,451,281
Class B 86,267,881 4.32 19,980,793
Class C 15,354,787 4.32 3,554,164
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
MICHIGAN TAX-EXEMPT FUND IS CONSUMMATED)
Class A $2,736,686,785 $ 4.32 633,703,795
Class B 90,054,222 4.32 20,857,261
Class C 15,975,247 4.32 3,697,789
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MASSACHUSETTS TAX-EXEMPT FUND AND
OHIO TAX-EXEMPT FUND IS CONSUMMATED)
Class A $2,737,339,688 $ 4.32 633,854,930
Class B 92,005,995 4.32 21,309,060
Class C 15,922,234 4.32 3,685,517
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF ONLY MICHIGAN TAX-EXEMPT FUND AND OHIO
TAX-EXEMPT FUND IS CONSUMMATED)
Class A $2,734,101,316 $ 4.32 633,105,307
Class B 87,500,174 4.32 20,266,046
Class C 16,370,905 4.32 3,789,376
TAX-EXEMPT HIGH INCOME FUND (PRO FORMA COMBINED, ASSUMING
REORGANIZATION OF MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN
TAX-EXEMPT FUND AND OHIO TAX-EXEMPT FUND IS CONSUMMATED)
Class A $2,774,725,081 $ 4.32 642,508,957
Class B 93,238,288 4.32 21,594,313
Class C 16,938,352 4.32 3,920,730
VALUE FUND (SELLING FUND)
Class A $ 203,699,510 $ 5.76 35,386,466
Class B 74,233,086 5.58 13,296,778
Class C 6,338,062 5.60 1,132,318
Class I 48,528,679 5.81 8,351,589
Class R4 131,849 5.79 22,784
DIVERSIFIED EQUITY INCOME FUND (ACTUAL) (BUYING FUND)
Class A $6,501,945,416 $14.34 453,437,507
Class B 1,113,738,286 14.35 77,596,413
Class C 112,932,408 14.32 7,884,852
Class I 131,789,264 14.33 9,195,636
Class R4 209,845,096 14.35 14,620,839
</Table>
74 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
DIVERSIFIED EQUITY INCOME FUND (PRO FORMA COMBINED)
Class A $6,705,644,926 $14.34 467,642,494
Class B 1,187,971,372 14.35 82,769,450
Class C 119,270,470 14.32 8,327,454
Class I 180,317,943 14.33 12,582,145
Class R4 209,976,945 14.35 14,630,027
</Table>
OWNERSHIP OF SELLING FUND AND BUYING FUND SHARES
The following table provides information on shareholders who owned more than 5%
of each Fund's outstanding shares as of Aug. 31, 2007. As of Aug. 31, 2007,
officers and directors of the Fund as a group owned less than 1% of the
outstanding shares of the Fund.
TABLE D-2. ACTUAL AND PRO FORMA OWNERSHIP OF SELLING FUND AND BUYING FUND SHARES
<Table>
<Caption>
PERCENT OF
PERCENT SHARES HELD
OF SHARES FOLLOWING THE
FUND 5% OWNERS HELD REORGANIZATION
CORE BOND FUND (SELLING FUND)
Class A Charles Schwab & Co., Inc. (Charles Schwab), a brokerage
firm in San Francisco, CA 12.77% N/A
Class B None N/A N/A
Class C Frank S. Gregory, Derry, NH 6.27% N/A
Class I Portfolio Builder Aggressive Fund* 9.25% N/A
Portfolio Builder Conservative Fund* 10.53% N/A
Portfolio Builder Moderate Fund* 39.61% N/A
Portfolio Builder Moderate Aggressive Fund* 26.12% N/A
Portfolio Builder Moderate Conservative Fund* 14.49% N/A
Class R2 Ameriprise Financial Inc. (Ameriprise Financial)*,
Minneapolis, MN 100.00% N/A
Class R3 Ameriprise Financial* 100.00% N/A
Class R4 RiverSource Life Insurance Company*, Minneapolis, MN 99.96% N/A
Class R5 Ameriprise Financial* 100.00% N/A
Class W Ameriprise Financial* 100.00% N/A
DIVERSIFIED BOND FUND (BUYING FUND)
Class A Charles Schwab 6.86% 6.98%
Class B None N/A N/A
Class C Frank S. Gregory, Derry, NH N/A **
Class I Income Builder Moderate Income Fund* 7.23% 4.25%
Portfolio Builder Aggressive Fund* 8.34% 8.71%
Portfolio Builder Conservative Fund* N/A 4.34%
Portfolio Builder Moderate Fund* 38.17% 38.77%
Portfolio Builder Moderate Aggressive Fund* 28.89% 27.75%
Portfolio Builder Moderate Conservative Fund* 10.14% 11.94%
Class R2 Ameriprise Financial* 100.00% 100.00%
Class R3 Ameriprise Financial* 100.00% 100.00%
Class R4 RiverSource Life Insurance Company* N/A **
Wachovia Bank NA (Wachovia Bank), Charlotte, NC 93.56% 93.54%
GWFS Equities Inc., Greenwood Village, CO 5.10% 5.10%
Class R5 Ameriprise Financial* 100.00% 100.00%
Class W American Enterprise Investment Services Inc., Minneapolis,
MN 99.99% 97.81%
Ameriprise Financial* N/A **
</Table>
* The combination of Ameriprise Financial and affiliated company (Ameriprise
Financial) initial capital investment in Core Bond Fund (seed accounts),
and affiliated funds-of-funds, including RiverSource Income Builder Funds
and RiverSource Portfolio Builder Funds (funds-of-funds), investment in
Class I shares of Core Bond Fund, represents aggregate ownership of 83.63%
of the Fund. Ameriprise Financial and RiverSource Investments (in its
capacity as investment manager of the funds-of-funds), do not invest in the
Fund for the purposes of exercising control. However, since these ownership
interests may be significant, in excess of 25% of the Fund, such that these
entities may be deemed to control the Fund, procedures have been put in
place to assure that public shareholders determine the outcome of all
actions taken at shareholder meetings.
RIVERSOURCE FUNDS -- PROXY STATEMENT 75
Specifically, RiverSource Investments (which votes proxies for the seed
accounts), and the funds-of-funds' Boards of Directors (which votes proxies
for the funds-of-funds) vote on each proposal in the same proportion that
other shareholders vote on the proposal. If the Reorganization is approved,
Ameriprise Financial and the funds-of-funds will own less than 25% of
Diversified Bond Fund.
** Less than 1%
<Table>
<Caption>
PERCENT OF
PERCENT SHARES HELD
OF SHARES FOLLOWING THE
FUND 5% OWNERS HELD REORGANIZATION
FUNDAMENTAL GROWTH FUND (SELLING FUND)
Class A Charles Schwab 5.71% N/A
Class B None N/A N/A
Class C Taylor Ambe-Crain Partnership, Westlake Village, CA 25.40% N/A
Class I Portfolio Builder Aggressive Fund* 19.72% N/A
Portfolio Builder Moderate Fund* 19.98% N/A
Portfolio Builder Moderate Aggressive Fund* 31.77% N/A
Portfolio Builder Moderate Conservative Fund* 5.09% N/A
Portfolio Builder Total Equity Fund* 22.18% N/A
Class R4 Ameriprise Financial* 29.25% N/A
Charles Schwab 70.73% N/A
GROWTH FUND (BUYING FUND)
Class A Charles Schwab 9.00% 8.97%
Class B None N/A N/A
Class C Taylor Ambe-Crain Partnership, Westlake Village, CA N/A **
Class I Portfolio Builder Aggressive Fund* 19.72% 19.72%
Portfolio Builder Moderate Fund* 19.97% 19.98%
Portfolio Builder Moderate Aggressive Fund* 31.81% 31.80%
Portfolio Builder Moderate Conservative Fund* 5.09% 5.09%
Portfolio Builder Total Equity Fund* 22.16% 22.17%
Class R4 Ameriprise Financial* N/A **
Ameriprise Trust Company*, Minneapolis, MN 43.02% 43.02%
Charles Schwab N/A **
New York Life Trust Company, Parsippany, NY 5.67% 5.67%
Wachovia Bank 47.89% 47.87%
</Table>
* The combination of Ameriprise Financial and affiliated company (Ameriprise
Financial) initial capital investment in Fundamental Growth Fund (seed
accounts), and affiliated funds-of-funds, including RiverSource Portfolio
Builder Funds (funds-of-funds), investment in Class I shares of Fundamental
Growth Fund, represents aggregate ownership of 88.18% of the Fund.
Ameriprise Financial and RiverSource Investments (in its capacity as
investment manager of the funds-of-funds), do not invest in the Fund for
the purposes of exercising control. However, since these ownership
interests may be significant, in excess of 25% of the Fund, such that these
entities may be deemed to control the Fund, procedures have been put in
place to assure that public shareholders determine the outcome of all
actions taken at shareholder meetings. Specifically, RiverSource
Investments (which votes proxies for the seed accounts), and the
funds-of-funds' Boards of Directors (which votes proxies for the
funds-of-funds) vote on each proposal in the same proportion that other
shareholders vote on the proposal. If the Reorganization is approved,
Ameriprise Financial and the funds-of-funds will own less than 25% of
Growth Fund.
** Less than 1%
76 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
PERCENT OF
PERCENT SHARES HELD
OF SHARES FOLLOWING THE
FUND 5% OWNERS HELD REORGANIZATION
INTERNATIONAL EQUITY FUND (SELLING FUND)
Class A Charles Schwab 11.31% N/A
Class B None N/A N/A
Class C Daniel and Linda L. Miklovic, St. Louis, MO 6.36% N/A
Class I Portfolio Builder Aggressive Fund* 19.67% N/A
Portfolio Builder Moderate Fund* 20.01% N/A
Portfolio Builder Moderate Aggressive Fund* 31.74% N/A
Portfolio Builder Moderate Conservative Fund* 5.09% N/A
Portfolio Builder Total Equity Fund* 22.13% N/A
Class R4 Ameriprise Financial* 12.43% N/A
Charles Schwab 87.57% N/A
DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND)
Class A Charles Schwab 21.33% 12.77%
Class B None N/A N/A
Class C Chester L. and Jewel Carter, Sacramento, CA 6.98% 1.09%
Daniel and Linda L. Miklovic, St. Louis, MO N/A 5.36%
Linda A. O'Donnel, West Chester, OH 7.03% 1.10%
Class I Income Builder Basic Income Fund* 6.71% 4.70%
Income Builder Enhanced Income Fund* 14.33% 10.06%
Income Builder Moderate Income Fund* 12.86% 9.01%
Portfolio Builder Aggressive Fund* 8.23% 11.65%
Portfolio Builder Moderate Fund* 8.37% 11.85%
Portfolio Builder Moderate Aggressive Fund* 13.28% 18.80%
Portfolio Builder Moderate Conservative Fund* N/A 1.52%
Portfolio Builder Total Equity Fund* 9.26% 13.11%
Class R4 Ameriprise Financial* 19.28% 14.60%
Charles Schwab 80.72% 85.38%
</Table>
* The combination of Ameriprise Financial and affiliated company (Ameriprise
Financial) initial capital investment in International Equity Fund and
Disciplined International Equity Fund (seed accounts), and affiliated
funds-of-funds, including RiverSource Income Builder Funds and RiverSource
Portfolio Builder Funds (funds-of-funds), investment in Class I shares of
International Equity Fund and Disciplined International Equity Fund,
represents aggregate ownership of 36.62% and 35.22% of the Funds,
respectively. Ameriprise Financial and RiverSource Investments (in its
capacity as investment manager of the funds-of-funds), do not invest in the
Fund for the purposes of exercising control. However, since these ownership
interests may be significant, in excess of 25% of the Fund, such that these
entities may be deemed to control the Fund, procedures have been put in
place to assure that public shareholders determine the outcome of all
actions taken at shareholder meetings. Specifically, RiverSource
Investments (which votes proxies for the seed accounts), and the
funds-of-funds' Boards of Directors (which votes proxies for the
funds-of-funds) vote on each proposal in the same proportion that other
shareholders vote on the proposal. If the Reorganization is approved,
Ameriprise Financial and the funds-of-funds will own 35.67% of Disciplined
International Equity Fund.
RIVERSOURCE FUNDS -- PROXY STATEMENT 77
<Table>
<Caption>
PERCENT OF
PERCENT SHARES HELD
OF SHARES FOLLOWING THE
FUND 5% OWNERS HELD REORGANIZATION
MASSACHUSETTS TAX-EXEMPT FUND (SELLING FUND)
Class A Charles Schwab 5.89% N/A
Class B None N/A N/A
Class C Kevin H. and Nancy A. Aiken, Athol, MA 10.01% N/A
Charles M. and Carol A. Breau, Clinton, MA 9.39% N/A
Alphonse A. and Linda Di Nardo, Leominster, MA 6.83% N/A
June P. and Norman E. Venette as the Trustees of the Norman
E. Venette Revocable Trust, Orange, MA 22.40% N/A
MICHIGAN TAX-EXEMPT FUND (SELLING FUND)
Class A None N/A N/A
Class B Nancy J. Anderson, Iron River, MI 6.80% N/A
Ann Marie and Harley R. Arnold, Barton City, MI 8.06% N/A
Orva Lee and Jean E. Ice, Sterling Heights, MI 5.28% N/A
Chester V. and Rose M. Mysliwiec as the Trustees of the Rose
M. Mysliwiec Living Trust, Grand Rapids, MI 5.25% N/A
Elizabeth L. and Dennis P. Sexton, Benton Harbor, MI 5.39% N/A
Class C Carl L. and Marian A. Beaver, Riga, MI 7.47% N/A
Barry J. Fishman and Teresa A. McMahon as Trustees for the
Barry J. Fishman Living Trust, Ann Arbor, MI 6.03% N/A
Francis D. and Isabel S. Kinser, Waterford, MI 7.76% N/A
Lorne R. and Vivian T. Trainor, Erie, MI 7.13% N/A
OHIO TAX-EXEMPT FUND (SELLING FUND)
Class A None N/A N/A
Class B Clarence J. and Nancy J. Varhol, Euclid, OH 5.95% N/A
Class C George and Ophelia M. Hill, Cincinnati, OH 8.45% N/A
Randall J. Hohman, Tiffin, OH 6.53% N/A
Richard L. Sears, Parma, OH 12.85% N/A
TAX-EXEMPT HIGH INCOME FUND (BUYING FUND)
Class A None N/A *
Class B None N/A *
Class C None N/A *
</Table>
* All of the 5% owners listed above will own less than 1% of Tax-Exempt High
Income Fund, assuming the Reorganization of Tax-Exempt High Income Fund
with Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund or Ohio
Tax-Exempt Fund, or any combination of the three.
78 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
PERCENT OF
PERCENT SHARES HELD
OF SHARES FOLLOWING THE
FUND 5% OWNERS HELD REORGANIZATION
VALUE FUND (SELLING FUND)
Class A Charles Schwab 11.07% N/A
Class B None N/A N/A
Class C National Financial Services Corp., New York, NY 9.78% N/A
Class I Portfolio Builder Aggressive Fund 19.79% N/A
Portfolio Builder Moderate Fund 19.97% N/A
Portfolio Builder Moderate Aggressive Fund 31.72% N/A
Portfolio Builder Moderate Conservative Fund 5.09% N/A
Portfolio Builder Total Equity Fund 22.17% N/A
Class R4 Ameriprise Financial 8.78% N/A
Charles Schwab 91.22% N/A
DIVERSIFIED EQUITY INCOME FUND (BUYING FUND)
Class A Charles Schwab 26.32% 25.85%
Class B None N/A N/A
Class C National Financial Services Corp., New York, NY N/A *
Class I Portfolio Builder Aggressive Fund 19.75% 19.76%
Portfolio Builder Moderate Fund 19.95% 19.95%
Portfolio Builder Moderate Aggressive Fund 31.76% 31.75%
Portfolio Builder Moderate Conservative Fund 5.09% 5.09%
Portfolio Builder Total Equity Fund 22.19% 22.18%
Class R4 American Century Services LLC, Kansas City, MO 5.36% 5.36%
Ameriprise Financial N/A *
Charles Schwab N/A *
Wachovia Bank 49.56% 49.53%
Wells Fargo Bank, Minneapolis, MN 32.33% 32.31%
</Table>
* Less than 1%
CAPITALIZATION AND OWNERSHIP OF MINNESOTA TAX-EXEMPT FUND
The following table shows capitalization of Minnesota Tax-Exempt Fund as of
Sept. 30, 2007 and provides information on shareholders who owned more than 5%
of the Fund's outstanding shares as of Aug. 31, 2007. As of Aug. 31, 2007,
officers and trustees of the Fund as a group owned less than 1% of the
outstanding shares of the Fund.
TABLE D-3. CAPITALIZATION AND OWNERSHIP OF MINNESOTA TAX-EXEMPT FUND
<Table>
<Caption>
NET ASSET
VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING 5% OWNERS
MINNESOTA TAX-EXEMPT FUND
Class A $290,234,054 $5.20 55,809,298 None
Class B 19,836,222 5.20 3,813,225 None
Class C 7,073,634 5.20 1,360,039 None
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT 79
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLES ARE INTENDED TO HELP YOU UNDERSTAND THE BUYING
FUND'S FINANCIAL PERFORMANCE. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR
A SINGLE BUYING FUND SHARE. THE TOTAL RETURNS IN THE TABLES REPRESENT THE RATE
THAT AN INVESTOR WOULD HAVE EARNED OR LOST ON AN INVESTMENT IN THE BUYING FUND
(ASSUMING REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS). THE INFORMATION FOR
THE FISCAL PERIODS ENDING JULY 31, 2007 OR LATER HAS BEEN AUDITED BY ERNST &
YOUNG LLP, WHOSE REPORT, ALONG WITH THE BUYING 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 JUNE 30, 2007 HAS BEEN AUDITED BY KPMG LLP.
TABLE D-3. FINANCIAL HIGHLIGHTS OF EACH BUYING FUND
Diversified Bond Fund - Class A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.89 $4.87 $4.78 $4.75
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .19 .18 .18 .20
Net gains (losses) (both realized and unrealized) .12 (.11) .03 .08 .03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .08 .21 .26 .23
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.20) (.19) (.17) (.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.88 $4.77 $4.89 $4.87 $4.78
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1,955 $2,013 $1,774 $1,933 $2,280
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) .89%(d),(e) .89%(d) .94%(d) .98%(d) .97%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 4.32%(e) 4.09% 3.67% 3.55% 4.16%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) 4.72%(g) 1.64% 4.38% 5.54% 4.91%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) 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.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.98% for the six months ended Feb. 28, 2007 and
0.99%, 1.02% and 1.00% for the years ended Aug. 31, 2006, 2005 and 2004,
respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
80 RIVERSOURCE FUNDS -- PROXY STATEMENT
Diversified Bond Fund - Class B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.89 $4.88 $4.78 $4.75
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .16 .15 .14 .16
Net gains (losses) (both realized and unrealized) .11 (.12) .01 .09 .03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .20 .04 .16 .23 .19
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.16) (.15) (.13) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.88 $4.77 $4.89 $4.88 $4.78
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $381 $402 $484 $628 $902
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) 1.65%(d),(e) 1.65%(d) 1.70%(d) 1.73%(d) 1.73%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 3.56%(e) 3.31% 2.92% 2.78% 3.40%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) 4.34%(g) .88% 3.39% 4.95% 4.12%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) 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.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.74% for the six months ended Feb. 28, 2007 and
1.76%, 1.78% and 1.75% for the years ended Aug. 31, 2006, 2005 and 2004,
respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
Diversified Bond Fund - Class C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.90 $4.88 $4.78 $4.75
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .16 .15 .14 .16
Net gains (losses) (both realized and unrealized) .11 (.13) .02 .09 .03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .20 .03 .17 .23 .19
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.16) (.15) (.13) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.88 $4.77 $4.90 $4.88 $4.78
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $17 $17 $18 $21 $27
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) 1.65%(d),(e) 1.66%(d) 1.70%(d) 1.73%(d) 1.74%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 3.57%(e) 3.31% 2.93% 2.79% 3.34%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) 4.33%(g) .66% 3.60% 4.95% 4.11%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) 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.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.74% for the six months ended Feb. 28, 2007 and
1.76%, 1.79% and 1.75% for the years ended Aug. 31, 2006, 2005 and 2004,
respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 81
Diversified Bond Fund - Class I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(I) 2006 2005 2004(B)
Net asset value, beginning of period $4.78 $4.89 $4.88 $4.91
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .21 .20 .11
Net gains (losses) (both realized and unrealized) .12 (.11) .02 (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .23 .10 .22 .07
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.21) (.21) (.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.89 $4.78 $4.89 $4.88
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $320 $276 $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) .54%(e),(f) .54%(e) .60% .59%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets 4.68%(f) 4.59% 4.01% 3.13%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 134% 281% 300% 279%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 4.90%(h) 2.19% 4.53% 1.43%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date is March 4, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class I would have been 0.57% for the six months ended Feb. 28, 2007 and
0.55% for the year ended Aug. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Feb. 28, 2007 (Unaudited).
Diversified Bond Fund - Class R2
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(B)
Net asset value, beginning of period $4.82
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04
Net gains (losses) (both realized and unrealized) .05
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .09
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.87
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 1.32%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 3.96%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 2.14%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R2 would have been 1.33% for the period ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
82 RIVERSOURCE FUNDS -- PROXY STATEMENT
Diversified Bond Fund - Class R3
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.82
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04
Net gains (losses) (both realized and unrealized) .05
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .09
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.87
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 1.07%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 4.23%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 2.20%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R3 would have been 1.07% for the six months ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
Diversified Bond Fund - Class R4*
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.89 $4.88 $4.78 $4.75
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .20 .19 .18 .21
Net gains (losses) (both realized and unrealized) .11 (.12) .02 .10 .03
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .08 .21 .28 .24
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.20) (.20) (.18) (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.87 $4.77 $4.89 $4.88 $4.78
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $81 $173 $202 $203 $268
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) .73%(d),(e) .73%(d) .78%(d) .81%(d) .81%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets 4.41%(e) 4.24% 3.85% 3.70% 4.34%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 134% 281% 300% 279% 256%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) 4.60%(g) 1.81% 4.34% 5.92% 5.08%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) 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.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class R4 would have been 0.81% for the six months ended Feb. 28, 2007 and
0.82%, 0.86% and 0.83% for the years ended Aug. 31, 2006, 2005 and 2004,
respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 83
Diversified Bond Fund - Class R5
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.82
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .05
Net gains (losses) (both realized and unrealized) .05
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .10
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.87
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) .57%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 4.72%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 2.30%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R5 would have been 0.61% for the period ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
Diversified Bond Fund - Class W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.84
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .05
Net gains (losses) (both realized and unrealized) .04
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .09
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.88
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) .95%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 3.89%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 2.00%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class W would have been 0.97% for the period ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
84 RIVERSOURCE FUNDS -- PROXY STATEMENT
Growth Fund - Class A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JULY 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $28.61 $28.34 $23.73 $22.80 $20.88
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23(b) .18 .04 .02 --
Net gains (losses) (both realized and unrealized) 4.11 .10 4.57 .91 1.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.34 .28 4.61 .93 1.92
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $32.73 $28.61 $28.34 $23.73 $22.80
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2,393 $2,351 $2,101 $2,117 $2,263
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) 1.19% 1.14% 1.19% 1.03% 1.21%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets .71% .72% .16% .07% --%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 98% 134% 136% 171% 205%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 15.20% .98% 19.43% 4.08% 9.20%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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.
Growth Fund - Class B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JULY 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $26.06 $26.01 $21.95 $21.25 $19.61
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.02)(b) (.05) (.16) (.16) (.17)
Net gains (losses) (both realized and unrealized) 3.75 .10 4.22 .86 1.81
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.73 .05 4.06 .70 1.64
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.79 $26.06 $26.01 $21.95 $21.25
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $369 $462 $578 $598 $775
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) 1.96% 1.91% 1.97% 1.81% 1.99%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (.06%) (.06%) (.62%) (.71%) (.77%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 98% 134% 136% 171% 205%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 14.31% .19% 18.50% 3.29% 8.36%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 FUNDS -- PROXY STATEMENT 85
Growth Fund - Class C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JULY 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $26.07 $26.01 $21.95 $21.25 $19.62
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.01)(b) (.04) (.16) (.16) (.17)
Net gains (losses) (both realized and unrealized) 3.74 .10 4.22 .86 1.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.73 .06 4.06 .70 1.63
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.77 $26.07 $26.01 $21.95 $21.25
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $20 $19 $15 $13 $12
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) 1.95% 1.91% 1.97% 1.81% 2.01%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (.03%) (.03%) (.62%) (.71%) (.81%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 98% 134% 136% 171% 205%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 14.31% .23% 18.50% 3.29% 8.31%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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.
Growth Fund - Class I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JULY 31, 2007 2006 2005 2004(B)
Net asset value, beginning of period $29.31 $28.93 $24.10 $25.61
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .40(c) .32 .12 .09
Net gains (losses) (both realized and unrealized) 4.19 .10 4.71 (1.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.59 .42 4.83 (1.51)
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.36) (.04) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.54 $29.31 $28.93 $24.10
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $298 $256 $147 $18
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(d),(e) .74% .68% .75% .57%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 1.21% 1.22% .55% .43%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 98% 134% 136% 171%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 15.70% 1.44% 20.04% (5.90%)(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to July 31, 2004.
(c) Per share amounts have been calculated using average shares outstanding
method.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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) Total return does not reflect payment of a sales charge.
(h) Not annualized.
86 RIVERSOURCE FUNDS -- PROXY STATEMENT
Growth Fund - Class R4*
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED JULY 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $29.13 $28.81 $24.07 $23.09 $21.11
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .25(b) .24 .09 .07 .04
Net gains (losses) (both realized and unrealized) 4.22 .10 4.65 .91 1.94
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.47 .34 4.74 .98 1.98
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.34 $29.13 $28.81 $24.07 $23.09
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $146 $265 $304 $350 $398
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) 1.03% .95% 1.02% .86% 1.03%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets .79% .89% .34% .25% .18%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 98% 134% 136% 171% 205%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 15.39% 1.17% 19.69% 4.24% 9.38%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 FUNDS -- PROXY STATEMENT 87
Disciplined International Equity Fund - Class A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Oct. 31, 2007(I) 2006(B)
Net asset value, beginning of period $9.82 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .01
Net gains (losses) (both realized and unrealized) 1.58 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.66 .61
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) --
Distributions from realized gains (.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.40 $9.82
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $10 $11
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 1.42%(f) 1.42%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 1.51%(f) 1.48%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 31% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 17.02%(h) 6.62%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 1.43% for the six months ended April 30, 2007 and
1.92% for the period ended Oct. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended April 30, 2007 (Unaudited).
88 RIVERSOURCE FUNDS -- PROXY STATEMENT
Disciplined International Equity Fund - Class B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2007(I) 2006(B)
Net asset value, beginning of period $9.79 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 --
Net gains (losses) (both realized and unrealized) 1.54 .58
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.61 .58
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) --
Distributions from realized gains (.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.32 $9.79
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 2.25%(f) 2.21%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 1.75%(f) (.03%)(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 31% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 16.48%(h) 6.30%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 2.26% for the six months ended April 30, 2007 and
2.71% for the period ended Oct. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended April 30, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 89
Disciplined International Equity Fund - Class C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2007(I) 2006(B)
Net asset value, beginning of period $9.79 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 --
Net gains (losses) (both realized and unrealized) 1.54 .58
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.61 .58
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) --
Distributions from realized gains (.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.33 $9.79
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 2.24%(f) 2.21%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 1.59%(f) .74%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 31% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 16.50%(h) 6.30%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 2.25% for the six months ended April 30, 2007 and
2.71% for the period ended Oct. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended April 30, 2007 (Unaudited).
90 RIVERSOURCE FUNDS -- PROXY STATEMENT
Disciplined International Equity Fund - Class I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2007(I) 2006(B)
Net asset value, beginning of period $9.83 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .02
Net gains (losses) (both realized and unrealized) 1.58 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.68 .62
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) --
Distributions from realized gains (.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.41 $9.83
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $157 $63
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 1.16%(f) 1.15%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 2.51%(f) 1.17%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 31% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 17.16%(h) 6.73%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class I would have been 1.17% for the six months ended April 30, 2007 and
1.65% for the period ended Oct. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended April 30, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 91
Disciplined International Equity Fund - Class R4*
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Oct. 31, 2007(i) 2006(b)
Net asset value, beginning of period $9.83 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .02
Net gains (losses) (both realized and unrealized) 1.57 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.66 .62
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) --
Distributions from realized gains (.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.40 $9.83
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) 1.35%(f) 1.27%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 2.44%(f) 1.72%(f)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 31% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 16.99%(h) 6.73%(h)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from May 18, 2006 (when shares became publicly available) to
Oct. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(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 waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class R4 would have been 1.45% for the six months ended April 30, 2007 and
1.77% for the period ended Oct. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended April 30, 2007 (Unaudited).
92 RIVERSOURCE FUNDS -- PROXY STATEMENT
Tax-Exempt High Income Fund - Class A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED NOV. 30, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $4.44 $4.39 $4.42 $4.46 $4.38
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .17 .18 .18 .20
Net gains (losses) (both realized and unrealized) (.08) .08 (.04) (.04) .07
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .25 .14 .14 .27
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.17) (.17) (.18) (.19)
Distributions from realized gains -- (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.20) (.17) (.18) (.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.36 $4.44 $4.39 $4.42 $4.46
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2,807 $3,042 $3,460 $3,914 $4,321
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets,
excluding interest and fee expense(b) .79%(c),(d) .79%(c) .80%(c) .80% .79%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets,
including interest and fee expense(e) 1.06%(c),(d) 1.05%(c) .97%(c) .89% .91%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets 3.99%(d) 3.93% 3.89% 3.98% 4.46%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 24% 30% 30% 22% 44%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) .16%(g) 5.81% 3.25% 3.15% 6.39%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.82% excluding interest and fee expense and 1.09%
including interest and fee expense for the six months ended May 31, 2007
and 0.83% and 0.81% excluding interest and fee expense and 1.09% and 0.98%
including interest and fee expense for the years ended Nov. 30, 2006 and
2005, respectively.
(d) Adjusted to an annual basis.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended May 31, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 93
Tax-Exempt High Income Fund - Class B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED NOV. 30, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $4.44 $4.39 $4.41 $4.46 $4.38
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .14 .15 .17
Net gains (losses) (both realized and unrealized) (.08) .07 (.02) (.05) .07
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .21 .12 .10 .24
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.13) (.14) (.15) (.16)
Distributions from realized gains -- (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.16) (.14) (.15) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.36 $4.44 $4.39 $4.41 $4.46
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $112 $127 $190 $250 $319
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets,
excluding interest and fee expense(b) 1.54%(c),(d) 1.55%(c) 1.56%(c) 1.55% 1.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets,
including interest and fee expense(e) 1.81%(c),(d) 1.81%(c) 1.73%(c) 1.64% 1.67%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets 3.23%(d) 3.15% 3.13% 3.23% 3.70%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 24% 30% 30% 22% 44%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) (.22%)(g) 5.01% 2.69% 2.14% 5.60%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.58% excluding interest and fee expense and 1.85%
including interest and fee expense for the six months ended May 31, 2007
and 1.59% and 1.57% excluding interest and fee expense and 1.85% and 1.74%
including interest and fee expense for the years ended Nov. 30, 2006 and
2005, respectively.
(d) Adjusted to an annual basis.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended May 31, 2007 (Unaudited).
94 RIVERSOURCE FUNDS -- PROXY STATEMENT
Tax-Exempt High Income Fund - Class C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED NOV. 30, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $4.45 $4.39 $4.42 $4.46 $4.38
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .14 .15 .17
Net gains (losses) (both realized and unrealized) (.09) .08 (.03) (.04) .07
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .22 .11 .11 .24
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.13) (.14) (.15) (.16)
Distributions from realized gains -- (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.16) (.14) (.15) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.36 $4.45 $4.39 $4.42 $4.46
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $15 $18 $23 $28 $30
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets,
excluding interest and fee expense(b) 1.54%(c),(d) 1.55%(c) 1.56%(c) 1.55% 1.56%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets,
including interest and fee expense(e) 1.81%(c),(d) 1.81%(c) 1.73%(c) 1.64% 1.68%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets 3.23%(d) 3.16% 3.13% 3.23% 3.70%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 24% 30% 30% 22% 44%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) (.44%)(g) 5.25% 2.46% 2.37% 5.59%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.58% excluding interest and fee expense and 1.85%
including interest and fee expense for the six months ended May 31, 2007
and 1.59% and 1.57% excluding interest and fee expense and 1.85% and 1.74%
including interest and fee expense for the years ended Nov. 30, 2006 and
2005, respectively.
(d) Adjusted to an annual basis.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended May 31, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 95
Diversified Equity Income Fund - Class A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED SEPT. 30, 2007(G) 2006 2005 2004 2003
Net asset value, beginning of period $13.10 $12.11 $9.88 $8.14 $6.26
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .18 .15 .15 .14
Net gains (losses) (both realized and unrealized) 1.03 1.54 2.23 1.73 1.86
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.12 1.72 2.38 1.88 2.00
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.19) (.15) (.14) (.12)
Distributions from realized gains (1.17) (.54) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.26) (.73) (.15) (.14) (.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.96 $13.10 $12.11 $9.88 $8.14
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $5,922 $5,433 $3,751 $2,455 $1,539
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) 1.01%(d) 1.10% 1.04% 1.06% 1.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 1.36%(d) 1.40% 1.46% 1.67% 1.94%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 28% 24% 18% 38%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 8.65%(f) 14.72% 24.24% 23.09% 32.17%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(c) 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.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended March 31, 2007 (Unaudited).
96 RIVERSOURCE FUNDS -- PROXY STATEMENT
Diversified Equity Income Fund - Class B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED SEPT. 30, 2007(G) 2006 2005 2004 2003
Net asset value, beginning of period $13.11 $12.07 $9.85 $8.12 $6.25
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04 .04 .07 .06 .08
Net gains (losses) (both realized and unrealized) 1.04 1.58 2.22 1.73 1.86
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.08 1.62 2.29 1.79 1.94
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04) (.04) (.07) (.06) (.07)
Distributions from realized gains (1.17) (.54) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.21) (.58) (.07) (.06) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.98 $13.11 $12.07 $9.85 $8.12
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1,260 $1,208 $1,141 $877 $629
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) 1.77%(d) 1.86% 1.80% 1.83% 1.81%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets .60%(d) .64% .70% .89% 1.18%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 28% 24% 18% 38%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 8.32%(f) 13.87% 23.28% 22.11% 31.10%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(c) 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.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended March 31, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 97
Diversified Equity Income Fund - Class C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED SEPT. 30, 2007(G) 2006 2005 2004 2003
Net asset value, beginning of period $13.09 $12.06 $9.84 $8.11 $6.25
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04 .04 .07 .07 .08
Net gains (losses) (both realized and unrealized) 1.03 1.58 2.22 1.73 1.85
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 1.62 2.29 1.80 1.93
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04) (.05) (.07) (.07) (.07)
Distributions from realized gains (1.17) (.54) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.21) (.59) (.07) (.07) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.95 $13.09 $12.06 $9.84 $8.11
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $99 $86 $58 $38 $20
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) 1.76%(d) 1.86% 1.81% 1.83% 1.83%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets .60%(d) .63% .69% .92% 1.15%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 28% 24% 18% 38%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(e) 8.27%(f) 13.84% 23.33% 22.18% 30.96%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(c) 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.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended March 31, 2007 (Unaudited).
98 RIVERSOURCE FUNDS -- PROXY STATEMENT
Diversified Equity Income Fund - Class I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED SEPT. 30, 2007(H) 2006 2005 2004(B)
Net asset value, beginning of period $13.09 $12.13 $9.89 $10.03
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .26 .20 .19
Net gains (losses) (both realized and unrealized) 1.04 1.50 2.24 (.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.15 1.76 2.44 --
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.26) (.20) (.14)
Distributions from realized gains (1.17) (.54) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.28) (.80) (.20) (.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.96 $13.09 $12.13 $9.89
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $124 $133 $96 $18
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) .62%(e) .70% .62% .63%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets 1.74%(e) 1.79% 1.85% 2.35%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 28% 24% 18%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) 8.94%(g) 15.14% 24.81% .02%(g)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to March 31, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended March 31, 2007 (Unaudited).
RIVERSOURCE FUNDS -- PROXY STATEMENT 99
Diversified Equity Income Fund - Class R4*
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED SEPT. 30, 2007(H) 2006 2005 2004 2003
Net asset value, beginning of period $13.11 $12.12 $9.89 $8.14 $6.26
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .21 .17 .16 .15
Net gains (losses) (both realized and unrealized) 1.04 1.53 2.23 1.74 1.86
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.74 2.40 1.90 2.01
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.21) (.17) (.15) (.13)
Distributions from realized gains (1.17) (.54) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.27) (.75) (.17) (.15) (.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.98 $13.11 $12.12 $9.89 $8.14
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $183 $96 $58 $67 $50
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b),(c) .88%(d),(e) .93% .87% .90% .87%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets 1.53%(e) 1.56% 1.63% 1.83% 2.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 17% 28% 24% 18% 38%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(f) 8.80%(g) 14.91% 24.38% 23.41% 32.39%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances. Includes the impact of a
performance incentive adjustment fee, if any.
(c) 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.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R4 would have been 0.89% for the six months ended March 31, 2007.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended March 31, 2007 (Unaudited).
100 RIVERSOURCE FUNDS -- PROXY STATEMENT
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization dated as of (the
"Agreement") is between each selling entity identified in Schedule A hereto
(each a "Selling Corporation")(1), on behalf of each series thereof identified
in Schedule A hereto as a Selling Fund (each a "Selling Fund"), each
corresponding buying entity identified in Schedule A hereto (each a "Buying
Corporation"), on behalf of each series thereof identified in Schedule A hereto
as the corresponding Buying Fund (each a "Buying Fund"), and RiverSource
Investments, LLC (solely for the purposes of Sections 3c and 11 of the
Agreement).
This Agreement shall be treated as if each reorganization between a Selling Fund
and its corresponding Buying Fund contemplated hereby had been the subject of a
separate agreement.
In consideration of their mutual promises, the parties agree as follows:
1. SHAREHOLDER APPROVAL. Each Selling Fund will call a meeting of its
shareholders for the purpose of approving the Agreement and the transactions
it contemplates (each a "Reorganization"). Each Buying Fund agrees to
furnish data and information, as reasonably requested, for the proxy
statement to be furnished to shareholders of the corresponding Selling Fund.
2. REORGANIZATION.
a. Plan of Reorganization. The Reorganization will be a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986,
as amended (the "Code"). At the Closing, each Selling Corporation will
convey all of the assets of each Selling Fund to the corresponding
Buying Fund. Each Buying Fund will assume all liabilities of the
corresponding Selling Fund. At the Closing, each Buying Corporation will
deliver shares of each Buying Fund, including fractional shares, to the
corresponding Selling Corporation. The number of shares will be
determined by dividing the value of the net assets of shares of each
Selling Fund, computed as described in paragraph 3(a), by the net asset
value of one share of the corresponding Buying Fund, computed as
described in paragraph 3(b). Each Selling Fund will not pay a sales
charge on the receipt of the corresponding Buying Fund's shares in
exchange for the assets of such Selling Fund. In addition, the
shareholders of each Selling Fund will not pay a sales charge on
distribution to them of shares of the corresponding Buying Fund.
b. Closing and Effective Time of the Reorganization. The Reorganization and
all related acts necessary to complete the Reorganization (the
"Closing") will occur on the first day on which the New York Stock
Exchange (the "NYSE") is open for business following approval of
shareholders of each Selling Fund and receipt of all necessary
regulatory approvals, or such later date as the parties may agree.
3. VALUATION OF NET ASSETS.
a. The net asset value of shares of each Selling Fund will be computed as
of the close of regular trading on the NYSE on the business day
immediately preceding the day of Closing (the "Valuation Date") using
the valuation procedures in the corresponding Buying Fund's prospectus.
b. The net asset value per share of shares of each Buying Fund will be
determined as of the close of regular trading on the NYSE on the
Valuation Date, using the valuation procedures in each Buying Fund's
prospectus.
c. At the Closing, each Selling Fund will provide the corresponding Buying
Fund with a copy of the computation showing the valuation of the net
asset value per share of shares of such Selling Fund on the Valuation
Date. Each Buying Fund will provide the corresponding Selling Fund with
a copy of the computation showing the determination of the net asset
value per share of shares of such Buying Fund on the Valuation Date.
Both computations will be certified by an officer of RiverSource
Investments, LLC, the investment manager.
4. LIQUIDATION AND DISSOLUTION OF THE SELLING FUND.
a. As soon as practicable after the Valuation Date, each Selling
Corporation will liquidate each Selling Fund and distribute shares of
each class of the corresponding Buying Fund to such Selling Fund's
shareholders of record of such class. Each Buying Fund will establish
shareholder accounts in the names of each corresponding Selling Fund
shareholder, representing the respective pro rata number of full and
fractional shares of such class of the Buying Fund due to each
shareholder. All issued and outstanding shares of each Selling Fund will
simultaneously be cancelled on the books of each Selling Corporation.
Each Buying Fund or its transfer agent will establish shareholder
accounts in accordance with instructions from the corresponding Selling
Corporation.
- ---------------
(1) As noted in Schedule A, the Selling Corporation for the Reorganization of
RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt
Fund and RiverSource Ohio Tax-Exempt Fund is a Massachusetts business trust.
RIVERSOURCE FUNDS -- PROXY STATEMENT A.1
b. Immediately after the Valuation Date, the share transfer books of each
Selling Corporation relating to each Selling Fund will be closed and no
further transfer of shares will be made.
c. Promptly after the distribution, each Buying Fund or its transfer agent
will notify each shareholder of the corresponding Selling Fund of the
number of shares distributed to the shareholder and confirm the
registration in the shareholder's name.
d. As promptly as practicable after the liquidation of each Selling Fund,
and in no event later than twelve months from the date of the Closing,
each Selling Fund will be dissolved.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYING CORPORATION.
With respect to each Reorganization, the Buying Corporation represents and
warrants to the corresponding Selling Fund as follows:
a. Organization, Existence, etc. The Buying Corporation is a corporation
duly organized, validly existing and in good standing under the laws of
the state of Minnesota and has the power to carry on its business as it
is now being conducted.
b. Registration as Investment Company. The Buying Fund is a series of the
Buying Corporation, registered under the Investment Company Act of 1940
(the "1940 Act") as an open-end, management investment company.
c. Capitalization. The Buying Corporation has authorized capital of
10,000,000,000 shares of common stock, par value $0.01 per share. All of
the outstanding shares of the Buying Corporation have been duly
authorized and are validly issued, fully paid and non-assessable. Since
the Buying Fund is engaged in the continuous offering and redemption of
its shares, the number of outstanding shares may vary daily.
d. Financial Statements. The audited financial statements as of the end of
the last fiscal year, and the subsequent unaudited semi-annual financial
statements, if any (the "Buying Fund Financial Statements"), fairly
present the financial position of the Buying Fund and the results of its
operations and changes in its net assets for the periods shown.
e. Shares to be Issued Upon Reorganization. The shares to be issued in
connection with the Reorganization will be duly authorized and, at the
time of the Closing, will be validly issued, fully paid and
non-assessable.
f. Authority Relative to the Agreement. The Buying Corporation has the
power to enter into and carry out the obligations described in this
Agreement. The Agreement and the transactions contemplated by it have
been duly authorized by the Board of Directors of the Buying Corporation
and no other proceedings by the Buying Corporation or the Buying Fund
are necessary.
g. No Violation. The Buying Corporation is not in violation of its Articles
of Incorporation or By-Laws (the "Articles") or in default in the
performance of any material agreement to which it is a party. The
execution of this Agreement and the completion of the transactions
contemplated by it will not conflict with, or constitute a breach of,
any material contract or other instrument to which the Buying Fund is
subject. The transactions will not result in any violation of the
provisions of the Articles or any law, administrative regulation or
administrative or court decree applicable to the Buying Fund.
h. Liabilities. The Buying Fund has no liabilities other than liabilities
disclosed in the Buying Fund Financial Statements, liabilities incurred
in the ordinary course of business subsequent to the date of the latest
annual or semi-annual financial statements, or liabilities previously
disclosed to the Selling Fund, none of which has been materially adverse
to the business, assets or results of operation of the Buying Fund.
i. Litigation. There is no litigation, administrative proceeding or
investigation before any court or governmental body currently pending
or, to the knowledge of the Buying Fund, threatened, that would
materially and adversely affect the Buying Fund, its financial condition
or the conduct of its business, or that would prevent or hinder
completion of the transactions contemplated by this Agreement. The
Buying Fund knows of no facts that might form the basis for the
institution of any such litigation, proceeding or investigation and the
Buying Fund is not a party to or subject to the provisions of any order,
decree or judgment.
j. Contracts. Except for contracts and agreements previously disclosed to
the Selling Corporation, the Buying Fund is not a party to or subject to
any material contract, debt instrument, plan, lease, franchise, license
or permit.
k. Regulated Investment Company Qualification. The Buying Fund has
qualified as a regulated investment company under the Internal Revenue
Code with respect to each taxable year since commencement of its
operations and will qualify as a regulated investment company at all
times through the Closing.
l. Taxes. As of the Closing, the Buying Fund will (i) have filed all
federal and other tax returns and reports that have been required to be
filed, (ii) have paid or provided for payment of all federal and other
taxes shown to be due on such returns
A.2 RIVERSOURCE FUNDS -- PROXY STATEMENT
or on any assessments received, (iii) have adequately provided for all
tax liabilities on its books, (iv) except as disclosed to the Selling
Fund, not have had any tax deficiency or liability asserted against it
or question with respect thereto raised, and (v) except as disclosed to
the Selling Fund, not be under audit by the Internal Revenue Service or
by any state or local tax authority for taxes in excess of those already
paid.
m. Registration Statement. The Buying Fund will file a registration
statement on Form N-14 (the "Registration Statement") with the Securities
and Exchange Commission under the Securities Act of 1933 (the "1933 Act")
relating to the shares to be issued in the Reorganization. At the time
the Registration Statement becomes effective, at the time of the
shareholders' meeting and at the Closing, the Registration Statement will
not contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading.
However, none of the representations and warranties in this subsection
apply to statements in, or omissions from, the Registration Statement
made in reliance on information furnished by the Selling Fund for use in
the Registration Statement.
n. Business Activities. The Buying Fund will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include regular and
customary periodic dividends and distributions and any other distribution
that may be advisable.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING CORPORATION.
With respect to each Reorganization, the Selling Corporation represents and
warrants to the corresponding Buying Fund as follows:
a. Organization, Existence, etc. The Selling Corporation is a corporation
duly organized, validly existing and in good standing under the laws of
the state of Minnesota and has the power to carry on its business as it
is now being conducted (for the Reorganization of RiverSource
Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and
RiverSource Ohio Tax-Exempt Fund, the Selling Corporation is a
Massachusetts business trust that is duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts).
b. Registration as Investment Company. The Selling Fund is a series of the
Selling Corporation, registered under the 1940 Act as an open-end,
management investment company.
c. Capitalization. The Selling Corporation has authorized capital of
10,000,000,000 shares of common stock, par value $0.01 per share (for
the Reorganization of RiverSource Massachusetts Tax-Exempt Fund,
RiverSource Michigan Tax-Exempt Fund and RiverSource Ohio Tax-Exempt
Fund, the beneficial interest of the Selling Corporation shall at all
times be divided into an unlimited number of shares, without par value).
All of the outstanding shares have been duly authorized and are validly
issued, fully paid and non-assessable. Since the Selling Fund is engaged
in the continuous offering and redemption of its shares, the number of
outstanding shares may vary daily.
d. Financial Statements. The audited financial statements as of the end of
the last fiscal year, and the subsequent unaudited semi-annual financial
statements, if any (the "Selling Fund Financial Statements"), fairly
present the financial position of the Selling Fund, and the results of
its operations and changes in its net assets for the periods shown.
e. Authority Relative to the Agreement. The Selling Corporation has the
power to enter into and to carry out its obligations under this
Agreement. The Agreement and the transactions contemplated by it have
been duly authorized by the Board of Directors (for the Reorganization
of RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-
Exempt Fund and RiverSource Ohio Tax-Exempt Fund, the Board of Trustees)
of the Selling Corporation and no other proceedings by the Selling
Corporation or the Selling Fund are necessary.
f. No Violation. The Selling Corporation is not in violation of its
Articles or in default in the performance of any material agreement to
which it is a party (for the Reorganization of RiverSource Massachusetts
Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and RiverSource
Ohio Tax-Exempt Fund, the Selling Corporation is not in violation of its
Agreement and Declaration of Trust or By-Laws (the "Charter Documents")
or in default in the performance of any material agreement to which it
is a party). The execution of this Agreement and the completion of the
transactions contemplated by it will not conflict with or constitute a
breach of, any material contract to which the Selling Fund is subject.
The transactions will not result in any violation of the provisions of
the Articles or Charter Documents, as the case may be, or any law,
administrative regulation or administrative or court decree applicable
to the Selling Fund.
g. Liabilities. The Selling Fund has no liabilities other than liabilities
disclosed in the Selling Fund Financial Statements, liabilities incurred
in the ordinary course of business subsequent to the date of the latest
annual or semi-annual financial statements, or liabilities previously
disclosed to the Buying Fund, none of which has been materially adverse
to the business, assets or results of operation of the Selling Fund.
h. Litigation. There is no litigation, administrative proceeding or
investigation before any court or governmental body currently pending
or, to the knowledge of the Selling Fund, threatened, that would
materially and adversely affect the
RIVERSOURCE FUNDS -- PROXY STATEMENT A.3
Selling Fund, its financial condition or the conduct of its business, or
that would prevent or hinder completion of the transactions contemplated
by this Agreement. The Selling Fund knows of no facts that might form
the basis for the institution of any such litigation, proceeding or
investigation and is not a party to or subject to the provisions of any
order, decree or judgment.
i. Contracts. Except for contracts and agreements previously disclosed to
the Buying Corporation, the Selling Fund is not a party to or subject to
any material contract, debt instrument, plan, lease, franchise, license
or permit.
j. Regulated Investment Company Qualification. The Selling Fund has
qualified as a regulated investment company under the Internal Revenue
Code with respect to each taxable year since commencement of its
operations and will qualify as regulated investment company at all times
through the Closing.
k. Taxes. As of the Closing, the Selling Fund will (i) have filed all
federal and other tax returns and reports that have been required to be
filed, (ii) have paid or provided for payment of all federal and other
taxes shown to be due on such returns or on any assessments received,
(iii) have adequately provided for all tax liabilities on its books, (iv)
except as disclosed to the Buying Fund, not have had any tax deficiency
or liability asserted against it or question with respect thereto raised,
and (v) except as disclosed to the Buying Fund, not be under audit by the
Internal Revenue Service or by any state or local tax authority for taxes
in excess of those already paid.
l. Fund Securities. All securities listed in the schedule of investments of
the Selling Fund as of the Closing will be owned by the Selling Fund
free and clear of any encumbrances, except as indicated in the schedule.
m. Registration Statement. The Selling Fund will cooperate with the Buying
Fund and will furnish information relating to the Selling Corporation and
the Selling Fund required in the Registration Statement. At the time the
Registration Statement becomes effective, at the time of the
shareholders' meeting and at the Closing, the Registration Statement, as
it relates to the Selling Corporation or the Selling Fund, will not
contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading.
However, the representations and warranties in this subsection apply only
to statements in or omissions from the Registration Statement made in
reliance upon information furnished by the Selling Corporation or the
Selling Fund for use in the Registration Statement.
n. Provision of Books and Records. The Selling Fund will provide its books
and records to the Buying Fund for purposes of preparing any tax returns
required by law to be filed after the closing date, including (1) the tax
return for the period ending [ ], and (2) the tax return for the
period beginning [ ] and ending the earlier of [ ] and the
taxable year end chosen by the Buying Fund following each Reorganization.
o. Business Activities. The Selling Fund will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include regular and
customary periodic dividends and distributions and any other distribution
that may be advisable.
7. CONDITIONS TO OBLIGATIONS OF THE BUYING CORPORATION. The obligations of the
Buying Corporation with respect to each Reorganization are subject to the
satisfaction of the following conditions:
a. Shareholder Approval. This Agreement will have been approved by the
affirmative vote of the holders of the majority of the voting power of
all Selling Fund shares entitled to vote.
b. Representations, Warranties and Agreements. The Selling Corporation and
the Selling Fund will have complied with this Agreement and each of the
representations and warranties in this Agreement will be true in all
material respects as of the Closing. An officer of the Selling
Corporation will provide a certificate to the Buying Fund confirming
that, as of the Closing, the representations and warranties set forth in
Section 6 are true and correct and that there have been no material
adverse changes in the financial condition, results of operations,
business, properties or assets of the Selling Fund since the date of its
last financial statement, except as otherwise indicated in any financial
statements, certified by an officer of the Selling Corporation, and
delivered to the Buying Fund on or prior to the last business day before
the Closing.
c. Regulatory Approvals.
- The Registration Statement referred to in Sections 5(m) and 6(m) will
be effective and no stop orders under the 1933 Act will have been
issued.
- All necessary approvals, consents and exemptions from federal and state
regulatory authorities will have been obtained.
d. Opinion of Counsel. The Buying Corporation will have received an opinion
of counsel for the Selling Corporation, dated as of the Closing, to the
effect that: (i) the Selling Corporation is a corporation duly organized
and validly existing under the laws of the state of Minnesota (for the
Reorganization of RiverSource Massachusetts Tax-Exempt Fund, RiverSource
Michigan Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund, the
Selling Corporation is a Massachusetts
A.4 RIVERSOURCE FUNDS -- PROXY STATEMENT
business trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts); (ii) the Selling Fund is a series of the
Selling Corporation, an open-end investment company registered under the
1940 Act; (iii) this Agreement and the Reorganization have been duly
authorized and approved by all requisite action of the Selling
Corporation and the Selling Fund and this Agreement has been duly
executed by, and is a valid and binding obligation of, the Selling
Corporation.
e. Declaration of Dividend. The Selling Fund, prior to the Closing, has
declared a dividend or dividends, which, together with all previous such
dividends, shall have the effect of distributing to the Selling Fund
shareholders (i) all of the excess of (x) the Selling Fund's investment
income excludable from gross income under Section 103 of the Code over
(y) the Selling Fund's deductions disallowed under Sections 265 and 171
of the Code, (ii) all of the Selling Fund's investment company taxable
income as defined in Section 852 of the Code (in each case computed
without regard to any deduction for dividends paid) and (iii) all of the
Selling Fund's net capital gain realized (after reduction for any
capital loss carryover), in each case for the current taxable year
(which will end on the Closing date) and any preceding taxable years for
which such a dividend is eligible to be made under Section 855 of the
Code.
8. CONDITIONS TO OBLIGATIONS OF THE SELLING CORPORATION. The obligations of the
Selling Corporation with respect to each Reorganization are subject to the
satisfaction of the following conditions:
a. Shareholder Approval. This Agreement will have been approved by the
affirmative vote of the holders of the majority of the voting power of
all Selling Fund shares entitled to vote.
b. Representations, Warranties and Agreements. The Buying Fund will have
complied with this Agreement and each of the representations and
warranties in this Agreement will be true in all material respects as of
the Closing. An officer of the Buying Corporation will provide a
certificate to the Selling Fund confirming that, as of the Closing, the
representations and warranties set forth in Section 5 are true and
correct and that there have been no material adverse changes in the
financial condition, results of operations, business, properties or
assets of the corresponding Buying Fund since the date of its last
financial statement, except as otherwise indicated in any financial
statements, certified by an officer of the Buying Corporation, and
delivered to the Selling Fund on or prior to the last business day before
the Closing.
c. Regulatory Approvals.
- The Registration Statement referred to in Sections 5(m) and 6(m) will
be effective and no stop orders under the 1933 Act will have been
issued.
- All necessary approvals, consents and exemptions from federal and state
regulatory authorities will have been obtained.
d. Opinion of Counsel. The Selling Corporation will have received the
opinion of counsel for the Buying Corporation, dated as of the Closing,
to the effect that: (i) the Buying Corporation is a corporation duly
organized and validly existing under the laws of the state of Minnesota;
(ii) the Buying Fund is a series of the Buying Corporation, an open-end
investment company registered under the 1940 Act; (iii) this Agreement
and the Reorganization have been authorized and approved by all requisite
action of the Buying Corporation and the Buying Fund and this Agreement
has been duly executed by, and is a valid and binding obligation of, the
Buying Corporation; and (iv) the shares to be issued in the
Reorganization are duly authorized and upon issuance in accordance with
this Agreement will be validly issued, fully paid and non-assessable
shares of the Buying Fund.
9. CONDITIONS TO OBLIGATIONS OF THE SELLING CORPORATION AND THE BUYING
CORPORATION. The obligations of each of the Selling Corporation and the
Buying Corporation with respect to each Reorganization are subject to the
satisfaction of the following conditions:
Tax Opinion. With respect to each Reorganization, each Selling Fund shall
have received a favorable opinion of Ropes & Gray LLP satisfactory to each
Selling Fund, and each Buying Fund shall have received a favorable opinion
of Ropes & Gray LLP satisfactory to each Buying Fund, each substantially to
the effect that, on the basis of existing provisions of the Code, Treasury
regulations promulgated thereunder, current administrative rules and court
decisions, generally for federal income tax purposes:
- The transactions contemplated by this Agreement will constitute a
reorganization within the meaning of Section 368(a) of the Code, and each
Selling Fund and the corresponding Buying Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
- No gain or loss will be recognized by each Selling Fund upon the transfer
of its assets to the corresponding Buying Fund in exchange for the
acquisition shares or upon the distribution of the acquisition shares by
such Selling Fund to its shareholders in liquidation, as contemplated in
paragraph 1 hereof;
RIVERSOURCE FUNDS -- PROXY STATEMENT A.5
- No gain or loss will be recognized by each Buying Fund upon receipt of the
assets of the corresponding Selling Fund in exchange for acquisition
shares and the assumption by each Buying Fund of the liabilities of such
Selling Fund as contemplated in paragraph 1 hereof;
- The basis in the hands of each Buying Fund of the assets of each Selling
Fund transferred to the Buying Fund in the Reorganization will be the same
as the basis of such assets in the hands of such Selling Fund immediately
prior to the transfer;
- The holding periods of the assets of each Selling Fund in the hands of
each Buying Fund will include the periods during which such assets were
held by each Selling Fund;
- No gain or loss will be recognized by each Selling Fund's shareholders
upon the exchange of their shares of each Selling Fund for the acquisition
shares;
- The aggregate basis of the acquisition shares each Selling Fund
shareholder receives in connection with the Reorganization will be the
same as the aggregate basis of his or her Selling Fund's shares exchanged
therefor;
- Each Selling Fund shareholder's holding period for the acquisition shares
will be determined by including the period for which he or she held the
Selling Fund's shares exchanged therefor, provided that the shareholder
held such Selling Fund's shares as capital assets; and
- Each Buying Fund will succeed to and take into account the items of the
Selling Fund described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381, 382, 383 and 384 of
the Code and the regulations thereunder.
The opinion will be based on certain factual certifications made by officers
of the Selling Fund and the corresponding Buying Fund will also be based on
customary assumptions. The opinion is not a guarantee that the tax
consequences of the Reorganization will be as described above.
Ropes & Gray LLP will express no view with respect to the effect of the
Reorganization on any transferred asset as to which any unrealized gain or
loss is required to be recognized at the end of a taxable year (or on the
termination or transfer thereof) under federal income tax principles.
10. AMENDMENT; TERMINATION; NON-SURVIVAL OF COVENANTS, WARRANTIES AND
REPRESENTATIONS.
a. This Agreement may be amended in writing if authorized by the respective
Boards of Directors/Trustees. The Agreement may be amended at any time
before or after approval by the shareholders of each Selling Fund.
b. At any time prior to the Closing, any of the parties may waive in writing
(i) any inaccuracies in the representations and warranties made to it and
(ii) compliance with any of the covenants or conditions made for its
benefit.
c. Each party hereto may terminate this Agreement at any time prior to the
Closing by notice to the other party if a material condition to its
performance or a material covenant of the other party is not fulfilled
on or before the date specified for its fulfillment or a material breach
of this Agreement is made by the other party and is not cured.
d. This Agreement may be terminated by any party at any time prior to the
Closing, whether before or after approval by the shareholders of each
Selling Fund, without any liability on the part of any party or its
respective directors/trustees, officers, or shareholders, on written
notice to the other party, and shall be terminated without liability as
of the close of business on December 31, 2008, or a later date agreed
upon by the parties, if the Closing is not on or prior to that date.
e. The representations, warranties and covenants contained in this
Agreement, or in any document delivered in connection with this
Agreement, will survive the Reorganization.
11. EXPENSES. RiverSource Investments, LLC and its affiliates will pay all
solicitation expenses in order to achieve shareholder approval of each
Reorganization whether or not the Reorganization is completed and will bear
the other costs of effecting each Reorganization (other than any brokerage
or other transaction costs associated with the sale or purchase of portfolio
securities in connection with a Reorganization).
12. GENERAL.
a. Headings. The headings contained in this Agreement are for reference
purposes only and will not affect the meaning or interpretation of this
Agreement. Nothing in this Agreement is intended to confer upon any
other person any rights or remedies by reason of this Agreement.
b. Governing Law. This Agreement will be governed by the laws of the state
of Minnesota.
13. INDEMNIFICATION. Each party will indemnify and hold the other and its
officers and directors/trustees (each an "Indemnitee") harmless from and
against any liability or other cost and expense, in connection with the
defense or disposition of any action, suit, or other proceeding, before any
court or administrative or investigative body in which the
A.6 RIVERSOURCE FUNDS -- PROXY STATEMENT
Indemnitee may be involved as a party, with respect to actions taken under
this Agreement. However, no Indemnitee will be indemnified against any
liability or expense arising by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of the Indemnitee's position.
14. NON-RECOURSE. A copy of the Declaration of Trust of RiverSource Special
Tax-Exempt Series Trust is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that no trustee, officer, agent or
employee of such fund shall have any personal liability under this
Agreement, and that this Agreement is binding only upon the assets and
properties of each relevant Selling Fund.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed.
RIVERSOURCE BOND SERIES, INC., on behalf of
RiverSource Core Bond Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE DIVERSIFIED BOND SERIES, INC., on behalf of
RiverSource Diversified Bond Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE MANAGERS SERIES, INC., on behalf of
RiverSource Fundamental Growth Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE LARGE CAP SERIES, INC., on behalf of
RiverSource Growth Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC., on behalf of
RiverSource International Equity Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE INTERNATIONAL SERIES, INC., on behalf of
RiverSource Disciplined International Equity Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE FUNDS -- PROXY STATEMENT A.7
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST, on behalf of
RiverSource Massachusetts Tax-Exempt Fund
RiverSource Michigan Tax-Exempt Fund
RiverSource Ohio Tax-Exempt Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC., on behalf of
RiverSource Tax-Exempt High Income Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE MANAGERS SERIES, INC., on behalf of
RiverSource Value Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
RIVERSOURCE INVESTMENT SERIES, INC., on behalf of
RiverSource Diversified Equity Income Fund
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
The undersigned is a party to this Agreement for the purposes of Section 3c and
11 only.
RIVERSOURCE INVESTMENTS, LLC
By:
- ---------------------------------------------
Name:
- ---------------------------------------------
Title:
- ---------------------------------------------
A.8 RIVERSOURCE FUNDS -- PROXY STATEMENT
SCHEDULE A
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------------
SELLING ENTITY SELLING FUND BUYING ENTITY BUYING FUND
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource Bond Series, RiverSource Core Bond Fund RiverSource Diversified Income RiverSource Diversified Bond
Inc. Series, Inc. Fund
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource Managers Series, RiverSource Fundamental Growth RiverSource Large Cap Series, RiverSource Growth Fund
Inc. Fund Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource International RiverSource International RiverSource International RiverSource Disciplined
Managers Series, Inc. Equity Fund Series, Inc. International Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource Special RiverSource Massachusetts RiverSource Tax-Exempt Income RiverSource Tax-Exempt High
Tax-Exempt Series Trust Tax-Exempt Fund Series, Inc. Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource Special RiverSource Michigan Tax-Exempt RiverSource Tax-Exempt Income RiverSource Tax-Exempt High
Tax-Exempt Series Trust Fund Series, Inc. Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource Special RiverSource Ohio Tax-Exempt RiverSource Tax-Exempt Income RiverSource Tax-Exempt High
Tax-Exempt Series Trust Fund Series, Inc. Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
RiverSource Managers Series, RiverSource Value Fund RiverSource Investment Series, RiverSource Diversified Equity
Inc. Inc. Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT A.9
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EXHIBIT B
MINNESOTA BUSINESS CORPORATION ACT SECTIONS 302A.471 AND 302A.473
Minnesota law requires that we provide you with a copy of the state law on
dissenters' rights. Notwithstanding the provisions of the law set out below, the
SEC has taken the position that use of state appraisal procedures by a
registered mutual fund such as the Fund would be a violation of Rule 22c-1, the
forward pricing rule, under the 1940 Act. As a result, if any shareholder elects
to exercise dissenters' rights under Minnesota law, the Fund intends to submit
this question to a court of competent jurisdiction. In that event, a dissenting
shareholder would not receive any payment until the end of the court proceeding.
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) unless otherwise provided in the articles, an amendment of the articles that
materially and adversely affects the rights or preferences of the shares of
the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of
the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or to
cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class
or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
(5) eliminates the right to obtain payment under this subdivision;
(b) a sale, lease, transfer, or other disposition of property and assets of the
corporation that requires shareholder approval under section 302A.661,
subdivision 2, but not including a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) a plan of merger, whether under this chapter or under chapter 322B, to which
the corporation is a party, except as provided in subdivision 3, and except
for a plan of merger adopted under section 302A.626;
(d) a plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, except as provided in subdivision 3;
(e) a plan of conversion adopted by the corporation; or
(f) Any other corporate action taken pursuant to a shareholder vote with respect
to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
SUBDIVISION 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than all of the
shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by
another person but registered in the name of the shareholder and discloses
the name and address of each beneficial owner on whose behalf the
shareholder dissents. In that event, the rights of the dissenter shall be
determined as if the shares as to which the shareholder has dissented and
the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
SUBDIVISION 3. RIGHTS NOT TO APPLY.
(a) Unless the articles, the bylaws, or a resolution approved by the board
otherwise provide, the right to obtain payment under this section does not
apply to a shareholder of (1) the surviving corporation in a merger with
respect to shares of the shareholder that are not entitled to be voted on
the merger and are not canceled or exchanged in the merger or (2) the
corporation whose shares will be acquired by the acquiring organization in a
plan of exchange with respect to shares of the shareholder that are not
entitled to be voted on the plan of exchange and are not exchanged in the
plan of exchange.
RIVERSOURCE FUNDS -- PROXY STATEMENT B.1
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on
an action described in subdivision 1, only shareholders as of the date
fixed, and beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise dissenters' rights.
(c) Notwithstanding subdivision 1, the right to obtain payment under this
section, other than in connection with a plan of merger adopted under
section 302A.621, is limited in accordance with the following provisions:
(1) The right to obtain payment under this section is not available for the
holders of shares of any class or series of shares that is listed on the
New York Stock Exchange or the American Stock Exchange or designated as
a national market security on the Nasdaq Stock Market.
(2) The applicability of clause (1) is determined as of:
(i) the record date fixed to determine the shareholders entitled to
receive notice of, and to vote at, the meeting of shareholders to
act upon the corporate action described in subdivision 1; or
(ii) the day before the effective date of corporate action described in
subdivision 1 if there is no meeting of shareholders.
(3) Clause (1) is not applicable, and the right to obtain payment under this
section is available pursuant to subdivision 1, for the holders of any
class or series of shares who are required by the terms of the corporate
action described in subdivision 1 to accept for such shares anything
other than shares, or cash in lieu of fractional shares, of any class or
any series of shares of a domestic or foreign corporation, or any other
ownership interest of any other organization, that satisfies the
standards set forth in clause (1) at the time the corporate action
becomes effective.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares, or who would have the
right to obtain payment for their shares absent the exception set forth in
paragraph (c) of subdivision 3, do not have a right at law or in equity to have
a corporate action described in subdivision 1 set aside or rescinded, except
when the corporate action is fraudulent with regard to the complaining
shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this subdivision have the
meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date of
the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
SUBDIVISION 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBDIVISION 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders and the corporation holds a shareholder meeting, a shareholder who
is entitled to dissent under section 302A.471 and who wishes to exercise
dissenters' rights must file with the corporation before the vote on the
proposed action a written notice of intent to demand the fair value of the
shares owned by the shareholder and must not vote the shares in favor of the
proposed action.
SUBDIVISION 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if necessary,
the shareholders, the corporation shall send to (i) all shareholders who
have complied with subdivision 3, (ii) all shareholders who did not sign or
consent to a written action that gave effect to the action creating the
right to obtain payment under section 302A.471, and (iii) all shareholders
entitled to dissent if no shareholder vote was required, a notice that
contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date
by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
B.2 RIVERSOURCE FUNDS -- PROXY STATEMENT
(4) A copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting shareholder
must demand payment and deposit certificated shares or comply with any
restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all
other rights of a shareholder until the proposed action takes effect.
SUBDIVISION 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation receives a
valid demand for payment, whichever is later, the corporation shall remit to
each dissenting shareholder who has complied with subdivisions 3 and 4 the
amount the corporation estimates to be the fair value of the shares, plus
interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description of
the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a) from
a person who was not a shareholder on the date the action dissented from was
first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for
withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in
full satisfaction. The dissenter may decline the offer and demand payment
under subdivision 6. Failure to do so entitles the dissenter only to the
amount offered. If the dissenter makes demand, subdivision 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
SUBDIVISION 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
SUBDIVISION 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in a court a petition requesting that
the court determine the fair value of the shares, plus interest. The petition
shall be filed in the county in which the registered office of the corporation
is located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedures apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
SUBDIVISION 8. COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation,
RIVERSOURCE FUNDS -- PROXY STATEMENT B.3
except that the court may assess part or all of those costs and expenses
against a dissenter whose action in demanding payment under subdivision 6 is
found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply substantially
with this section, the court may assess all fees and expenses of any experts
or attorneys as the court deems equitable. These fees and expenses may also
be assessed against a person who has acted arbitrarily, vexatiously, or not
in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
B.4 RIVERSOURCE FUNDS -- PROXY STATEMENT
EXHIBIT C
ADDITIONAL INFORMATION APPLICABLE TO THE BUYING FUNDS
FUND MANAGEMENT AND COMPENSATION
INVESTMENT MANAGER
RiverSource Investments, LLC (the investment manager or RiverSource
Investments), 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, is
the investment manager to the RiverSource funds, and is a wholly-owned
subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise
Financial is a financial planning and financial services company that has been
offering solutions for clients' asset accumulation, income management and
protection needs for more than 110 years. In addition to managing investments
for all of the RiverSource funds, RiverSource Investments manages investments
for itself and its affiliates. For institutional clients, RiverSource
Investments and its affiliates provide investment management and related
services, such as separate account asset management, and institutional trust and
custody, as well as other investment products. For all of its clients,
RiverSource Investments seeks to allocate investment opportunities in an
equitable manner over time. See the SAI for more information.
Each 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 the following percentage of the Fund's average daily net
assets:
<Table>
<Caption>
PERCENTAGE OF FUND'S
FUND AVERAGE DAILY NET ASSETS
Diversified Bond Fund 0.46%
Growth Fund 0.66%
Disciplined International Equity Fund 0.80%
Tax-Exempt High Income Fund 0.45%
Diversified Equity Income Fund 0.61%
</Table>
For Growth Fund and Diversified Equity Income Fund, the fee includes an
adjustment under the terms of a performance incentive arrangement. For
Disciplined International Equity Fund, beginning Dec. 1, 2006, the fee may be
adjusted 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 Large-Cap Growth Funds Index for Growth Fund, the
Lipper International Large-Cap Core Funds Index for Disciplined International
Equity Fund and the Lipper Equity Income Funds Index for Diversified Equity
Income Fund. 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, each Fund also pays taxes, brokerage commissions, and
nonadvisory expenses. A discussion regarding the basis for the Board approving
the Agreement is available in each Fund's most recent annual or semiannual
shareholder report.
Diversified Bond Fund Portfolio Managers. The portfolio managers responsible for
the day-to-day management of Diversified Bond Fund are:
Jamie Jackson, CFA, Portfolio Manager
- - Co-managed the Fund since 2003.
- - Leader of the liquid assets sector team.
- - Joined RiverSource Investments in 2003.
- - Co-head of U.S. Investment Grade Fixed Income, UBS Global Asset Management,
1997 to 2003.
- - Began investment career in 1988.
- - MBA, Marquette University.
Scott Kirby, Portfolio Manager
- - Co-managed the Fund since 2003.
- - Leader of the structured assets sector team.
- - Employed by RiverSource Investments from 1979 to 1985 and from 1987 to the
present.
- - Began investment career in 1979.
- - MBA, University of Minnesota.
RIVERSOURCE FUNDS -- PROXY STATEMENT C.1
Tom Murphy, CFA, Portfolio Manager
- - Co-managed the Fund since 2003.
- - Leader of the investment grade corporate bond sector team.
- - Joined RiverSource Investments in 2002.
- - Managing Director and Portfolio Manager, BlackRock Financial Management, 2002;
various positions, Zurich Scudder, 1992 to 2002.
- - Began investment career in 1986.
- - MBA, University of Michigan.
Nicholas Pifer, CFA, Portfolio Manager
- - Co-managed the Fund since 2003.
- - 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.
Jennifer Ponce de Leon, Portfolio Manager
- - Co-managed the Fund since 2003.
- - Leader of the high yield sector team.
- - Joined RiverSource Investments in 1997.
- - Began investment career in 1989.
- - MBA, De Paul University.
The fixed income department of RiverSource Investments is divided into six
sector teams, each of which includes a portfolio manager or portfolio managers
and several analysts, and each of which specializes in a specific sector of the
fixed income market. The Fund's portfolio managers lead the teams that
specialize in the sectors in which the Fund primarily invests, and collectively
determine allocation of Fund assets among the sectors.
Growth Fund Portfolio Manager. The portfolio manager responsible for the
day-to-day management of Growth Fund is:
Nick Thakore, Portfolio Manager
- - Managed the Fund since 2002.
- - Joined RiverSource Investments in 2002.
- - Analyst and Portfolio Manager, Fidelity Investments, 1993 to 2002.
- - Began investment career in 1993.
- - MBA, Wharton School, University of Pennsylvania.
Disciplined International Equity Fund Portfolio Managers. The portfolio managers
responsible for the day-to-day management of Disciplined International Equity
Fund are:
Dimitris J. Bertsimas, Ph.D., Senior Portfolio Manager
- - Managed the Fund since 2006.
- - Joined RiverSource Investments as a portfolio manager and leader of the
Disciplined Equity and Asset Allocation Team in 2002.
- - Co-founded Dynamic Ideas, LLC, a consulting firm that specialized in the
development of quantitative tools for the asset management industry, where he
served as Managing Partner, 1999 to 2002. Currently, Boeing Professor of
Operations Research, Sloan School of Management and the Operations Research
Center, MIT.
- - Began investment career as a consultant to asset managers in 1993; became
portfolio manager in 2002.
- - MS and Ph.D., MIT.
C.2 RIVERSOURCE FUNDS -- PROXY STATEMENT
Alexander M. Sauer-Budge, Ph.D., Portfolio Manager
- - Managed the Fund since 2006.
- - Joined RiverSource Investments in 2003 as a Quantitative Analyst after
receiving his Ph.D. from MIT (1998-2003).
- - Began investment career in 2003.
- - SM and Ph.D., MIT.
Tax-Exempt High Income Fund Portfolio Manager. The portfolio manager responsible
for the day-to-day management of Tax-Exempt High Income Fund is:
Catherine Stienstra, Portfolio Manager
- - Managed the Fund since August 2007.
- - Leader of the municipal sector team.
- - Joined RiverSource Investments in 2007.
- - Director and Senior Portfolio Manager, FAF Advisors, Inc. (formerly USBancorp
Asset Management), 1998-2007.
- - Began investment career in 1988 and has worked in the municipal fixed income
market since 1990.
- - BA, international studies, University of Nebraska.
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.
Diversified Equity Income Fund Portfolio Managers. The portfolio managers
responsible for the day-to-day management of Diversified Equity Income Fund are:
Warren Spitz, Senior Portfolio Manager
- - Managed the Fund since 2000.
- - Joined RiverSource Investments in 2000 as a Senior Portfolio Manager.
- - Portfolio Manager, Prudential Global Asset Management, 1987 to 2000.
- - Began investment career in 1984.
- - MBA, Wharton School, University of Pennsylvania.
Steve Schroll, Portfolio Manager
- - Managed the Fund since 2003.
- - Joined RiverSource Investments in 1998 as a Senior Security Analyst.
- - Senior Equity Analyst, Piper Jaffray, 1988 to 1998; Equity Analyst, First
Asset Management, 1985 to 1988; Equity Analyst, Dain Rauscher, 1981 to 1985.
- - Began investment career in 1981.
- - MBA, University of Minnesota.
Laton Spahr, CFA, Portfolio Manager
- - Managed the Fund since 2003.
- - Joined RiverSource Investments in 2001 as a Security Analyst.
- - Sector Analyst, Holland Capital Management, 2000 to 2001; Statistical Research
Intern, Friess Associates, 1998 to 1999.
- - Began investment career in 1998.
- - MS, University of Wisconsin, Applied Security Analysis Program.
Paul Stocking, Portfolio Manager
- - Managed the Fund since 2006.
- - Joined RiverSource Investments in 1995 as a Senior Equity Analyst.
- - Vice President, JP Morgan Securities, 1987 to 1995; Investment Banking.
RIVERSOURCE FUNDS -- PROXY STATEMENT C.3
- - Began investment career in 1987.
- - MBA, University of Chicago.
The SAI provides additional information about portfolio manager compensation,
management of other accounts and ownership of shares in the Fund.
BUYING AND SELLING SHARES
The RiverSource funds are available through broker-dealers, certain 401(k) or
other qualified and nonqualified plans, banks, or other financial intermediaries
or institutions (financial institutions). THESE FINANCIAL INSTITUTIONS MAY
CHARGE YOU ADDITIONAL FEES FOR THE SERVICES THEY PROVIDE AND THEY MAY HAVE
DIFFERENT POLICIES NOT DESCRIBED IN THIS PROSPECTUS. Some policy differences may
include different minimum investment amounts, exchange privileges, fund choices
and cutoff times for investments. Additionally, recordkeeping, transaction
processing and payments of distributions relating to your account may be
performed by the financial institutions through which shares are held. Since the
fund may not have a record of your transactions, you should always contact the
financial institution through which you purchased the fund to make changes to or
give instructions concerning your account or to obtain information about your
account. The fund, the distributor and the transfer agent are not responsible
for the failure of one of these financial institutions to carry out its
obligations to its customers.
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 class. See the "Fees and Expenses" table
for more information. Not everyone is eligible to buy every class. After
determining which classes you are eligible to buy, decide which class best suits
your needs. Your financial institution can help you with this decision. The
following table shows the key features of each class. (The Comparison of the
Selling Fund and the Buying Fund section indicates which classes are currently
offered for the Funds.)
INVESTMENT OPTIONS SUMMARY
See the "Fees and Expenses" table to determine which classes are offered by this
fund.
<Table>
<Caption>
CONTINGENT PLAN
INITIAL DEFERRED SALES DISTRIBUTION AND ADMINISTRATION
AVAILABILITY SALES CHARGE CHARGE (CDSC) SERVICE FEE(A) FEE
- -------------------------------------------------------------------------------------------------------------
Class A Available to Yes. Payable at No. Yes. No.
all investors. time of purchase. 0.25%
Lower sales
charge for larger
investments.
- -------------------------------------------------------------------------------------------------------------
Class Available to No. Entire Maximum 5% CDSC during Yes. No.
B(b) all investors. purchase price is the first year decreasing 1.00%
invested in to 0% after six years.
shares of the
fund.
- -------------------------------------------------------------------------------------------------------------
Class C Available to No. Entire 1% CDSC may apply if you Yes. No.
all investors. purchase price is sell shares within one 1.00%
invested in year after purchase.
shares of the
fund.
- -------------------------------------------------------------------------------------------------------------
Class I Limited to No. No. No. No.
qualifying
institutional
investors.
- -------------------------------------------------------------------------------------------------------------
Class R2 Limited to No. No. Yes. Yes.
qualifying 0.50% 0.25%
institutional
investors.
- -------------------------------------------------------------------------------------------------------------
Class R3 Limited to No. No. Yes. Yes.
qualifying 0.25% 0.25%
institutional
investors.
- -------------------------------------------------------------------------------------------------------------
Class R4 Limited to No. No. No. Yes.
qualifying 0.25%
institutional
investors.
- -------------------------------------------------------------------------------------------------------------
Class R5 Limited to No. No. No. No.
qualifying
institutional
investors.
- -------------------------------------------------------------------------------------------------------------
</Table>
C.4 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
INVESTMENT OPTIONS SUMMARY (CONTINUED)
CONTINGENT PLAN
INITIAL DEFERRED SALES DISTRIBUTION AND ADMINISTRATION
AVAILABILITY SALES CHARGE CHARGE (CDSC) SERVICE FEE(A) FEE
- -------------------------------------------------------------------------------------------------------------
Class W Limited to No. No. Yes. No.
qualifying 0.25%
discretionary
managed accounts.
- -------------------------------------------------------------------------------------------------------------
</Table>
(a) For Class A, Class B, Class C, Class R2, Class R3 and Class W shares, each
fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940, as amended, that allows it to pay distribution and shareholder
servicing-related expenses for the sale of shares. Because these fees are
paid out of a fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying
other types of distribution (sales) or servicing charges.
(b) 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 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 are subject to the requirements of Rule 12b-1
under the Investment Company Act of 1940, as amended, and are used to reimburse
the distributor for certain expenses it incurs in connection with distributing a
fund's shares and providing services to fund shareholders. These expenses
include payment of distribution and shareholder servicing fees to financial
institutions that sell shares of the fund, 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 begins to pay these fees one year
after purchase. 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 one year after purchase. For Class B
shares, and, for the first year after sale only, for 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.
PLAN ADMINISTRATION FEE
Class R2, Class R3 and Class R4 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 is equal on an
annual basis to 0.25% of assets attributable to the respective class.
DETERMINING WHICH CLASS OF SHARES TO PURCHASE
CLASS A, CLASS B AND CLASS C SHARES
If your investments in RiverSource funds total $100,000 or more, Class A shares
may be the better option because the sales charge is reduced for larger
purchases.
If you invest less than $100,000, consider how long you plan to hold your
shares. Class B shares have a higher annual distribution fee than Class A shares
and a CDSC for six years. Class B shares convert to Class A shares in the ninth
year of ownership. Class B shares purchased through reinvested dividends and
distributions also will convert to Class A shares in the same proportion as the
other Class B shares.
Class C shares also have a higher annual distribution fee than Class A shares.
Class C shares have no sales charge if you hold the shares for longer than one
year. Unlike Class B shares, Class C shares do not convert to Class A. As a
result, you will pay a distribution fee for as long as you hold Class C shares.
If you choose a deferred sales charge option (Class B or Class C), you should
consider the length of time you intend to hold your shares. To help you
determine which investment is best for you, consult your financial institution.
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.
RIVERSOURCE FUNDS -- PROXY STATEMENT C.5
- - 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 Trusts 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 INVESTMENTS FROM OTHER PURCHASERS NOT LISTED ABOVE.
For more information, see the Merger 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. Sales charges vary depending on the amount of your purchase.
SALES CHARGE* FOR CLASS A SHARES:
<Table>
<Caption>
MAXIMUM
AS A % OF AS A % OF RE-ALLOWANCE AS A % OF
PURCHASE PRICE** NET AMOUNT INVESTED PURCHASE PRICE
------------------------------------------------------------------------------
FIXED FIXED FIXED
EQUITY INCOME EQUITY INCOME EQUITY INCOME
TOTAL MARKET VALUE FUNDS FUNDS FUNDS FUNDS FUNDS FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
Up to $49,999 5.75% 4.75% 6.10% 4.99% 5.00% 4.00%
$50,000 -- $99,999 4.75 4.25 4.99 4.44 4.00 3.50
$100,000 -- $249,999 3.50 3.50 3.63 3.63 3.00 3.00
$250,000 -- $499,999 2.50 2.50 2.56 2.56 2.15 2.15
$500,000 -- $999,999 2.00 2.00 2.04 2.04 1.75 1.75
$1,000,000 or more 0.00 0.00 0.00 0.00 0.00*** 0.00***
</Table>
* 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.
C.6 RIVERSOURCE FUNDS -- PROXY STATEMENT
INITIAL SALES CHARGE -- RIGHTS OF ACCUMULATION. You may be able to reduce the
sales charge on Class A shares, based on the combined market value of your
accounts. The current market values of the following investments are eligible to
be added together for purposes of determining the sales charge on your purchase:
- - Your current investment in a fund; and
- - Previous investments you and members of your primary household group have made
in Class A, Class B or Class C shares in the fund and other RiverSource funds,
provided your investment was subject to a sales charge. Your primary household
group consists of you, your spouse or domestic partner and your unmarried
children under age 21 sharing a mailing address.
The following accounts are eligible to be included in determining the sales
charge on your purchase:
- - Individual or joint accounts;
- - Roth and traditional IRAs, SEPs, SIMPLEs and TSCAs, provided they are invested
in Class A, Class B or Class C shares that were subject to a sales charge;
- - UGMA/UTMA accounts for which you, your spouse, or your domestic partner is
parent or guardian of the minor child;
- - Revocable trust accounts for which you or a member of your primary household
group, 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 Merger SAI.
INITIAL SALES CHARGE -- LETTER OF INTENT (LOI). Generally, if you intend to
invest $50,000 or more over a period of 13 months or less, you may be able to
reduce the front-end sales charges for investments in Class A shares by
completing and filing a LOI form. The LOI becomes effective only after the form
is processed in good order by the fund. An LOI can be backdated up to a maximum
of 90 days. If the LOI is backdated, you may include prior investments in Class
A shares that were charged a front-end sales load toward the LOI commitment
amount. If the LOI is backdated, the 13-month period begins on the date of the
earliest purchase included in the LOI.
Holdings More than 90 Days Old. Purchases made more than 90 days before your LOI
is processed by the fund will not be counted toward the commitment amount of the
LOI and cannot be used as the starting point for the LOI. While these purchases
cannot be included in an LOI, they may help you obtain a reduced sales charge on
future purchases as described in "Initial Sales Charge -- Rights of
Accumulation."
Notification Obligation. You must request the reduced sales charge when you buy
shares. If you do not complete and file the LOI form, or do not request the
reduced sales charge at the time of purchase, you will not be eligible for the
reduced sales charge. You should request that your financial institution provide
this information to the fund when placing your purchase order. For more details
on LOIs, please contact your financial institution or see the Merger SAI.
RIVERSOURCE FUNDS -- PROXY STATEMENT C.7
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.
- - qualified employee benefit plans offering participants daily access to
RiverSource funds. Eligibility must be determined in advance. For assistance,
please contact your financial institution.
- - direct rollovers from qualified employee benefit plans, provided that the
rollover involves a transfer of Class R or Class Y shares in a fund 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 Investment's website
free of charge, RiverSource Investments does not disclose this information
separately on the website.
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:
<Table>
<Caption>
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%
</Table>
* Because of rounding in the calculation, the portion of the CDSC retained by
the distributor may vary and the actual CDSC you pay may be more or less than
the CDSC calculated using these percentages.
Although there is no front-end sales charge when you buy Class B shares, the
distributor pays a sales commission of 4% to financial institutions that sell
Class B shares. A portion of this commission may, in turn, be paid to your
financial advisor. The distributor receives any CDSC imposed when you sell your
Class B shares.
Purchases made prior to May 21, 2005 age on a calendar year basis. Purchases
made beginning May 21, 2005 age on a daily basis. For example, a purchase made
on Nov. 12, 2004 completed its first year on Dec. 31, 2004 under calendar year
aging. However, a purchase made on Nov. 12, 2005 completed its first year on
Nov. 11, 2006 under daily aging.
C.8 RIVERSOURCE FUNDS -- PROXY STATEMENT
Class B shares purchased prior to May 21, 2005 will convert to Class A shares in
the ninth calendar year of ownership. Class B shares purchased beginning May 21,
2005 will convert to Class A shares one month after the completion of the eighth
year of ownership.
FOR CLASS C, a 1% CDSC may be charged if you sell your shares within one year
after purchase. Although there is no front-end sales charge when you buy Class C
shares, the distributor pays a sales commission of 1% to financial institutions
that sell Class C shares. A portion of this commission may, in turn, be paid to
your financial advisor. The distributor receives any CDSC imposed when you sell
your Class C shares.
For both Class B and Class C, if the amount you sell causes the value of your
investment to fall below the cost of the shares you have purchased, the CDSC
will be based on the lower of the cost of those shares purchased or market
value. Because the CDSC is imposed only on sales that reduce your total purchase
payments, you do not have to pay a CDSC on any amount that represents
appreciation in the value of your shares, income earned by your shares, or
capital gains. In addition, the CDSC on your sale, if any, will be based on your
oldest purchase payment. The CDSC on the next amount sold will be based on the
next oldest purchase payment.
EXAMPLE
Assume you had invested $10,000 in Class B shares and that your investment had
appreciated in value to $12,000 after 3 1/2 years, including reinvested
dividends and capital gain distributions. You could sell up to $2,000 worth of
shares without paying a CDSC ($12,000 current value less $10,000 purchase
amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500
representing part of your original purchase price. The CDSC rate would be 3%
because the sale was made during the fourth year after the purchase.
CDSC -- WAIVERS OF THE CDSC FOR CLASS B SHARES. The CDSC will be waived on sales
of shares:
- - in the event of the shareholder's death;
- - held in trust for an employee benefit plan; or
- - held in IRAs or certain qualified plans, such as Keogh plans, tax-sheltered
custodial accounts or corporate pension plans, provided that the shareholder
is:
- at least 59 1/2 years old AND
- taking a retirement distribution (if the sale is part of a transfer to an
IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will
not be waived) OR
- selling under an approved substantially equal periodic payment arrangement.
CDSC -- WAIVERS OF THE CDSC FOR CLASS C SHARES. The CDSC will be waived on sales
of shares in the event of the shareholder's death.
CLASS I, CLASS R2, CLASS R3, CLASS R4, CLASS R5 AND CLASS W -- NO SALES CHARGE.
For 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.
Your financial institution may establish and maintain your account directly or
it may establish and maintain your account with the distributor. The distributor
may appoint servicing agents to accept purchase orders and to accept exchange
(and sale) orders on its behalf. Accounts maintained by the distributor will be
supported by the fund's transfer agent.
METHODS OF PURCHASING SHARES
These methods of purchasing shares apply to Class A, Class B, and Class C
shares.
THROUGH AN ACCOUNT ESTABLISHED WITH YOUR FINANCIAL INSTITUTION
ALL REQUESTSThe 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.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDS -- PROXY STATEMENT C.9
METHODS OF PURCHASING SHARES (CONTINUED)
THROUGH AN ACCOUNT ESTABLISHED WITH THE FUND
BY MAIL 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
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 INVESTMENTS (FUNDS)
P.O. BOX 8041
BOSTON, MA 02266-8041
EXPRESS MAIL RIVERSOURCE INVESTMENTS (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 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 through the distributor may be paid for by
federal funds wire. Before sending a wire, call (888) 791-3380 to
notify the distributor 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.
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT AND ACCOUNT BALANCE
<Table>
<Caption>
FOR ALL FUNDS,
CLASSES AND
ACCOUNTS EXCEPT
THOSE LISTED TO THE TAX QUALIFIED
RIGHT (NONQUALIFIED) ACCOUNTS CLASS W
- ---------------------------------------------------------------------------------------------------------------------------------
INITIAL INVESTMENT $2,000 $1,000 $500
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INVESTMENTS $100 $100 None
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNT BALANCE* $300 None $500
</Table>
* 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.
- --------------------------------------------------------------------------------
C.10 RIVERSOURCE FUNDS -- PROXY STATEMENT
MINIMUM INVESTMENT AND ACCOUNT BALANCE -- SCHEDULED INVESTMENT PLANS
<Table>
<Caption>
FOR ALL FUNDS,
CLASSES AND
ACCOUNTS EXCEPT
THOSE LISTED TO THE TAX QUALIFIED
RIGHT (NONQUALIFIED) ACCOUNTS CLASS W
- ---------------------------------------------------------------------------------------------------------------------------------
INITIAL INVESTMENT $100 $100 $500
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INVESTMENTS $100 $50 None
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNT BALANCE** None None $500
</Table>
** 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.
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 distributor, 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 REQUESTSYou 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 INVESTMENTS (FUNDS)
P.O. BOX 8041
BOSTON, MA 02266-8041
EXPRESS MAIL RIVERSOURCE INVESTMENTS (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
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.
- --------------------------------------------------------------------------------
RIVERSOURCE FUNDS -- PROXY STATEMENT C.11
WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES (CONTINUED)
ACCOUNT ESTABLISHED WITH THE FUND (CONT.)
BY MAIL (CONT.)
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 TELEPHONECall (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
PAYOUT PLAN You may elect to receive regular periodic payments through an
automatic sale of shares. See the Merger SAI for more information.
- --------------------------------------------------------------------------------
IMPORTANT: Payments sent by a bank authorization or check that are not
guaranteed may take up to ten days to clear. This may cause your sale request to
fail to process if the requested amount includes unguaranteed funds.
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.
MARKET TIMING IS FREQUENT OR SHORT-TERM TRADING BY CERTAIN SHAREHOLDERS INTENDED
TO PROFIT AT THE EXPENSE OF OTHER SHAREHOLDERS BY SELLING SHARES OF A FUND
SHORTLY AFTER PURCHASE. MARKET TIMING MAY ADVERSELY IMPACT A FUND'S PERFORMANCE
BY PREVENTING THE INVESTMENT MANAGER FROM FULLY INVESTING THE ASSETS OF THE
FUND, DILUTING THE VALUE OF SHARES HELD BY LONG-TERM SHAREHOLDERS, OR INCREASING
THE FUND'S TRANSACTION COSTS.
FUNDS THAT INVEST IN SECURITIES THAT TRADE INFREQUENTLY MAY BE VULNERABLE TO
MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF INEFFICIENCIES IN THE SECURITIES
MARKETS. FUNDS THAT INVEST IN SECURITIES THAT TRADE ON OVERSEAS SECURITIES
MARKETS MAY BE VULNERABLE TO MARKET TIMERS WHO SEEK TO TAKE ADVANTAGE OF CHANGES
IN THE VALUES OF SECURITIES BETWEEN THE CLOSE OF OVERSEAS MARKETS AND THE CLOSE
OF U.S. MARKETS, WHICH IS GENERALLY THE TIME AT WHICH A FUND'S NAV IS
CALCULATED. TO THE
C.12 RIVERSOURCE FUNDS -- PROXY STATEMENT
EXTENT THAT A FUND HAS SIGNIFICANT HOLDINGS OF SMALL CAP STOCKS, 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 "COMPARISON OF PRINCIPAL
INVESTMENT STRATEGIES SECTION" FOR A DISCUSSION OF THE TYPES OF SECURITIES IN
WHICH YOUR FUND INVESTS.
SEE "VALUING FUND SHARES" FOR A DISCUSSION OF THE RIVERSOURCE FUNDS' POLICY ON
FAIR VALUE PRICING, WHICH IS INTENDED, IN PART, TO REDUCE THE FREQUENCY AND
EFFECT OF MARKET TIMING.
THE RIVERSOURCE FUNDS' BOARDS HAVE ADOPTED A POLICY THAT IS DESIGNED TO DETECT
AND DETER MARKET TIMING 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. Under the fund's procedures, there is no set number of
transactions in the fund that constitutes market timing. Even one purchase and
subsequent sale by related accounts may be market timing. Generally, the fund
seeks to restrict the exchange privilege of an investor who makes more than
three exchanges into or out of the fund in any 90-day period. Accounts held by
a retirement plan or a financial institution for the benefit of its
participants or clients, which typically engage in daily transactions, are not
subject to this limit, although the fund seeks the assistance of financial
institutions in applying similar restrictions on the sub-accounts of their
participants or clients.
- - If an investor's trading activity is determined to be market timing or
otherwise harmful to existing shareholders, the fund reserves the right to
modify or discontinue the investor's exchange privilege or reject the
investor's purchases or exchanges, including purchases or exchanges accepted
by a financial institution. The fund may treat accounts it believes to be
under common control as a single account for these purposes, although it may
not be able to identify all such accounts.
- - Although the fund does not knowingly permit market timing, it cannot guarantee
that it will be able to identify and restrict all short-term trading activity.
The fund receives purchase and sale orders through financial institutions
where market timing activity may not always be successfully detected.
Other exchange policies:
- - Exchanges must be made into the same class of shares of the new fund.
- - Exchanges into RiverSource Tax-Exempt Money Market Fund may be made only from
Class A shares.
- - If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
- - Once the fund receives your exchange request, you cannot cancel it.
- - Shares of the new fund may not be used on the same day for another exchange or
sale.
- - Shares of Class W originally purchased, but no longer held in a discretionary
managed account, may not be exchanged for Class W shares of another fund. You
may continue to hold these shares in the fund. Changing your investment to a
different fund will be treated as a sale and purchase, and you will be subject
to applicable taxes on the sale and sales charges on the purchase of the new
fund.
SELLING SHARES
You may sell your shares at any time. The payment will be sent within seven days
after your request is received in good order.
When you sell shares, the amount you receive may be more or less than the amount
you invested. Your sale price will be the next NAV calculated after your request
is received in good order, minus any applicable CDSC.
REPURCHASES. You can change your mind after requesting a sale and use all or
part of the sale proceeds to purchase new shares in the same account, fund and
class from which you sold. If you reinvest in Class A, you will purchase the new
shares at NAV, up to the amount of the sale proceeds, instead of paying a sales
charge on the date of a new purchase. If you reinvest in Class B or Class C, any
CDSC you paid on the amount you are reinvesting also will be reinvested. In
order for you to take advantage of this repurchase waiver, you must notify your
financial institution within 90 days of the date your sale request was
processed. Contact your financial institution for information on required
documentation. The repurchase privilege may be modified or discontinued at any
time and use of this option may have tax consequences.
Each fund reserves the right to redeem in kind.
For more details and a description of other sales policies, please see the
Merger 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.
RIVERSOURCE FUNDS -- PROXY STATEMENT C.13
The NAV is the value of a single share of a fund. The NAV is determined by
dividing the value of a fund's assets, minus any liabilities, by the number of
shares outstanding. The NAV is calculated as of the close of business on the New
York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time, on each day that
the NYSE is open. Securities are valued primarily on the basis of market
quotations and floating rate loans are valued primarily on the basis of
indicative bids. Both market quotations and indicative bids are obtained from
outside pricing services approved and monitored under procedures adopted by the
Board. Certain short-term securities with maturities of 60 days or less are
valued at amortized cost.
When reliable market quotations or indicative bids are not readily available,
investments are priced at fair value based on procedures adopted by the Board.
These procedures are also used when the value of an investment held by a fund is
materially affected by events that occur after the close of a securities market
but prior to the time as of which the fund's NAV is determined. Valuing
investments at fair value involves reliance on judgment. The fair value of an
investment is likely to differ from any available quoted or published price. To
the extent that a fund has significant holdings of high yield bonds, floating
rate loans, tax-exempt securities, foreign securities or small cap stocks that
may trade infrequently, fair valuation may be used more frequently than for
other funds. The funds use an unaffiliated service provider to assist in
determining fair values for foreign securities.
Foreign investments are valued in U.S. dollars. Some of a fund's securities may
be listed on foreign exchanges that trade on weekends or other days when the
fund does not price its shares. In that event, the NAV of the fund's shares may
change on days when shareholders will not be able to purchase or sell the fund's
shares.
DISTRIBUTIONS AND TAXES
As a shareholder you are entitled to your share of your fund's net income and
net gains. Each fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Your fund's net investment income is distributed to you as dividends. Dividends
may be composed of qualifying dividend income, which is eligible for
preferential tax rates under current tax law, as well as other ordinary dividend
income, which may include non-qualifying dividends, interest income and
short-term capital gains. Because of the types of income earned by fixed income
funds, it is unlikely the funds will distribute qualifying dividend income.
Capital gains are realized when a security is sold for a higher price than was
paid for it. Each realized capital gain or loss is long-term or short-term
depending on the length of time the fund held the security. Realized capital
gains and losses offset each other. The fund offsets any net realized capital
gains by any available capital loss carryovers. Net short-term capital gains are
included in net investment income. Net realized long-term capital gains, if any,
are distributed by the end of the calendar year as capital gain distributions.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the fund, unless you request
distributions in cash. The financial institution through which you purchased
shares may have different policies.
Distributions are reinvested at the next calculated NAV after the distribution
is paid. If you choose cash distributions, you will receive cash only for
distributions declared after your request has been processed.
TAXES
If you buy shares shortly before the record date of a distribution, you may pay
taxes on money earned by the fund before you were a shareholder. You will pay
the full pre-distribution price for the shares, then receive a portion of your
investment back as a distribution, which may be taxable.
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. Generally, if you sell
shares for less than their cost, the difference is a capital loss or if you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be short term (for shares held for one year or less) or long term (for shares
held for more than one year).
You may not create a tax loss, 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 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 Merger SAI.
FOR TAXABLE FUNDS. Distributions are subject to federal income tax and may be
subject to state and local taxes in the year they are declared. You must report
distributions on your tax returns, even if they are reinvested in additional
shares.
Distributions of 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.
C.14 RIVERSOURCE FUNDS -- PROXY STATEMENT
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.
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, penalties and reporting requirements.
Please consult your tax advisor.
FOR TAX-EXEMPT FUNDS. Dividends distributed from interest earned on tax-exempt
securities (exempt-interest dividends) are exempt from federal income taxes but
may be subject to state and local taxes. Dividends distributed from capital gain
distributions and other income earned are not exempt from federal income taxes.
Distributions are taxable in the year the fund declares them regardless of
whether you take them in cash or reinvest them.
Interest on certain private activity bonds is a preference item for purposes of
the individual and corporate alternative minimum taxes. To the extent the fund
earns such income, it will flow through to its shareholders and may be taxable
to those shareholders who are subject to the alternative minimum tax. See the
Merger 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.
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 mailed in January.
IMPORTANT: This information is a brief and selective summary of some of the tax
rules that apply to an investment in a fund. Because tax matters are highly
individual and complex, you should consult a qualified tax advisor.
GENERAL INFORMATION
AVAILABILITY AND TRANSFERABILITY OF FUND SHARES
Please consult your financial institution to determine availability of
RiverSource funds. Currently, RiverSource funds may be purchased or sold through
affiliated broker-dealers of RiverSource Investments and through certain
unaffiliated financial institutions. If you set up an account at a financial
institution that does not have, and is unable to obtain, a selling agreement
with the distributor of the RiverSource funds, you will not be able to transfer
RiverSource fund holdings to that account. In that event, you must either
maintain your RiverSource fund holdings with your current financial institution,
find another financial institution with a selling agreement, or sell your
shares, paying any applicable CDSC. Please be aware that transactions in taxable
accounts are taxable events and may result in income tax liability.
ADDITIONAL SERVICES AND COMPENSATION
In addition to acting as the fund's investment manager, RiverSource Investments
and its affiliates also receive compensation for providing other services to the
funds.
Administration Services. Ameriprise Financial, 200 Ameriprise Financial Center,
Minneapolis, Minnesota 55474, provides or compensates others to provide
administrative services to the RiverSource funds. These services include
administrative, accounting, treasury, and other services. Fees paid by a fund
for these services are included under "Other expenses" in the expense table
under "Fees and Expenses."
Custody Services. Ameriprise Trust Company, 200 Ameriprise Financial Center,
Minneapolis, Minnesota 55474 (the custodian or Ameriprise Trust Company),
provides custody services to all but a limited number of the RiverSource funds,
for which U.S. Bank National Association provides custody services. In addition,
Ameriprise Trust Company is paid for certain transaction fees and out-of-pocket
expenses incurred while providing services to the funds. Fees paid by a fund for
these services are included under "Other expenses" in the expense table under
"Fees and Expenses."
Distribution and Shareholder Services. RiverSource Distributors, Inc., 50611
Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the distributor or
RiverSource Distributors), provides underwriting and distribution services to
the RiverSource funds. Under the Distribution Agreement and related distribution
and shareholder servicing plans, the distributor receives distribution and
shareholder servicing fees. The distributor may retain a portion of these fees
to support its distribution and shareholder servicing activity. The distributor
re-allows the remainder of these fees (or the full fee) to the financial
institutions that sell fund shares and provide services to shareholders. Fees
paid by a fund for these services are set forth under "Distribution (12b-1)
fees" in the expense table under "Fees and Expenses." More information on how
these fees are used is set forth under "Investment Options -- Classes of Shares"
in Exhibit C and in the Merger 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
RIVERSOURCE FUNDS -- PROXY STATEMENT C.15
Shares: Sales Charges" for variations in the scheduled sales charges, and for
how these sales charges are used by the distributor. See "Comparison of Other
Investment Strategies and Risks" for the RiverSource funds' policy regarding
directed brokerage.
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."
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 Merger SAI provides additional information about the
services provided and the fee schedules for the transfer agent agreements.
PAYMENTS TO FINANCIAL INSTITUTIONS
RiverSource Investments and its affiliates may make or support additional cash
payments out of their own resources to financial institutions, including
inter-company allocation of resources to affiliated broker-dealers such as
Ameriprise Financial Services (and its licensed representatives), in connection
with selling fund shares or providing services to the fund or its shareholders.
These inter-company allocations may include payment as compensation to employees
of RiverSource Investments who are licensed by Ameriprise Financial Services, in
respect of certain sales and solicitation activity on behalf of the funds. These
payments and inter-company allocations are in addition to any 12b-1 distribution
and/or shareholder service fees or other amounts paid by the fund to the
distributor under distribution and shareholder servicing plans, or paid by the
fund to the transfer agent under its transfer agency agreement or plan
administration agreement, which fees may be used by these entities to support
shareholder account maintenance, sub-accounting, recordkeeping or other services
provided directly by the financial institution to shareholders or 529 and
retirement plans and the plan participants. In exchange for these payments and
inter-company allocations, RiverSource Investments and its affiliates may
receive preferred access to registered representatives of a financial
institution (for example, the ability to make presentations in branch offices or
at conferences) or preferred access to customers of the financial institution
(for example, the ability to advertise or directly interact with the financial
institution's customers in order to sell the fund). These arrangements are
sometimes referred to as "revenue sharing payments." In some cases, these
arrangements may create an incentive for a financial institution or its
representatives to recommend or sell shares of a fund and may create a conflict
of interest between a financial institution's financial interest and its duties
to its customers. Please contact the financial institution through which you are
purchasing shares of the fund for details about any payments it may receive in
connection with the solicitation and sale of fund shares or providing services
to the fund or its shareholders. These payments and inter-company allocations
are usually calculated based on a percentage of fund sales and/or as a
percentage of fund assets attributable to a particular financial institution.
These payments may also be negotiated based on other criteria or factors
including, but not limited to, the financial institution's affiliation with the
investment manager, its reputation in the industry, its ability to attract and
retain assets, its access to target markets, its customer relationships and the
scope and quality of services it provides. The amount of payment or
inter-company allocation may vary by financial institution and by type of sale
(e.g., purchases of different share classes or purchases of the fund through a
qualified plan or through a wrap program), and may be significant.
From time to time, RiverSource Investments and its affiliates may make other
reimbursements or payments to financial institutions or their representatives
including non-cash compensation, in the form of gifts of nominal value,
occasional meals, tickets, or other entertainment, support for due diligence
trips, training and educational meetings or conference sponsorships, support for
recognition programs, and other forms of non-cash compensation permissible under
regulations to which these financial institutions and their representatives are
subject.
ADDITIONAL MANAGEMENT INFORMATION
MANAGER OF MANAGERS EXEMPTION. The RiverSource funds have received an order from
the Securities and Exchange Commission that permits RiverSource Investments,
subject to the approval of the Board, to appoint a subadviser or change the
terms of a subadvisory agreement for a fund without first obtaining shareholder
approval. The order permits the fund to add or change unaffiliated subadvisers
or change the fees paid to subadvisers from time to time without the expense and
delays associated with obtaining shareholder approval of the change.
Before certain fixed income funds may rely on the order, holders of a majority
of the fund's outstanding voting securities will need to approve operating the
fund in this manner. There is no assurance shareholder approval will be
received, and no changes will be made without shareholder approval until that
time. For more information, see the Merger SAI.
C.16 RIVERSOURCE FUNDS -- PROXY STATEMENT
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 that provide asset-allocation services to shareholders by
investing in shares of other RiverSource funds (Funds of Funds) and to
discretionary managed accounts (collectively referred to as "affiliated
products"). A fund may experience relatively large purchases or redemptions from
the affiliated products. Although RiverSource Investments seeks to minimize the
impact of these transactions by structuring them over a reasonable period of
time or through other measures, a fund may experience increased expenses as it
buys and sells securities to manage transactions for the affiliated products. In
addition, because the affiliated products may own a substantial portion of a
fund, a redemption by one or more affiliated product could cause a fund's
expense ratio to increase as the fund's fixed costs would be spread over a
smaller asset base. RiverSource Investments monitors expense levels and is
committed to offering funds that are competitively priced. RiverSource
Investments will report to the Board on the steps it has taken to manage any
potential conflicts.
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 Merger 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.
RIVERSOURCE FUNDS -- PROXY STATEMENT C.17
EXHIBIT D
COMPARISON OF ORGANIZATIONAL DOCUMENTS
This document highlights the material differences between the terms of the
Declaration of Trust and By-laws of RiverSource Special Tax-Exempt Series Trust
("Selling Trust") (of which each of Massachusetts Tax-Exempt Fund, Michigan
Tax-Exempt Fund and Ohio Tax-Exempt Fund is a series) and Articles of
Incorporation and By-laws for RiverSource Tax-Exempt Income Series, Inc.
("Buying Corporation") (of which Tax-Exempt High Income Fund is a series).
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER Under Minnesota law, a shareholder's liability to the No shareholder shall be subject to any personal
LIABILITY: corporation or its creditors is limited to paying the liability whatsoever in tort, contract or
amount agreed to be paid for the shares which the otherwise to any other person(s) in connection
shareholder holds or has agreed to purchase. with the assets or the affairs of the Trust or of
any fund.
If any shareholder (or former shareholder) of the
Trust shall be charged or held to be personally
liable for any obligation or liability of 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 by the shareholder) shall
assume the defense against such charge and
satisfy any judgment thereon, and the shareholder
or former shareholder to be held harmless from
and indemnified against all loss and expense
arising from such liability.
The Trustees shall use their best efforts to
ensure that every note, bond, contract,
instrument, certificate or undertaking made or
issued by the Trustees or by any officer(s) shall
give notice that the Declaration of Trust is on
file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the
obligations of such instrument are not binding
upon any of them or the shareholders individually
but are binding only upon the assets and property
of the Trust, or the particular fund in question,
as the case may be, but the omission thereof
shall not operate to bind any Trustee(s),
officer(s) or shareholder(s) individually, or to
subject the fund assets of any fund to the
obligations of any other fund.
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER VOTING Shareholders have the power to vote (i) for the Shareholders have power to vote (i) for the
RIGHTS: election of directors; (ii) on most amendments to the election or removal of Trustees; (ii) for the
corporation's articles of incorporation and on certain approval or termination of any contract as to
amendments to the corporation's bylaws; (iii) on which shareholder approval is required by the
certain proposed mergers and exchanges to which the 1940 Act; (iii) with respect to any termination
corporation is a party; (iv) on the proposed sale of or reorganization of the Trust or any fund; (iv)
all or substantially all of the corporation's property with respect to any amendment of the Declaration
and assets not in the usual and regular course of its of Trust; (v) to the same extent as the
business; and (v) on the proposed dissolution of the stockholders of a Massachusetts business
corporation. corporation as to whether or not a court action,
proceeding or claim should or should not be
Each shareholder of record entitled to vote at a brought or maintained derivatively or as a class
shareholder meeting shall be entitled to one vote for action on behalf of the Trust or any fund, or the
each dollar of net asset value (number of shares owned shareholders of any of them; and (vi) with
times net asset value per share) of stock standing in respect to such additional matters relating to
her or his name and entitled to vote at such meeting, the Trust as may be required by the 1940 Act, the
and each fractional dollar amount shall be entitled to Declaration of Trust, the Bylaws or any
a proportionate fractional vote. registration of the Trust with the Securities and
Exchange Commission (or any successor agency) or
At all elections of directors, each shareholder shall any state, or as the Trustees may consider
be entitled to as many votes as shall equal the number necessary or desirable.
of dollars of net asset value of shares owned
multiplied by the number of directors to be elected and On each matter submitted to a vote of the
may cast all of such votes for a single director or may shareholders, other than the election of any
distribute them among the number to be voted for, or Trustee, each shareholder of any series shall be
any two or more of them. entitled to one vote for each dollar of net asset
value (number of shares owned times net asset
The standard form of certifying resolution creating value per Share) and each fractional dollar
rights and preferences for series of capital stock amount shall be entitled to a proportionate
provides that each share may be voted by series (i) as fractional vote.
required by the provisions of the 1940 Act, as amended
and all rules and regulations promulgated thereunder; At all elections of Trustees, shareholders of any
(ii) when the Board determines that a matter affects Series shall be entitled to as many votes as
series in a materially different way; or (iii) when the shall equal the dollars of net asset value
Board determines a matter affects only one or some of multiplied by the number of Trustees to be
the series. In addition, under Minnesota law, elected and may cast all of such votes for a
shareholders are entitled to vote as separate series or single Trustee or may distribute them among the
classes with respect to certain amendments to the number to be voted for, or any two or more of
corporation's articles of incorporation and on certain them.
mergers and exchanges to which the corporation is a
party.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT D.1
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
- ---------------------------------------------------------------------------------------------------------------------------------
Trustees shall cause each matter to be voted upon
to be submitted to a separate vote of the
outstanding shares of each fund entitled to vote
thereon; provided, that (i) when expressly
required by the 1940 Act or by other law, actions
of shareholders shall be taken by single class
voting of all outstanding shares of each series
or class whose holders are entitled to vote
thereon; and (ii) when the Trustees determine
that any matter to be submitted to a vote of
shareholders affects only the rights or interests
of shareholders of one or more but not all funds
or of one or more but not all classes of a single
fund, then only the shareholders of the funds or
classes so affected shall be entitled to vote
thereon.
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER If a regular meeting of shareholders has not been held If a meeting of shareholders has not been held
MEETINGS: during the immediately preceding 15 months, a during the immediately preceding 15 months for
shareholder or shareholders holding three percent or the purpose of electing Trustees, a shareholder
more of the voting power of all shares entitled to vote or shareholders holding 3% or more of the voting
may demand a regular meeting of shareholders by written power of all shares entitled to vote may demand a
notice of demand given to the chief executive officer meeting of shareholders for the purpose of
or chief financial officer. Within 30 days after electing Trustees by written notice of demand
receipt of the demand by one of those officers, the given to the Trustees. Within 30 days after
Board of Directors must cause a regular meeting of receipt of such demand, the Trustees shall call
shareholders to be called and held on notice no later and give notice of a meeting of shareholders for
than 90 days after receipt of the demand, all at the the purpose of electing Trustees. If the Trustees
expense of the Fund. fail to call such meeting or give notice thereof,
then the shareholder or shareholders making the
In addition, a special meeting of shareholders may be demand may call and give notice of such meeting
called at any time by a shareholder or shareholders at the expense of the Trust.
holding ten percent or more of the voting power of all
shares entitled to vote, except that a special meeting The Trustees shall promptly call and give notice
for the purpose of considering any action to directly of a meeting of shareholders for the purpose of
or indirectly facilitate or effect a business voting upon removal of any Trustee of the Trust
combination must be called by 25% or more of the voting when requested to do so in writing by
power of all shares entitled to vote. shareholders holding not less than 10% of the
shares then outstanding.
If the Trustees fail to call or give notice of
any meeting of shareholders for a period of 30
days after written application by shareholders
holding at least 10% of the shares then
outstanding requesting that a meeting be called
for any other purpose requiring action by the
shareholders as provided in the Declaration of
Trust or Bylaws, then shareholders holding at
least 10% of the outstanding shares may call and
give notice of such meetings.
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER QUORUM: 10% of the shares entitled to vote. 10% of the shares entitled to vote.
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER An action required or permitted to be taken at a Subject to the provisions of the 1940 Act and
CONSENT: shareholder meeting may be taken by written action other applicable law, any action taken by
signed, or consented to by authorized electronic shareholders may be taken without a meeting if
communication, by all of the shareholders entitled to shareholders who hold at least 10% of the shares
vote on that action. Such a written action is not entitled to vote on the matter (or such larger
effective if it is signed or consented to by fewer than proportion thereof or of the shares of any
all the shareholders entitled to vote on the action. particular Series as shall be required by the
1940 Act or by any express provision of the
Declaration of Trust or the Bylaws or as shall be
permitted by the Trustees) consent to the action
in writing and if the writings in which such
consent is given are filed with the records of
the meetings of shareholders, to the same extent
and for the same period as proxies given in
connection with a shareholders' meeting.
- ---------------------------------------------------------------------------------------------------------------------------------
NOTICE TO In general, shareholders who are entitled to vote at a Written notice of any meeting of shareholders
SHAREHOLDERS RECORD shareholder meeting must be given notice of the meeting shall be given by the Trustees by mailing such
DATE: at least ten and not more than 60 days before the notice at least 10 days before such meeting,
meeting. In certain cases, the notice of meeting must postage prepaid, stating the time, place and
include specified information required by Minnesota purpose of the meeting, to each shareholder at
law. the shareholder's address as it appears on the
records of the Trust.
The Board of Directors can establish a record date for
determining the shareholders who are entitled to vote For the purpose of determining the shareholders
at a shareholder meeting. The record date cannot be who are entitled to vote or act at any meeting or
more than 60 days before the date of the meeting. any adjournment thereof, the Trustees may fix a
date and time not more than 90 days prior to the
date of any meeting of shareholders or other
action as the date and time of record for the
determination of shareholders entitled to vote at
such meeting or any adjournment thereof, and any
shareholder who was a shareholder at the date and
time so fixed shall be entitled to vote at such
meeting or any
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
D.2 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
- ---------------------------------------------------------------------------------------------------------------------------------
adjournment thereof, even though he has since
that date and time disposed of his shares, and no
shareholder becoming such after that date and
time shall be so entitled to vote at such meeting
or any adjournment thereof.
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER At each shareholder meeting, the polls may be opened Shares may be voted in person or by proxy.
PROXIES: and closed, the proxies and ballots may be received and
taken in charge, and all questions touching the A proxy with respect to shares held in the name
qualification of voters, the validity of proxies, and of two or more persons shall be valid if executed
acceptances or rejections of votes may be decided by by any one of them unless at or prior to exercise
two (2) inspectors of election. of the proxy the Trust receives a specific
written notice to the contrary from any one of
Minnesota law provides that shareholders can submit them. A proxy purporting to be executed by or on
proxies in writing or by telephonic transmission or behalf of a shareholder shall be deemed valid
authenticated electronic communication. It also unless challenged at or prior to its exercise and
provides that the Board of Directors can establish the burden of proving invalidity shall rest on
procedures whereby a record holder can certify in the challenger.
writing that another person is the beneficial owner of
shares, and the beneficial owner then can vote the
shares or appoint a proxy.
- ---------------------------------------------------------------------------------------------------------------------------------
DIRECTOR POWER TO The Board of Directors, acting without shareholder The provisions of the Declaration of Trust may be
AMEND ARTICLES OF approval, can amend the corporation's articles of amended at any time, so long as such amendment
INCORPORATION/TRUSTEE incorporation to (i) change the name of the does not adversely affect the rights of any
POWER TO AMEND corporation; (ii) increase or decrease, but not below shareholder with respect to which such amendment
DECLARATION OF the number of then- outstanding shares, the aggregate is or purports to be applicable and so long as
TRUST: number of shares the corporation has authority to such amendment is not in contravention of
issue, including shares of any class or series; and applicable law, including the 1940 Act, by an
(iii) amend or cancel a certificate fixing the rights instrument in writing signed by a majority of the
and preferences of a class or series of shares, but Trustees. Any amendment to the Declaration of
only when no shares of that class or series are Trust that adversely affects the rights of all
outstanding. shareholders may be adopted at any time by an
instrument in writing signed by a majority of the
In all other cases, the corporation's articles of Trustees when authorized to do so by the vote of
incorporation only can be amended with the approval of shareholders holding a majority of all the shares
the requisite shareholders. outstanding and entitled to vote, without regard
to series, or if said amendment adversely affects
the rights of the shareholders of less than all
of the funds or of less than all of the classes
of shares of any fund, by the vote of the holders
of a majority of all the shares entitled to vote
of each fund or of each class, as the case may
be, so affected. Subject to the foregoing, any
such amendment shall be effective when the terms
thereof have been duly adopted, as aforesaid.
- ---------------------------------------------------------------------------------------------------------------------------------
TERMINATION OF In order to dissolve a Minnesota corporation, the The Trust may be terminated at any time by a
CORPORATION/TRUST: affirmative vote of a majority of the voting power of majority of the Trustees, subject to the
all shares entitled to vote is required. In order to favorable vote of the holders of not less than a
discontinue an individual class or series of shares majority of the shares outstanding and entitled
without dissolving the corporation, an amendment to the to vote of each fund of the Trust, or by such
corporation's articles of incorporation would be greater or different vote of shareholders of any
required. In order to adopt such an amendment, Series as may be established by the Certificate
shareholders would have to approve the amendment by the of Designation by which such Series was
affirmative vote of the greater of (i) a majority of authorized.
the voting power of the shares of that class or series
present and entitled to vote or (ii) a majority of the
voting power of the minimum number of shares of such
class or series entitled to vote that would constitute
a quorum for the transaction of business at the meeting
(a "Minnesota Statutory Vote").
The Board of Directors, acting without a shareholder
vote, does not have the power to dissolve the
corporation or to discontinue an individual class or
series of shares.
- ---------------------------------------------------------------------------------------------------------------------------------
MERGER OR In most cases, any merger or exchange in which a The Trustees may sell, convey and transfer all or
CONSOLIDATION OF Minnesota corporation is not the continuing entity, and substantially all of the assets of the Trust, or
TRUST/ CORPORATION: any sale of all or substantially all of the the assets belonging to any one or more funds
corporation's property and assets not in the usual and when and as authorized by vote or written consent
regular course of its business, requires the of a majority of the Trustees and approved by the
affirmative vote of a majority of the voting power of affirmative vote of the holders of not less than
all shares entitled to vote. a majority of the shares outstanding and entitled
to vote of each fund whose assets are affected by
Any sale of the assets belonging to an individual such transaction, or by an instrument or
series of shares of a Minnesota corporation in exchange instruments in writing without a meeting,
for shares of another corporation or trust or shares of consented to by the holders of not less than a
another series of the corporation, while leaving other majority of such shares, and/or by such other
series of the corporation outstanding, would require an vote of any Series as may be established by the
amendment to the corporation's articles of Certificate of Designation with respect to such
incorporation. In order to adopt such an amendment, Series.
shareholders of that series would have to approve the
amendment by a Minnesota Statutory Majority.
- ---------------------------------------------------------------------------------------------------------------------------------
REMOVAL OF Under Minnesota law, the Board of Directors can remove Any Trustee may be removed with or without cause
DIRECTORS/ a director by a majority vote of the remaining at any time: (i) by written instrument, signed by
TRUSTEES: directors, but only if the director was at least two-thirds of the
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT D.3
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
- ---------------------------------------------------------------------------------------------------------------------------------
appointed by the Board of Directors to fill a vacancy number of Trustees prior to such removal; or (ii)
and has not subsequently been elected by shareholders. by vote of shareholders holding not less than
two-thirds of the shares of each Series then
In all other cases, a director can only be removed by outstanding, cast in person or by proxy at any
shareholder vote. In general, such removal requires the meeting called for the purpose; or (iii) by a
affirmative vote of the holders of a majority of the written declaration signed by shareholders
voting power of all shares entitled to vote at an holding not less than two-thirds of the shares of
election of directors. However, where a corporation has each Series then outstanding and filed with the
cumulative voting (as do the Funds), unless the entire Trust's custodian.
Board is removed simultaneously, a director is not
removed from the Board if there are cast against
removal of the director the votes of a proportion of
the voting power sufficient to elect the director at an
election of the entire board under cumulative voting.
- ---------------------------------------------------------------------------------------------------------------------------------
DIRECTOR/TRUSTEE The Corporation's bylaws provide that the Board may, by The Trustees, by vote of a majority of the
COMMITTEES: resolution passed by a majority of the whole Board, Trustees, may elect an Executive Committee and
designate an Executive Committee of two or more any other committees and may delegate thereto
directors, which may meet at stated times or on notice some or all of their powers except those which by
to all by any of their number during intervals between law, by the Declaration of Trust or by the Bylaws
meetings of the Board. The Executive Committee shall may not be delegated; provided, that the
advise with and aid the officers of the Fund in all Executive Committee shall not be empowered to
matters concerning its interests and the management of elect the President or the Treasurer, to amend
its business, and generally perform such duties and the Bylaws, to exercise the powers of the
exercise such powers as may be delegated to it from Trustees, or to perform any act for which the
time to time by the Board of Directors. action of a majority of the Trustees is required
by law, by the Declaration of Trust or Bylaws.
The Board of Directors also may, by resolution passed
by a majority of the whole Board, appoint any other The quorum for any committee is two members
committee or committees for any purpose or purposes, regardless of the number of members serving on
which committee or committees shall have such powers as the committee.
shall be specified in the resolution of appointment.
The quorum for such committee established by the Board The Trustees may at any time alter or abolish any
of Directors is two members regardless of the number of committee, change the membership of any
members serving on the committee. Under Minnesota law, committee, or revoke, rescind or modify any
the members of such other committees do not need to be action of any committee or the authority of any
directors. committee with respect to any matter or class of
matters; provided, that no such action shall
impair the rights of any third parties.
- ---------------------------------------------------------------------------------------------------------------------------------
DIRECTOR/TRUSTEE The Corporation's articles of incorporation provide No Trustee shall be subject to any personal
LIABILITY: that, to the full extent permitted by the laws of the liability in tort, contract, or otherwise, to any
State of Minnesota, as now existing or hereafter other person(s) in connection with the assets or
amended, no director of the Fund shall be liable to the affairs of the Trust or of any fund, save only
Fund or to its shareholders for monetary damages for that arising from his own willful misfeasance,
breach of fiduciary duty as a director but such limit bad faith, gross negligence or reckless disregard
on liability shall be permitted only to the extent of the duties involved in the conduct of his
allowable under the provisions of the Investment office or the discharge of his functions.
Company Act of 1940.
Under Minnesota law, the foregoing provision is not
effective to eliminate a director's personal liability
to the Funds or its shareholders for, among other
things, (i) any breach of the director's duty of
loyalty to the corporation or its shareholders; (ii)
acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; or
(iii) any transaction from which the director derived
an improper personal benefit.
- ---------------------------------------------------------------------------------------------------------------------------------
DIRECTOR/TRUSTEE Under Minnesota law, a corporation is required to The Trust shall indemnify each Trustee against
INDEMNIFICATION: indemnify and advance expenses to present and former judgments, penalties, fines, including without
directors against judgments, penalties, fines, limitation, settlements, and reasonable expenses,
settlements and reasonable expenses, including including attorneys' fees and disbursements,
attorneys' fees and disbursements, if they are made incurred in connection with a proceeding, if,
parties to a legal proceeding by virtue of their with respect to the acts or omissions of the
position as directors. However, indemnification and Trustee, the Trustee has: (1) not been
advances are not required or permitted if a director indemnified by another organization or employee
engaged in specified disabling conduct. benefit plan for the same judgments, penalties,
fines, including, without limitation, excise
The Corporation's articles of incorporation and bylaws taxes assessed against the person with respect to
provide that each person made or threatened to be made an employee benefit plan, settlements, and
a party to or is involved (including, without reasonable expenses, including attorneys' fees
limitation, as a witness) in any actual or threatened and disbursements, incurred by the person in
action, suit or proceeding whether civil, criminal, connection with the proceeding with respect to
administrative, arbitration, or investigative, the same acts of omissions; (2) acted in good
including a proceeding by or in the right of the Fund faith; (3) received no improper personal benefit;
by reason of the former or present capacity as a (4) in the case of a criminal proceeding, had no
director or officer of the Fund or who, while a reasonable cause to believe the conduct was
director or officer of the Fund, is or was serving at unlawful; and (5) in the case of acts or
the request of the Fund or whose duties as a director omissions occurring in the official capacity as
or officer involve or involved service as a director, Trustee, reasonably believed that the conduct was
officer, partner, trustee or agent of another in the best interests of the Trust, or in the
organization or employee benefit plan, whether the case of acts or omissions occurring when serving
basis of any proceeding is alleged action in an at the request of the Trust or whose duties in
official capacity or in any capacity while serving as a that position involve or involved service as a
director, officer, partner, trustee or agent, shall be director, officer, partner, trustee, governor,
indemnified and held harmless by the Fund to the full manager, employee, or agent of another
extent authorized by the Minnesota Business Corporation organization, the position of that person as a
Act, as the same or may hereafter be amended (but, in director, officer, partner, trustee, governor,
the case of any such amendment, only to the extent manager,
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
D.4 RIVERSOURCE FUNDS -- PROXY STATEMENT
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
- ---------------------------------------------------------------------------------------------------------------------------------
that such amendment permits the Fund to provide broader employee, or agent, as the case may be, of
indemnification rights than the law permitted the Fund another organization, reasonably believed that
to provide prior to such amendment), or by any other the conduct was not opposed to the best interests
applicable law as then in effect, against judgments, of the Trust. If the Trustee's acts or omissions
penalties, fines including, without limitation, excise relate to conduct as trustee, employee, or agent
taxes assessed against the person with respect to an of an employee benefit plan, the conduct is not
employee benefit plan, settlements and reasonable considered to be opposed to the best interests of
expenses, including attorneys' fees and disbursements, the Trust if the person reasonably believed that
incurred in connection therewith and such the conduct was in the best interests of the
indemnification shall continue as to any person who has participants.
ceased to be a director or officer and shall inure to
the benefit of the person's heirs, executors and The termination of a proceeding by judgment,
administrators provided, however, in an action brought order, settlement, conviction, or upon a plea of
against the Fund to enforce rights to indemnification, nolo contendere or its equivalent does not, of
the director or officer shall be indemnified only if itself, establish that the person did not meet
the action was authorized by the Board of Directors of the criteria set forth above.
the Fund. The right to indemnification conferred by
this Section shall be a contract right and shall If a Trustee is made or threatened to be made a
include the right to be paid by the Fund in advance of party to a proceeding or required to serve as a
the final disposition of a proceeding for expenses witness, the Trustee is entitled, upon written
incurred in connection therewith provided, however, request to the Trust, to payment or reimbursement
such payment of expenses shall be made only upon by the Trust of reasonable expenses, including
receipt of a written undertaking by the director or attorneys' fees and disbursements, incurred by
officer to repay all amounts so paid if it is the Trustees in advance of the final disposition
ultimately determined that the director or officer is of the proceeding, (i) upon receipt by the Trust
not entitled to indemnification. of a written affirmation by the Trustee of a good
faith belief that the criteria for
Each person who upon written request to the Fund has indemnification have been satisfied and a written
not received payment within thirty days may at any time undertaking by the person to repay all amounts so
thereafter bring suit against the Fund to recover any paid or reimbursed by the Trust, if it is
unpaid amount and, to the extent successful, in whole ultimately determined that the criteria for
or in part, shall be entitled to be paid the expenses indemnification have not been satisfied, and (ii)
of prosecuting such suit. Each person shall be presumed after a determination that the facts then known
to be entitled to indemnification upon filing a written to those making the determination would not
request for payment and the Fund shall have the burden preclude indemnification under this section. The
of proof to overcome the presumption that the director written undertaking is an unlimited general
or officer is not so entitled. Neither the obligation of the person making it, but need not
determination by the Fund, whether by the Board of be secured and shall be accepted without
Directors, special legal counsel or by shareholder, nor reference to financial ability to make the
the failure of the Fund to have made any determination repayment.
shall be a defense or create the presumption that the
director or officer is not entitled to indemnification. All determinations whether indemnification of a
person is required because the criteria have been
The right to indemnification and to the payment of satisfied and whether a person is entitled to
expenses prior to any final determination shall not be payment or reimbursement of expenses in advance
exclusive of any other right which any person may have of the final disposition of a proceeding shall be
or hereinafter acquire under any statute, provision of made: (1) by the board by a majority of a quorum,
the Articles of Incorporation, by-law, agreement, vote if the Trustees who are at the time parties to
of shareholders or otherwise and notwithstanding any the proceeding are not counted for determining
provisions in these bylaws, the Fund is not obligated either a majority or the presence of a quorum;
to make any payment with respect to any claim for which (2) if a quorum under clause (1) cannot be
payment is required to be made to or on behalf of the obtained, by a majority of a committee of the
director or officer under any insurance policy, except board, consisting solely of two or more Trustees
with respect to any excess beyond the amount of not at the time parties to the proceeding, duly
required payment under such insurance and no designated to act in the matter by a majority of
indemnification will be made in violation of the the full board including Trustees who are
provisions of the Investment Company Act of 1940. parties; (3) if a determination is not made under
clause (1) or (2), by special legal counsel,
selected either by a majority of the board or a
committee by vote pursuant to clause (1) or (2)
or, if the requisite quorum of the full board
cannot be obtained and the committee cannot be
established, by a majority of the full board
including directors who are parties; (4) if a
determination is not made under clauses (1) to
(3), by the affirmative vote of the shareholders,
but the shares held by parties to the proceeding
must not be counted in determining the presence
of a quorum and are not considered to be present
and entitled to vote on the determination; or (5)
if an adverse determination is made under clauses
(1) to (4) or under paragraph (b), or if no
determination is made under clauses (1) to (4) or
under paragraph (b) within 60 days after (i) the
later to occur of the termination of a proceeding
or a written request for indemnification to the
Trust or (ii) a written request for an advance of
expenses, as the case may be, by a court, which
may be the same court in which the proceeding
involving the person's liability took place, upon
application of the person and any notice the
court requires. The Trustee seeking
indemnification or payment or reimbursement of
expenses pursuant to this clause has the burden
of establishing that the person is entitled to
indemnification or payment or reimbursement of
expenses.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
RIVERSOURCE FUNDS -- PROXY STATEMENT D.5
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust may purchase and maintain insurance on
behalf of a person in that person's official
capacity against any liability asserted against
and incurred by the person in or arising from
that capacity, whether or not the Trust would
have been required to indemnify the person
against the liability under the provisions of
this section.
The Trust agrees that it has a contractual
obligation to indemnify from the assets of the
fund(s) to which the conduct in question relates.
The right of indemnification is not be exclusive
of or affect any other rights to which any
Trustee may be entitled.
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS: The Corporation's articles of incorporation provide The charter documents do not limit the ability of
that the directors may declare and pay dividends in the Trustees to declare dividends.
their discretion at any time and from time to time to
the extent and from such sources as permitted by the
laws of the State of Minnesota. Under Minnesota law,
the Board of Directors can authorize a dividend if it
determines that the corporation will be able to pay its
debts in the ordinary course of business after paying
the dividend.
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION: The Corporation's articles of incorporation authorize The beneficial interest in the Trust shall be
the issuance of up to 10,000,000,000 shares of stock divided into shares having a nominal or par value
with a par value of $0.01 per share. The Board of of one cent ($.01) per Share, of which an
Directors can authorize the issuance of shares in such unlimited number may be issued.
classes or series with such designations, preferences
and relative, participating, optional or other special
rights, or qualifications, limitations or restrictions
thereof, as are stated in the Board resolution
establishing the class or series. The Board of
Directors can, without shareholder approval, increase
or decrease the total number of authorized shares, or
the authorized shares of a class or series, in the
manner and to the extent set forth under "Director
Power to Amend Articles of Incorporation/Trustee Power
to Amend Declaration of Trust" below.
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF The Corporation's articles of incorporation require The Trustees serving as such, whether named above
DIRECTORS; there to be at least two and not more than 15 or hereafter becoming Trustees, may increase (to
VACANCIES: directors, as determined from time to time by the Board not more than 15) or decrease the number of
of Directors. If there is a vacancy on the Board by Trustees by a written instrument signed by a
reason of death, resignation or otherwise, the vacancy majority of the Trustees. No decrease in the
can be filled for the unexpired term by a majority vote number of Trustees shall have the effect of
of the remaining directors, even if the remaining removing any Trustee from office prior to the
number of directors is less than a quorum. expiration of his term, but the number of
Trustees may be decreased in conjunction with the
removal of a Trustee pursuant to the Declaration
of Trust.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT CHAIR The Corporation's bylaws require the Board of Directors The Board of Trustees shall elect one independent
OF THE BOARD: to elect one independent member to serve as Chair of member to serve as chair of the board whose
the Board, whose duties shall include serving as the duties shall include serving as the lead
lead independent director. independent Trustee and who shall preside at each
meeting of the Trustees as chairman of the
meeting.
- ---------------------------------------------------------------------------------------------------------------------------------
INSPECTION OF BOOKS Minnesota law requires the Corporation (each Fund) to The charter documents do not give shareholders
AND RECORDS: keep (i) a share register containing the names and any right to inspect the books and records of the
addresses of its shareholders and the number and Trust.
classes of shares held by each; (ii) records of all
proceedings of shareholders for the last three years;
(iii) records of all proceedings of the Board of
Directors for the last three years; (iv) its articles
of incorporation and bylaws, as amended; (v) certain
financial statements which Minnesota law requires the
Corporation (each Fund) to prepare; (vi) all reports to
shareholders generally within the last three years; and
(vii) a statement of the names and usual business
addresses of its directors and principal officers. The
Funds' shareholders and beneficial owners have the
right, upon written demand stating the purpose, at any
reasonable time to examine and copy those records which
are reasonably related to the stated purpose, provided
that the stated purpose is reasonably related to the
person's interest as a shareholder or beneficial owner.
</Table>
<Table>
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
D.6 RIVERSOURCE FUNDS -- PROXY STATEMENT
PROXY RIVERSOURCE(R)FUNDS PROXY
NOTICE OF A JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 29, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS/TRUSTEES.
The undersigned hereby constitutes and appoints Stephen R. Lewis, Jr. and Scott
R. Plummer, and each of them, as proxies for the undersigned, with full power of
substitution and resubstitution, and hereby authorizes said proxies, and each of
them, to represent and vote, as designated on the reverse side, all shares of
the RiverSource Fund(s) listed below held of record by the undersigned on
November 30, 2007 at the Joint Special Meeting of Shareholders to be held on
January 29, 2008, and at any adjournment thereof. The undersigned hereby revokes
any and all proxies with respect to such stock heretofore given by the
undersigned.
THIS PROXY CARD, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER, AND, IN THE DISCRETION OF SUCH PROXIES,
UPON ANY AND ALL OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF. IF THIS PROXY CARD IS SIGNED, DATED AND RETURNED WITH NO
CHOICE INDICATED AS TO THE PROPOSAL(S) ON WHICH SHARES REPRESENTED BY THE
UNDERSIGNED ARE ENTITLED TO VOTE, SUCH SHARES SHALL BE VOTED FOR THE
PROPOSAL(s).
VOTE VIA TELEPHONE: 1-866-241-6192
VOTE VIA THE INTERNET: WWW.PROXY-DIRECT.COM
--------------------------------------------------------
999 9999 9999 999
--------------------------------------------------------
NOTE: Please sign exactly as your name appears on this
Proxy Card and date. If signing for estates, trusts or
corporations, title or capacity should be stated. If
shares are held jointly, each holder should sign.
--------------------------------------------------------
Signature
--------------------------------------------------------
Signature (if held jointly)
--------------------------------------------------------
Date RSF_18189_100307
FUND FUND
- ---- -----
Core Bond Fundamental Growth
International Equity Massachusetts Tax-Exempt
Michigan Tax-Exempt Minnesota Tax-Exempt
Ohio Tax-Exempt Value
VOTING OPTIONS
READ YOUR PROXY STATEMENT AND HAVE IT AT HAND WHEN VOTING.
[PC GRAPHIC] [PHONE GRAPHIC] [LETTER GRAPHIC] [PERSON GRAPHIC]
VOTE ON THE INTERNET VOTE BY PHONE VOTE BY MAIL VOTE IN PERSON
LOG ON TO: CALL 1-866-241-6192 VOTE, SIGN AND DATE THIS PROXY ATTEND SHAREHOLDER MEETING
HTTPS://VOTE.PROXY-DIRECT.COM FOLLOW THE RECORDED CARD AND RETURN IN THE MARQUETTE HOTEL
FOLLOW THE ON-SCREEN INSTRUCTIONS INSTRUCTIONS POSTAGE-PAID ENVELOPE 710 MARQUETTE AVE.
AVAILABLE 24 HOURS AVAILABLE 24 HOURS MINNEAPOLIS, MN 55402
ON JANUARY 29, 2008
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW. THIS PROXY CARD CONTAINS
PROPOSALS RELATING TO MULTIPLE FUNDS. IF YOU DO NOT OWN A FUND "NOT APPLICABLE"
IS NOTED UNDER THAT PROPOSAL. YOU ARE ONLY PERMITTED TO VOTE ON PROPOSALS OF
FUND(s) FOR WHICH YOU OWN SHARES. IF YOU DO NOT MARK ONE OR MORE PROPOSALS, YOUR
PROXY WILL BE VOTED FOR EACH SUCH PROPOSAL THAT YOU ARE ENTITLED TO VOTE.
PLEASE MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. EXAMPLE: [X]
[ ] To vote FOR ALL Proposals of fund(s) for which you own shares mark this
box. (No other vote is necessary.)
1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
CORE BOND FUND AND RIVERSOURCE DIVERSIFIED BOND FUND.
FOR AGAINST ABSTAIN
Core Bond [ ] [ ] [ ]
2. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
FUNDAMENTAL GROWTH FUND AND RIVERSOURCE GROWTH FUND.
FOR AGAINST ABSTAIN
Fundamental Growth [ ] [ ] [ ]
3. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
INTERNATIONAL EQUITY FUND AND RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY
FUND.
FOR AGAINST ABSTAIN
International Equity [ ] [ ] [ ]
4. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
MASSACHUSETTS TAX-EXEMPT FUND AND RIVERSOURCE TAX-EXEMPT HIGH INCOME FUND.
FOR AGAINST ABSTAIN
Massachusetts Tax-Exempt [ ] [ ] [ ]
5. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
MICHIGAN TAX-EXEMPT FUND AND RIVERSOURCE TAX-EXEMPT HIGH INCOME FUND.
FOR AGAINST ABSTAIN
Michigan Tax-Exempt [ ] [ ] [ ]
6. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
OHIO TAX-EXEMPT FUND AND RIVERSOURCE TAX-EXEMPT HIGH INCOME FUND.
FOR AGAINST ABSTAIN
Ohio Tax-Exempt [ ] [ ] [ ]
7. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RIVERSOURCE
VALUE FUND AND RIVERSOURCE DIVERSIFIED EQUITY INCOME FUND.
FOR AGAINST ABSTAIN
Value [ ] [ ] [ ]
8. TO APPROVE A CHANGE IN THE CLASSIFICATION OF RIVERSOURCE MINNESOTA
TAX-EXEMPT FUND FROM A "DIVERSIFIED" FUND TO A "NON-DIVERSIFIED" FUND.
FOR AGAINST ABSTAIN
Minnesota Tax-Exempt [ ] [ ] [ ]
9. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
OR ANY ADJOURNMENT OF THE MEETING.
EVERY VOTE IS IMPORTANT! PLEASE VOTE TODAY USING ONE OF THE FOUR AVAILABLE
OPTIONS!
RSF_18189_100307
RIVERSOURCE(R) CORE BOND FUND
RIVERSOURCE FUNDAMENTAL GROWTH FUND
RIVERSOURCE INTERNATIONAL EQUITY FUND
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
RIVERSOURCE OHIO TAX-EXEMPT FUND
RIVERSOURCE VALUE FUND
LOGO
Dec. 1, 2007
HERE IS A BRIEF OVERVIEW OF THE CHANGES BEING RECOMMENDED FOR YOUR RIVERSOURCE
FUND. WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY STATEMENT.
Q: WHY AM I BEING ASKED TO VOTE?
Mutual funds are required to get shareholders' approval for certain kinds of
changes, like the ones included in this proxy statement.
Q: IS MY VOTE IMPORTANT?
Absolutely! While the Board of each RiverSource Fund has reviewed these changes
and recommends you approve them, you have the right to voice your opinion. Until
a Fund is sure that a quorum has been reached, it will continue to contact
shareholders asking them to vote.
Q: WHAT AM I BEING ASKED TO VOTE ON?
Shareholders are being asked to vote on:
- - The merger (a "Reorganization") of one or more of several RiverSource Funds
(each a "Selling Fund" and together, the "Selling Funds") into a corresponding
RiverSource Fund (each a "Buying Fund" and together, the "Buying Funds") as
noted in the table below:
<Table>
<Caption>
SELLING FUND BUYING FUND
RiverSource Core Bond Fund RiverSource Diversified Bond Fund
RiverSource Fundamental Growth Fund RiverSource Growth Fund
RiverSource International Equity Fund RiverSource Disciplined International Equity Fund
RiverSource Massachusetts Tax-Exempt Fund RiverSource Tax-Exempt High Income Fund
RiverSource Michigan Tax-Exempt Fund RiverSource Tax-Exempt High Income Fund
RiverSource Ohio Tax-Exempt Fund RiverSource Tax-Exempt High Income Fund
RiverSource Value Fund RiverSource Diversified Equity Income Fund
</Table>
If the Reorganization of your Selling Fund is approved by shareholders and the
other closing conditions are met, shares of the Selling Fund will, in effect,
be converted into shares of the Buying Fund with the same aggregate net asset
value as Selling Fund shares at the time of the Reorganization. (Selling Funds
and Buying Funds may be individually or collectively referred to as a "Fund" or
the "Funds".)
- - With respect to RiverSource Minnesota Tax-Exempt Fund only ("Minnesota
Tax-Exempt Fund"), the restoration of the fund's former status as
"non-diversified."
We encourage you to read the full text of the proxy statement to obtain a more
detailed understanding of the issues.
Q: WHY IS THE REORGANIZATION BEING PROPOSED?
The Reorganization of each Selling Fund into the respective Buying Fund would
result in a larger combined fund with the same or similar investment objectives,
principal investment strategies and investment policies which will allow for
more focused distribution, potentially increasing sales and economies of scale.
Additionally, following the Reorganization, for nearly all classes of shares of
the larger combined fund, expenses will be the same or lower than expenses would
have been for the Selling Fund.
Q: IF APPROVED, WHEN WILL THE REORGANIZATION HAPPEN?
If shareholders approve the Reorganization, it is expected to take place in the
first quarter of 2008.
Q: WHAT CHANGE IS PROPOSED FOR MINNESOTA TAX-EXEMPT FUND?
The Board of RiverSource Special Tax-Exempt Series Trust has approved, and
recommends that shareholders approve, a proposal to change the classification of
Minnesota Tax-Exempt Fund from a "diversified" fund back to a "non-diversified"
fund (its original classification). This would permit Minnesota Tax-Exempt Fund
to invest more of its assets in the securities of fewer issuers.
Q. IF APPROVED, WHEN WILL THE CHANGE TAKE EFFECT?
If shareholders of Minnesota Tax-Exempt Fund approve the proposed change of its
status, the fund will have the ability to act as a "non-diversified" fund
immediately after the shareholder meeting.
Q: HOW DOES THE BOARD RECOMMEND THAT I VOTE?
After careful consideration, the Board of each RiverSource Fund recommends that
you vote FOR each proposal.
Q: HOW DO I VOTE?
You can vote in one of four ways:
- - By mail with the enclosed proxy card
- - By telephone
- - By web site
- - In person at the meeting
Please refer to the enclosed proxy card for the telephone number and internet
address.
Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about any of the proposals described in the proxy
statement or about voting procedures, please call toll free at (866) 438-8932.
STATEMENT OF ADDITIONAL INFORMATION
FOR
RIVERSOURCE(R) DIVERSIFIED INCOME SERIES, INC.
RiverSource Diversified Bond Fund
RIVERSOURCE INTERNATIONAL SERIES, INC.
RiverSource Disciplined International Equity Fund
RIVERSOURCE INVESTMENT SERIES, INC.
RiverSource Diversified Equity Income Fund
RIVERSOURCE LARGE CAP SERIES, INC.
RiverSource Growth Fund
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC.
RiverSource Tax-Exempt High Income Fund
DEC. 1, 2007
This Statement of Additional Information ("SAI") incorporates by reference the
following described Buying and Selling Fund documents, each of which has been
previously filed and accompanies this SAI.
1. RiverSource Diversified Bond Fund's most recent annual report, for the
period ended Aug. 31, 2007.
2. RiverSource Core Bond Fund's most recent annual report, for the period ended
July 31, 2007.
3. RiverSource Disciplined International Equity Fund's most recent annual
report, for the period ended Oct. 31, 2006, and the most recent semiannual
report for the period ended April 30, 2007.
4. RiverSource International Equity Fund's most recent annual report, for the
period ended Oct. 31, 2006, and the most recent semiannual report for the
period ended April 30, 2007.
5. RiverSource Diversified Equity Income Fund's most recent annual report, for
the period ended Sept. 30, 2007.
6. RiverSource Value Fund's most recent annual report, for the period ended May
31, 2007.
7. RiverSource Growth Fund's most recent annual report, for the period ended
July 31, 2007.
8. RiverSource Fundamental Growth Fund's most recent annual report for the
period ended May 31, 2007.
9. RiverSource Tax-Exempt High Income Fund's most recent annual report, for the
period ended Nov. 30, 2006 and the semiannual report for the period ended
May 31, 2007.
10. RiverSource Massachusetts Tax-Exempt Fund's, RiverSource Michigan Tax-Exempt
Fund's and RiverSource Ohio Tax-Exempt Fund's most recent annual report, for
the period ended Aug. 31, 2007.
11. The most recent SAI, dated Nov. 29, 2007, for the Buying and Selling funds.
This SAI is not a prospectus. It should be read in conjunction with the proxy
statement/prospectus, dated the same date as this SAI, which may be obtained by
calling (866) 438-8932 or writing to RiverSource Funds, 734 Ameriprise Financial
Center, Minneapolis, MN 55474.
In accordance with Securities and Exchange Commission requirements, pro forma
financial statements are not included for RiverSource Diversified Equity Income
Fund, RiverSource Growth Fund and RiverSource Tax-Exempt High Income Fund since
the net asset value of the Selling Fund is less than 10% of the net asset value
of the Buying Fund.
TABLE OF CONTENTS
<Table>
RIVERSOURCE DIVERSIFIED BOND FUND PRO FORMA FINANCIALS
Introduction to Proposed Fund Merger.......................................... 3
Pro Forma Combining Statement of Assets and Liabilities....................... 4
Pro Forma Combining Statement of Operations................................... 5
Notes to Pro Forma Financial Statements....................................... 6
Combined Investments in Securities............................................ 8
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND PRO FORMA FINANCIALS
Introduction to Proposed Fund Merger.......................................... 28
Pro Forma Combining Statement of Assets and Liabilities....................... 29
Pro Forma Combining Statement of Operations................................... 30
Notes to Pro Forma Financial Statements....................................... 31
Combined Investments in Securities............................................ 33
</Table>
2
RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND)
RIVERSOURCE CORE BOND FUND (SELLING FUND)
INTRODUCTION TO PROPOSED FUND MERGER
Aug. 31, 2007
The accompanying unaudited pro forma combining statement of assets and
liabilities and the statement of operations reflect the accounts of the two
funds at and for the 12-month period ending Aug. 31, 2007. These statements have
been derived from financial statements prepared for RiverSource Diversified Bond
Fund and RiverSource Core Bond Fund as of Aug. 31, 2007. RiverSource Diversified
Bond Fund invests primarily in bonds and other debt securities including
securities issued by the U.S. government, corporate bonds and mortgage- and
asset-backed securities. RiverSource Core Bond Fund invests primarily in
securities like those included in the Lehman Brothers Aggregate Bond Index
(Index), which are investment grade and denominated in U.S. dollars. The Index
includes securities issued by the U.S. government, corporate bonds and mortgage-
and asset-backed securities.
Under the proposed Agreement and Plan of Reorganization, Class A shares of the
RiverSource Core Bond Fund would be exchanged for Class A shares of the
RiverSource Diversified Bond Fund. Class B shares of the RiverSource Core Bond
Fund would be exchanged for Class B shares of the RiverSource Diversified Bond
Fund. Class C shares of the RiverSource Core Bond Fund would be exchanged for
Class C shares of the RiverSource Diversified Bond Fund. Class I shares of the
RiverSource Core Bond Fund would be exchanged for Class I shares of the
RiverSource Diversified Bond Fund. Class R2 shares of the RiverSource Core Bond
Fund would be exchanged for Class R2 shares of the RiverSource Diversified Bond
Fund. Class R3 shares of the RiverSource Core Bond Fund would be exchanged for
Class R3 shares of the RiverSource Diversified Bond Fund. Class R4 shares of the
RiverSource Core Bond Fund would be exchanged for Class R4 shares of the
RiverSource Diversified Bond Fund. Class R5 shares of the RiverSource Core Bond
Fund would be exchanged for Class R5 shares of the RiverSource Diversified Bond
Fund. Class W shares of the RiverSource Core Bond Fund would be exchanged for
Class W shares of the RiverSource Diversified Bond Fund.
The pro forma combining statements have been prepared to give effect to the
proposed transaction on the historical operations of the accounting survivor,
RiverSource Diversified Bond Fund, as if the transaction had occurred at the
beginning of the fiscal year ending Aug. 31, 2007.
3
RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND)
RIVERSOURCE CORE BOND FUND (SELLING FUND)
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE
DIVERSIFIED BOND CORE PRO FORMA PRO FORMA
AUG. 31, 2007 (UNAUDITED) FUND BOND FUND ADJUSTMENTS COMBINED
ASSETS
Investments in securities, at cost
Unaffiliated issuers $3,199,830,408 $320,011,783 $ -- $3,519,842,191
Affiliated money market fund $ 45,885,729 $ 33,717,195 $ -- $ 79,602,924
-------------------------------------------------------------------------
Investments in securities, at value
Unaffiliated issuers* $3,180,596,306 $319,734,958 $ -- $3,500,331,264
Affiliated money market fund $ 45,885,729 $ 33,717,195 $ -- $ 79,602,924
Cash in bank on demand deposit 27,052 -- -- 27,052
Foreign currency holdings (identified cost $1,022
for RiverSource Diversified Bond Fund) 1,035 -- -- 1,035
Capital shares receivable 11,081,420 213,877 -- 11,295,297
Dividends and accrued interest receivable 25,647,494 2,444,626 -- 28,092,120
Receivable for investment securities sold 163,119,499 13,234,881 -- 176,354,380
Variation margin receivable 712,678 39,374 -- 752,052
Unrealized appreciation on swap transactions, at
value 526,101 -- -- 526,101
Receivable from RiverSource Investments, LLC (Note
2) -- -- 24,269(a),(d) 24,269
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 3,427,597,314 369,384,911 24,269 3,797,006,494
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Disbursements in excess of cash on demand deposit -- 30,954 -- 30,954
Dividends payable to shareholders 2,614,030 296,718 -- 2,910,748
Capital shares payable 2,846,093 84,163 -- 2,930,256
Variation margin payable -- 29,982 -- 29,982
Payable for investment securities purchased 132,764,420 45,036,567 -- 177,800,987
Payable for securities purchased on a forward-
commitment basis 277,561,571 -- -- 277,561,571
Payable upon return of securities loaned 54,427,500 -- -- 54,427,500
Payable to RiverSource Investments, LLC (Note 2) -- -- 303,743(g) 303,743
Unrealized depreciation on swap transactions, at
value 2,248,872 157,685 -- 2,406,557
Accrued investment management services fee (Note 2) 36,751 4,261 (41,012)(a) --
Accrued distribution fee 542,794 11,598 -- 554,392
Accrued transfer agency fee (Note 2) 8,066 35 10,668(b) 18,769
Accrued administrative services fee (Note 2) 5,047 621 (5,668)(d) --
Accrued plan administration services fee 16,925 4 -- 16,929
Other accrued expenses (Note 2) 283,602 72,861 (111,963)(c),(e),(f) 244,500
Forward sale commitments, at value (proceeds
receivable $9,884,375) 9,940,620 -- -- 9,940,620
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 483,296,291 45,725,449 155,768 529,177,508
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $2,944,301,023 $323,659,462 $(131,499) $3,267,828,986
- -------------------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value (Note 3) $ 6,119,286 $ 340,039 $ 331,050 $ 6,790,375
Additional paid-in capital (Note 3) 3,125,529,521 326,980,277 (331,050) 3,452,178,748
Undistributed (excess of distributions over) net
investment income (Note 2) (1,432,632) 1,247 (131,499) (1,562,884)
Accumulated net realized gain (loss) (164,897,645) (3,168,991) -- (168,066,636)
Unrealized appreciation (depreciation) on
investments and on translation of assets and
liabilities in foreign currencies (21,017,507) (493,110) -- (21,510,617)
- -------------------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to
outstanding capital stock $2,944,301,023 $323,659,462 $(131,499) $3,267,828,986
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding
shares: Class A $1,936,988,090 $ 41,746,934 $ (16,961) $1,978,718,063
Class B $ 303,507,236 $ 10,603,704 $ (4,308) $ 314,106,632
Class C $ 16,840,412 $ 661,277 $ (269) $ 17,501,420
Class I $ 386,010,354 $270,618,287 $(109,949) $ 656,518,692
Class R2 $ 4,993 $ 4,939 $ (2) $ 9,930
Class R3 $ 4,993 $ 4,939 $ (2) $ 9,930
Class R4 $ 77,835,688 $ 9,528 $ (4) $ 77,845,212
Class R5 $ 4,993 $ 4,939 $ (2) $ 9,930
Class W $ 223,104,264 $ 4,915 $ (2) $ 223,109,177
Shares outstanding
(Note 3): Class A shares 402,638,195 4,381,976 -- 411,313,865
Class B shares 63,093,643 1,112,300 -- 65,297,260
Class C shares 3,499,861 69,346 -- 3,637,285
Class I shares 80,134,097 28,437,203 -- 136,256,159
Class R2 shares 1,040 518 -- 2,069
Class R3 shares 1,040 518 -- 2,069
Class R4 shares 16,200,659 1,001 -- 16,202,643
Class R5 shares 1,040 518 -- 2,069
Class W shares 46,359,028 516 -- 46,360,049
Net asset value per share of outstanding capital
stock: Class A $ 4.81 $ 9.53 $ -- $ 4.81
Class B $ 4.81 $ 9.53 $ -- $ 4.81
Class C $ 4.81 $ 9.54 $ -- $ 4.81
Class I $ 4.82 $ 9.52 $ -- $ 4.82
Class R2 $ 4.80 $ 9.53 $ -- $ 4.80
Class R3 $ 4.80 $ 9.53 $ -- $ 4.80
Class R4 $ 4.80 $ 9.52 $ -- $ 4.80
Class R5 $ 4.80 $ 9.53 $ -- $ 4.80
Class W $ 4.81 $ 9.53 $ -- $ 4.81
- -------------------------------------------------------------------------------------------------------------------------------
* Including securities on loan, at value $ 53,596,150 $ -- $ 53,596,150
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to pro forma financial statements.
4
RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND)
RIVERSOURCE CORE BOND FUND (SELLING FUND)
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
<Table>
<Caption>
RIVERSOURCE
DIVERSIFIED BOND RIVERSOURCE CORE PRO FORMA PRO FORMA
YEAR ENDED AUG. 31, 2007 (UNAUDITED) FUND BOND FUND ADJUSTMENTS COMBINED
INVESTMENT INCOME
Income:
Interest $142,326,750 $11,258,787 $ -- $153,585,537
Income distributions from affiliated money
market fund 5,748,763 1,302,960 -- 7,051,723
Fee income from securities lending 395,879 -- -- 395,879
- -----------------------------------------------------------------------------------------------------------------------
Total income 148,471,392 12,561,747 -- 161,033,139
- -----------------------------------------------------------------------------------------------------------------------
Expenses:
Investment management services fee (Note 2) 12,770,016 1,135,181 (53,136)(a) 13,852,061
Distribution fee
Class A 4,860,209 94,439 -- 4,954,648
Class B 3,704,597 114,337 -- 3,818,934
Class C 168,420 5,619 -- 174,039
Class R2 18 18 -- 36
Class R3 8 8 -- 16
Class W 128,130 9 -- 128,139
Transfer agency fee (Note 2)
Class A 3,090,229 68,696 7,790(b) 3,166,715
Class B 631,378 22,048 2,685(b) 656,111
Class C 28,318 1,067 193(b) 29,578
Class R2 2 2 -- 4
Class R3 2 2 -- 4
Class R4 79,526 77 -- 79,603
Class R5 2 2 -- 4
Class W 102,504 8 -- 102,512
Service fee -- Class R4 (Note 2) 36,188 35 (36,223)(c) --
Administrative services fees and expenses (Note
2) 1,752,212 165,547 (17,813)(d) 1,899,946
Plan administration services fee
Class R2 8 8 -- 16
Class R3 8 8 -- 16
Class R4 148,364 113 -- 148,477
Compensation of board members 52,475 4,410 -- 56,885
Custodian fees 249,190 92,348 -- 341,538
Printing and postage 483,505 30,095 -- 513,600
Registration fees (Note 2) 166,240 81,939 (40,970)(e) 207,209
Professional fees (Note 2) 65,771 36,981 (34,770)(f) 67,982
Other 87,435 9,761 -- 97,196
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 28,604,755 1,862,758 (172,244) 30,295,269
Expenses waived/reimbursed by RiverSource
Investments, LLC (Note 2) (2,004,697) (329,155) 303,743(g) (2,030,109)
- -----------------------------------------------------------------------------------------------------------------------
26,600,058 1,533,603 131,499 28,265,160
Earnings and bank fee credits on cash
balances (229,404) (3,137) -- (232,541)
- -----------------------------------------------------------------------------------------------------------------------
Total net expenses 26,370,654 1,530,466 131,499 28,032,619
- -----------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 122,100,738 11,031,281 (131,499) 133,000,520
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 26,879,708 100,666 -- 26,980,374
Foreign currency transactions 145,184 9,539 -- 154,723
Futures contracts (2,400,100) 212,681 -- (2,187,419)
Swap transactions (3,756,544) (302,300) -- (4,058,844)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 20,868,248 20,586 -- 20,888,834
Net change in unrealized appreciation
(depreciation) on investments and on
translation of assets and liabilities in
foreign currencies 6,273,301 (101,564) -- 6,171,737
- -----------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments and foreign
currencies 27,141,549 (80,978) -- 27,060,571
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $149,242,287 $10,950,303 $(131,499) $160,061,091
- -----------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to pro forma financial statements.
5
RIVERSOURCE DIVERSIFIED BOND FUND (BUYING FUND)
RIVERSOURCE CORE BOND FUND (SELLING FUND)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited as to Aug. 31, 2007)
1. BASIS OF COMBINATION
The unaudited pro forma combining statement of assets and liabilities and the
statement of operations reflect the accounts of the two funds at and for the 12-
month period ending Aug. 31, 2007. These statements have been derived from
financial statements prepared for the RiverSource Diversified Bond Fund and
RiverSource Core Bond Fund as of Aug. 31, 2007.
Each Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The primary investments
of each Fund are as follows:
RiverSource Diversified Bond Fund invests primarily in bonds and other debt
securities including securities issued by the U.S. government, corporate bonds
and mortgage- and asset-backed securities.
RiverSource Core Bond Fund invests primarily in securities like those included
in the Lehman Brothers Aggregate Bond Index (Index), which are investment grade
and denominated in U.S. dollars. The Index includes securities issued by the
U.S. government, corporate bonds and mortgage- and asset-backed securities.
The pro forma statements give effect to the proposed transfer of the assets and
liabilities of RiverSource Core Bond Fund in exchange for Class A, B, C, I, R2,
R3, R4, R5 and W shares of RiverSource Diversified Bond Fund under U.S.
generally accepted accounting principles. The pro forma statements reflect
estimates for the combined RiverSource Diversified Bond Fund based on the
increased asset level of the merger and associated economies of scale, adjusted
to reflect current fees.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the funds incorporated by reference in the
Statement of Additional Information.
The pro forma statement of operations give effect to the proposed transaction on
the historical operations of the accounting survivor, RiverSource Diversified
Bond Fund, as if the transaction had occurred at the beginning of the year
presented.
2. PRO FORMA ADJUSTMENTS
(a) To reflect the reduction in investment management services fee due to the
Reorganization.
(b) To adjust for closed account fees for each RiverSource Core Bond Fund
shareholder account that will be closed on the system as a result of this
merger.
(c) To reflect the elimination of the service fee for Class R4.
(d) To reflect the change in administrative services fees due to the
Reorganization.
(e) To reflect the reduction in the registration fees due to the Reorganization.
(f) To reflect the reduction in audit fees due to the Reorganization.
(g) To adjust the expense reimbursement to reflect the net reduction in fees
resulting from the reorganization per the agreement by RiverSource
Investments, LLC and its affiliates to waive certain fees and absorb certain
expenses following the merger.
6
3. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of additional Class
A, Class B, Class C, Class I, Class R2, Class R3, Class R4, Class R5 and Class W
shares of RiverSource Diversified Bond Fund if the reorganization were to have
taken place on Aug. 31, 2007. The pro forma number of Class A shares outstanding
of 411,313,865 consists of 8,675,670 shares assumed to be issued to Class A
shareholders of the RiverSource Core Bond Fund, plus 402,638,195 Class A shares
of the RiverSource Diversified Bond Fund outstanding as of Aug. 31, 2007. The
pro forma number of Class B shares outstanding of 65,297,260 consists of
2,203,617 shares assumed to be issued to Class B shareholders of the RiverSource
Core Bond Fund, plus 63,093,643 Class B shares of the RiverSource Diversified
Bond Fund outstanding as of Aug. 31, 2007. The pro forma number of Class C
shares outstanding of 3,637,285 consists of 137,424 shares assumed to be issued
to Class C shareholders of the RiverSource Core Bond Fund, plus 3,499,861 Class
C shares of the RiverSource Diversified Bond Fund outstanding as of Aug. 31,
2007. The pro forma number of Class I shares outstanding of 136,256,159 consists
of 56,122,062 shares assumed to be issued to Class I shareholders of the
RiverSource Core Bond Fund, plus 80,134,097 Class I shares of the RiverSource
Diversified Bond Fund outstanding as of Aug. 31, 2007. The pro forma number of
Class R2 shares outstanding of 2,069 consists of 1,029 shares assumed to be
issued to Class R2 shareholders of the RiverSource Core Bond Fund, plus 1,040
Class R2 shares of the RiverSource Diversified Bond Fund outstanding as of Aug.
31, 2007. The pro forma number of Class R3 shares outstanding of 2,069 consists
of 1,029 shares assumed to be issued to Class R3 shareholders of the RiverSource
Core Bond Fund, plus 1,040 Class R3 shares of the RiverSource Diversified Bond
Fund outstanding as of Aug. 31, 2007. The pro forma number of Class R4 shares
outstanding of 16,202,643 consists of 1,984 shares assumed to be issued to Class
R4 shareholders of the RiverSource Core Bond Fund, plus 16,200,659 Class R4
shares of the RiverSource Diversified Bond Fund outstanding as of Aug. 31, 2007.
The pro forma number of Class R5 shares outstanding of 2,069 consists of 1,029
shares assumed to be issued to Class R5 shareholders of the RiverSource Core
Bond Fund, plus 1,040 Class R5 shares of the RiverSource Diversified Bond Fund
outstanding as of Aug. 31, 2007. The pro forma number of Class W shares
outstanding of 46,360,049 consists of 1,021 shares assumed to be issued to Class
W shareholders of the RiverSource Core Bond Fund, plus 46,359,028 Class W shares
of the RiverSource Diversified Bond Fund outstanding as of Aug. 31, 2007.
7
COMBINED INVESTMENTS IN SECURITIES
RiverSource Diversified Bond Fund
AUG. 31, 2007 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
<Table>
<Caption>
BONDS (104.5%)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (18.3%)
Federal Farm
Credit Bank 10/10/08 4.25% $ 13,285,000 $ 660,000 $ 13,945,000 $ 13,190,743 $ 655,317 $ 13,846,060
Federal Home
Loan Bank 02/08/08 4.63 -- 2,100,000 2,100,000 -- 2,094,328 2,094,328
06/18/08 5.13 14,675,000 -- 14,675,000 14,678,405 -- 14,678,405
09/12/08 4.25 -- 2,215,000 2,215,000 -- 2,200,168 2,200,168
12/29/08 5.13 11,285,000 -- 11,285,000 11,321,010 -- 11,321,010
Federal Home
Loan Mtge Corp 06/15/08 3.88 -- 3,890,000 3,890,000 -- 3,847,677 3,847,677
03/15/09 5.75 4,385,000 170,000 4,555,000 4,441,273 172,182 4,613,455
07/15/09 4.25 10,000,000 -- 10,000,000 9,908,120 -- 9,908,120
07/12/10 4.13 -- 2,371,000 2,371,000 -- 2,333,266 2,333,266
03/15/31 6.75 16,550,000 2,095,000 18,645,000 19,605,196 2,481,745 22,086,941
04/16/37 6.00 43,260,000 3,615,000 46,875,000 43,250,180 3,614,179 46,864,359
Federal Natl
Mtge Assn 01/15/08 3.25 -- 1,750,000 1,750,000 -- 1,735,580 1,735,580
06/15/08 5.25 -- 525,000 525,000 -- 524,727 524,727
08/15/08 3.25 86,170,000 -- 86,170,000 85,001,536 -- 85,001,536
02/16/12 5.00 30,185,000 3,215,000 33,400,000 30,454,039 3,243,655 33,697,694
05/18/12 4.88 20,165,000 4,865,000 25,030,000 20,281,755 4,893,168 25,174,923
11/15/30 6.63 72,815,000 8,000,000 80,815,000 84,954,134 9,333,697 94,287,831
07/15/37 5.63 14,730,000 1,595,000 16,325,000 15,280,018 1,654,557 16,934,575
Overseas
Private
Investment
U.S. Govt
Guaranty Series
1996A 09/15/08 6.99 1,666,667 -- 1,666,667 1,695,183 -- 1,695,183
U.S. Treasury 06/30/09 4.88 57,550,000 -- 57,550,000(q) 58,228,917 -- 58,228,917
07/31/09 4.63 6,565,000 9,395,000 15,960,000(q) 6,618,853 9,472,068 16,090,921
05/15/10 4.50 1,185,000 525,000 1,710,000 1,195,184 529,512 1,724,696
07/31/12 4.63 14,715,000 1,085,000 15,800,000 14,950,675 1,102,377 16,053,052
08/15/17 4.75 24,035,000 3,160,000 27,195,000 24,429,318 3,211,843 27,641,161
02/15/26 6.00 19,083,000 1,920,000 21,003,000 21,672,620 2,180,550 23,853,170
U.S. Treasury
Inflation-
Indexed Bond 01/15/14 2.00 57,785,913 5,000,596 62,786,509(s) 56,416,999 4,882,134 61,299,133
Total 537,574,158 60,162,730 597,736,888
- ---------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED (2.5%)
Capital Auto
Receivables
Asset Trust
Series 2004-1
Cl CTFS 09/15/10 2.84 4,200,000 200,000 4,400,000 4,194,593 199,743 4,394,336
Capital Auto
Receivables
Asset Trust
Series 2006-
SN1A Cl D 04/20/11 6.15 2,500,000 200,000 2,700,000(d) 2,498,572 199,886 2,698,458
College Loan
Trust
Collateralized
Mtge Obligation
Interest Only
Series 2006-1
Cl AIO 07/25/08 5.62 14,700,000 1,025,000 15,725,000(g) 1,259,262 87,806 1,347,068
Countrywide
Asset-backed
Ctfs
Series 2005-10
Cl AF6 02/25/36 4.92 1,865,000 95,000 1,960,000 1,744,449 88,859 1,833,308
Countrywide
Asset-backed
Ctfs
Series 2006-15
Cl A3 10/25/46 5.69 5,175,000 575,000 5,750,000 5,057,717 561,969 5,619,686
Countrywide
Asset-backed
Ctfs
Series 2006-4
Cl 1A1M 07/25/36 5.77 2,268,423 147,333 2,415,756(i) 2,200,055 142,893 2,342,948
Countrywide
Asset-backed
Ctfs
Series 2007-7
Cl 2A2 10/25/37 5.67 8,500,000 750,000 9,250,000(i) 8,371,174 738,633 9,109,807
Dunkin
Securitization
Series 2006-1
Cl A2 (AMBAC) 06/20/31 5.78 8,900,000 700,000 9,600,000(d,e) 8,957,591 704,530 9,662,121
Franklin Auto
Trust
Series 2004-1
ClA Cl A3
(MBIA) 03/15/12 4.15 -- 79,030 79,030(e) -- 78,486 78,486
Hertz Vehicle
Financing LLC
Series 2004-1A
Cl A3 (MBIA) 05/25/09 2.85 2,600,000 200,000 2,800,000(d,e) 2,572,811 197,909 2,770,720
</Table>
8
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
ASSET-BACKED (CONT.)
Keycorp Student
Loan Trust
Series 2003-A
Cl 2A2 (MBIA) 10/25/25 5.67% $ 967,830 $ 1,209,787 $ 2,177,617(e,i) $ 970,249 $ 1,212,810 $ 2,183,059
Master Asset
Backed
Securities
Trust
Series 2006-HE1
Cl A2 01/25/36 5.65 8,400,000 900,000 9,300,000(i) 8,352,750 894,938 9,247,688
Natl Collegiate
Student Loan
Trust
Collateralized
Mtge Obligation
Interest Only
Series 2006-2
Cl AIO 08/25/11 5.89 8,875,000 650,000 9,525,000(g) 1,803,941 132,120 1,936,061
Natl Collegiate
Student Loan
Trust
Collateralized
Mtge Obligation
Interest Only
Series 2006-3
Cl AIO 01/25/12 5.88 13,900,000 1,100,000 15,000,000(g) 3,616,224 286,176 3,902,400
Natl Collegiate
Student Loan
Trust
Collateralized
Mtge Obligation
Interest Only
Series 2006-4
Cl AIO 02/27/12 5.88 11,700,000 -- 11,700,000(g) 2,881,359 -- 2,881,359
Natl Collegiate
Student Loan
Trust
Collateralized
Mtge Obligation
Interest Only
Series 2007-2
Cl AIO 07/25/12 5.90 6,250,000 550,000 6,800,000(g) 1,759,000 154,792 1,913,792
Popular ABS
Mtge Pass-
Through Trust
Series 2005-A
Cl AF2 06/25/35 4.49 117,301 5,516 122,817 116,823 5,494 122,317
Renaissance
Home Equity
Loan Trust
Series 2005-4
Cl A3 02/25/36 5.57 4,670,000 275,000 4,945,000 4,613,540 271,675 4,885,215
Renaissance
Home Equity
Loan Trust
Series 2007-2
Cl M4 06/25/37 6.31 1,380,000 120,000 1,500,000 1,026,902 89,296 1,116,198
Renaissance
Home Equity
Loan Trust
Series 2007-2
Cl M5 06/25/37 6.66 900,000 80,000 980,000 674,645 59,968 734,613
Renaissance
Home Equity
Loan Trust
Series 2007-2
Cl M6 06/25/37 7.01 1,320,000 115,000 1,435,000 967,365 84,278 1,051,643
Residential
Asset
Securities
Series 2006-KS1
Cl A2 02/25/36 5.65 7,225,000 605,000 7,830,000(i) 7,148,234 598,572 7,746,806
Residential
Asset
Securities
Series 2007-KS3
Cl AI2 04/25/37 5.69 -- 1,050,000 1,050,000(i) -- 1,022,185 1,022,185
SBA CMBS Trust
Series 2006-1A
Cl B 11/15/36 5.45 4,075,000 300,000 4,375,000(d) 4,094,103 301,406 4,395,509
WFS Financial
Owner Trust
Series 2004-1
Cl D 08/22/11 3.17 19,940 3,988 23,928 19,912 3,982 23,894
--------------------------------------------
Total 74,901,271 8,118,406 83,019,677
- ---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (12.8%)(F)
Banc of America
Commercial Mtge
Series 2005-1
Cl A4 11/10/42 5.02 4,850,000 225,000 5,075,000 4,789,819 222,208 5,012,027
Banc of America
Commercial Mtge
Series 2007-1
Cl A3 01/15/49 5.45 5,825,000 450,000 6,275,000 5,694,820 439,943 6,134,763
Bear Stearns
Commercial Mtge
Securities
Series 2003-T10
Cl A1 03/13/40 4.00 1,983,533 291,696 2,275,229 1,921,310 282,546 2,203,856
Bear Stearns
Commercial Mtge
Securities
Series 2004-
PWR5 Cl A3 07/11/42 4.57 -- 325,000 325,000 -- 315,789 315,789
Bear Stearns
Commercial Mtge
Securities
Series 2007-T26
Cl A4 01/12/45 5.47 5,950,000 475,000 6,425,000 5,794,765 462,607 6,257,372
CDC Commercial
Mtge Trust
Series 2002-FX1
Cl A2 11/15/30 5.68 11,775,000 750,000 12,525,000 11,863,109 755,612 12,618,721
Citigroup
Commercial Mtge
Trust
Series 2005-EMG
Cl A1 09/20/51 4.15 3,487,857 159,445 3,647,302(d) 3,443,896 157,435 3,601,331
Citigroup
Commercial Mtge
Trust
Series 2006-C5
Cl A4 10/15/49 5.43 2,850,000 300,000 3,150,000 2,783,126 292,961 3,076,087
Citigroup
Commercial Mtge
Trust
Series 2007-C6
Cl A4 12/10/49 5.89 11,550,000 1,250,000 12,800,000 11,549,555 1,249,952 12,799,507
Citigroup/Deut-
sche Bank
Commercial Mtge
Trust
Series 2005-CD1
Cl ASB 07/15/44 5.40 3,050,000 175,000 3,225,000 3,011,088 172,767 3,183,855
Commercial Mtge
Acceptance
Series 1999-C1
Cl A2 06/15/31 7.03 8,567,660 -- 8,567,660 8,723,709 -- 8,723,709
Commercial Mtge
Pass-Through
Ctfs
Series 2006-
CN2A Cl BFL 02/05/19 5.64 2,550,000 150,000 2,700,000(d,i) 2,557,051 150,415 2,707,466
</Table>
9
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
COMMERCIAL MORTGAGE-BACKED (CONT.)
Commercial Mtge
Pass-Through
Ctfs
Series 2007-C9
Cl A4 12/10/49 6.01% $ 12,600,000 $ 1,350,000 $ 13,950,000 $ 12,738,881 $ 1,364,880 $ 14,103,761
Commercial Mtge
Pass-Through
Ctfs
Series 2007-
FL14 Cl MKL1 06/15/22 6.30 9,850,000 875,000 10,725,000(d,i) 9,800,750 870,625 10,671,375
Credit Suisse
Mtge Capital
Ctfs
Series 2006-C2
Cl A3 03/15/39 5.85 5,025,000 375,000 5,400,000 5,045,327 376,517 5,421,844
Credit Suisse
Mtge Capital
Ctfs
Series 2007-C3
Cl A4 06/15/39 5.91 5,750,000 650,000 6,400,000 5,767,253 651,950 6,419,203
CS First Boston
Mtge Securities
Series 2001-CP4
Cl A4 12/15/35 6.18 7,400,000 -- 7,400,000 7,541,743 -- 7,541,743
CS First Boston
Mtge Securities
Series 2003-
CPN1 Cl A2 03/15/35 4.60 3,525,000 275,000 3,800,000 3,371,172 262,999 3,634,171
Federal Natl
Mtge Assn
#385683 02/01/13 4.83 6,116,277 -- 6,116,277 6,022,463 -- 6,022,463
Federal Natl
Mtge Assn
#385815 01/01/13 4.77 7,011,956 -- 7,011,956 6,856,249 -- 6,856,249
Federal Natl
Mtge Assn
#555806 10/01/13 5.26 471,690 -- 471,690 465,686 -- 465,686
GE Capital
Commercial Mtge
Series 2005-C1
Cl A5 06/10/48 4.77 -- 400,000 400,000 -- 381,226 381,226
General
Electric
Capital
Assurance
Series 2003-1
Cl A3 05/12/35 4.77 10,350,000 1,025,000 11,375,000(d) 10,225,021 1,012,623 11,237,644
GMAC Commercial
Mtge Securities
Series 1999-C1
Cl B 05/15/33 6.30 8,000,000 -- 8,000,000 8,067,490 -- 8,067,490
Greenwich
Capital
Commercial
Funding
Series 2004-GG1
Cl A5 06/10/36 4.88 3,400,000 150,000 3,550,000 3,348,659 147,735 3,496,394
Greenwich
Capital
Commercial
Funding
Series 2007-GG9
Cl A4 03/10/39 5.44 16,350,000 4,350,000 20,700,000 16,027,140 4,264,102 20,291,242
GS Mtge
Securities II
Series 2004-GG2
Cl A4 08/10/38 4.96 5,900,000 250,000 6,150,000 5,828,205 246,958 6,075,163
GS Mtge
Securities II
Series 2006-GG6
Cl A4 04/10/38 5.55 -- 375,000 375,000 -- 372,984 372,984
GS Mtge
Securities II
Series 2007-EOP
Cl J 03/06/20 6.18 8,400,000 650,000 9,050,000(d,i) 8,232,281 637,022 8,869,303
GS Mtge
Securities II
Series 2007-
GG10 Cl A4 08/10/45 5.99 11,900,000 1,250,000 13,150,000 11,989,255 1,259,376 13,248,631
GS Mtge
Securities II
Series 2007-
GG10 Cl F 08/10/45 5.99 4,425,000 375,000 4,800,000 4,377,653 370,988 4,748,641
JPMorgan Chase
Commercial Mtge
Securities
Series 2003-LN1
Cl A1 10/15/37 4.13 3,751,021 177,774 3,928,795 3,635,332 172,291 3,807,623
JPMorgan Chase
Commercial Mtge
Securities
Series 2003-
ML1A Cl A1 03/12/39 3.97 3,562,855 158,349 3,721,204 3,475,363 154,461 3,629,824
JPMorgan Chase
Commercial Mtge
Securities
Series 2003-
ML1A Cl A2 03/12/39 4.77 6,894,000 525,000 7,419,000 6,639,747 505,638 7,145,385
JPMorgan Chase
Commercial Mtge
Securities
Series 2004-C2
Cl A2 05/15/41 5.26 -- 325,000 325,000 -- 322,012 322,012
JPMorgan Chase
Commercial Mtge
Securities
Series 2004-CBX
Cl A3 01/12/37 4.18 4,000,000 150,000 4,150,000 3,903,640 146,387 4,050,027
JPMorgan Chase
Commercial Mtge
Securities
Series 2004-LN2
Cl A1 07/15/41 4.48 8,570,883 674,359 9,245,242 8,348,315 656,847 9,005,162
JPMorgan Chase
Commercial Mtge
Securities
Series 2005-
LDP5 Cl A4 12/15/44 5.34 5,200,000 550,000 5,750,000 5,056,740 534,848 5,591,588
JPMorgan Chase
Commercial Mtge
Securities
Series 2006-
LDP6 Cl A4 04/15/43 5.48 4,275,000 750,000 5,025,000 4,222,294 740,753 4,963,047
JPMorgan Chase
Commercial Mtge
Securities
Series 2006-
LDP6 Cl ASB 04/15/43 5.49 6,475,000 750,000 7,225,000 6,431,032 744,907 7,175,939
JPMorgan Chase
Commercial Mtge
Securities
Series 2007-
LDPX Cl A3 01/15/49 5.42 16,000,000 1,700,000 17,700,000 15,580,181 1,655,394 17,235,575
LB-UBS
Commercial Mtge
Trust
Series 2002-C4
Cl A4 09/15/26 4.56 7,000,000 200,000 7,200,000 6,836,054 195,316 7,031,370
LB-UBS
Commercial Mtge
Trust
Series 2002-C4
Cl A5 09/15/31 4.85 6,000,000 500,000 6,500,000 5,809,769 484,147 6,293,916
LB-UBS
Commercial Mtge
Trust
Series 2004-C2
Cl A3 03/15/29 3.97 4,475,000 225,000 4,700,000 4,259,663 214,173 4,473,836
</Table>
10
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
COMMERCIAL MORTGAGE-BACKED (CONT.)
LB-UBS
Commercial Mtge
Trust
Series 2005-C5
Cl AAB 09/15/30 4.93% $ 7,325,000 $ 1,200,000 $ 8,525,000 $ 7,193,077 $ 1,178,388 $ 8,371,465
LB-UBS
Commercial Mtge
Trust
Series 2006-C4
Cl AAB 06/15/32 6.06 4,125,000 975,000 5,100,000 4,194,353 991,393 5,185,746
LB-UBS
Commercial Mtge
Trust
Series 2006-C6
Cl A4 09/15/39 5.37 4,900,000 550,000 5,450,000 4,773,782 535,833 5,309,615
LB-UBS
Commercial Mtge
Trust
Series 2007-C1
Cl A4 02/15/40 5.42 4,875,000 375,000 5,250,000 4,756,949 365,919 5,122,868
LB-UBS
Commercial Mtge
Trust
Series 2007-C6
Cl A4 07/15/40 5.86 6,350,000 700,000 7,050,000 6,381,746 703,500 7,085,246
Merrill Lynch
Mtge Trust
Series 2005-
CKI1 Cl A1 11/12/37 5.08 -- 1,232,376 1,232,376 -- 1,227,028 1,227,028
Morgan Stanley
Capital I
Series 2003-T11
Cl A2 06/13/41 4.34 4,575,000 1,325,000 5,900,000 4,509,425 1,306,008 5,815,433
Morgan Stanley
Capital I
Series 2004-HQ4
Cl A5 04/14/40 4.59 4,950,000 250,000 5,200,000 4,821,053 243,488 5,064,541
Morgan Stanley
Capital I
Series 2006-T23
Cl AAB 08/12/41 5.97 3,425,000 250,000 3,675,000 3,472,257 253,449 3,725,706
Morgan Stanley
Capital I
Series 2007-
IQ15 Cl A4 06/11/49 6.08 5,600,000 600,000 6,200,000 5,663,840 606,840 6,270,680
TIAA Retail
Commercial
Trust
Series 2007-C4
Cl A3 08/15/39 6.10 8,500,000 975,000 9,475,000(c) 8,535,241 979,042 9,514,283
Wachovia Bank
Commercial Mtge
Trust
Series 2003-C7
Cl A2 10/15/35 5.08 14,550,000 1,100,000 15,650,000(d) 14,160,801 1,070,576 15,231,377
Wachovia Bank
Commercial Mtge
Trust
Series 2005-C18
Cl A4 04/15/42 4.94 4,815,000 300,000 5,115,000 4,624,074 288,104 4,912,178
Wachovia Bank
Commercial Mtge
Trust
Series 2005-C20
Cl A5 07/15/42 5.09 4,667,000 300,000 4,967,000 4,574,808 294,074 4,868,882
Wachovia Bank
Commercial Mtge
Trust
Series 2006-C27
Cl A3 07/15/45 5.77 11,950,372 1,225,000 13,175,372 11,953,069 1,225,276 13,178,345
Wachovia Bank
Commercial Mtge
Trust
Series 2006-C27
Cl APB 07/15/45 5.73 5,075,000 400,000 5,475,000 5,034,875 396,837 5,431,712
Wachovia Bank
Commercial Mtge
Trust
Series 2006-C29
Cl A4 11/15/48 5.31 8,900,000 900,000 9,800,000 8,648,747 874,592 9,523,339
Wachovia Bank
Commercial Mtge
Trust
Series 2007-C31
Cl A4 04/15/47 5.51 17,350,000 1,775,000 19,125,000 16,998,308 1,739,020 18,737,328
--------------------------------------------
Total 382,332,011 37,528,761 419,860,772
- ---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED (49.3%)(F,N)
Adjustable Rate
Mtge Trust
Collateralized
Mtge Obligation
Series 2005-12
Cl 2A1 03/25/36 5.69 7,580,646 452,057 8,032,703(k) 7,581,474 452,106 8,033,580
Adjustable Rate
Mtge Trust
Collateralized
Mtge Obligation
Series 2006-1
Cl 2A1 03/25/36 5.94 8,634,712 546,501 9,181,213(k) 8,623,832 545,812 9,169,644
Adjustable Rate
Mtge Trust
Collateralized
Mtge Obligation
Series 2007-1
Cl 3A21 03/25/37 6.19 6,766,652 548,647 7,315,299(k) 6,840,918 554,669 7,395,587
American Home
Mtge Assets
Collateralized
Mtge Obligation
Series 2007-2
Cl A2A 03/25/47 5.67 -- 887,830 887,830(k) -- 835,772 835,772
Banc of America
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2003-11
Cl 1A1 01/25/34 6.00 6,816,612 102,506 6,919,118 6,691,868 100,630 6,792,498
Banc of America
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2003-11
Cl 4A1 01/25/19 4.75 3,729,443 179,329 3,908,772 3,583,764 172,324 3,756,088
Banc of America
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2004-3
Cl 1A1 04/25/34 6.00 8,654,252 -- 8,654,252 8,589,345 -- 8,589,345
Banc of America
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2006-9
Cl 1CB1 01/25/37 6.00 16,660,970 1,388,414 18,049,384 16,401,807 1,366,817 17,768,624
</Table>
11
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Banc of America
Funding
Collateralized
Mtge Obligation
Series 2006-2
Cl N1 11/25/46 7.25% $ 632,069 $ 63,207 $ 695,276(d) $ 595,725 $ 59,573 $ 655,298
Banc of America
Funding
Collateralized
Mtge Obligation
Series 2006-A
Cl 3A2 02/20/36 5.89 6,140,551 441,237 6,581,788(k) 6,139,507 441,162 6,580,669
Banc of America
Mtge Securities
Collateralized
Mtge Obligation
Series 2005-9
Cl 3A3 10/25/20 5.00 27,132,255 2,556,110 29,688,365 26,300,240 2,477,727 28,777,967
Bear Stearns
Adjustable Rate
Mtge Trust
Collateralized
Mtge Obligation
Series 2005-8
Cl A4 08/25/35 5.10 6,025,000 450,000 6,475,000(d,k) 5,756,163 429,921 6,186,084
Bear Stearns
Adjustable Rate
Mtge Trust
Collateralized
Mtge Obligation
Series 2007-5
Cl 3A1 08/25/47 6.00 13,600,000 1,500,000 15,100,000(k) 13,319,500 1,469,063 14,788,563
ChaseFlex Trust
Collateralized
Mtge Obligation
Series 2005-2
Cl 2A2 06/25/35 6.50 2,001,690 -- 2,001,690 2,023,585 -- 2,023,585
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Interest Only
Series 2007-8CB
Cl A13 05/25/37 7.73 6,218,487 473,321 6,691,808(g) 1,050,738 79,977 1,130,715
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2003-
11T1 Cl A1 07/25/18 4.75 3,818,061 142,808 3,960,869 3,668,920 137,230 3,806,150
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2003-
20CB Cl 1A1 10/25/33 5.50 14,928,280 2,195,335 17,123,615 14,371,375 2,113,437 16,484,812
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2005-
54CB Cl 2A3 11/25/35 5.50 5,813,231 304,287 6,117,518 5,842,996 305,845 6,148,841
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2005-
54CB Cl 3A7 11/25/35 5.50 5,890,080 307,358 6,197,438 5,920,217 308,931 6,229,148
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2005-
64CB Cl 1A1 12/25/35 5.50 10,013,264 635,170 10,648,434 10,004,880 634,638 10,639,518
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2005-6CB
Cl 1A1 04/25/35 7.50 5,308,276 259,163 5,567,439 5,502,702 268,656 5,771,358
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2005-
85CB Cl 2A2 02/25/36 5.50 2,708,330 232,143 2,940,473 2,699,051 231,347 2,930,398
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2006-22R
Cl 1A2 05/25/36 6.00 7,988,368 760,797 8,749,165 8,029,342 764,699 8,794,041
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2006-2CB
Cl A11 03/25/36 6.00 8,310,985 620,802 8,931,787 8,132,753 607,489 8,740,242
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2006-
31CB Cl A16 11/25/36 6.00 10,000,000 1,200,000 11,200,000 10,095,600 1,211,472 11,307,072
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2006-
43CB Cl 1A4 02/25/37 6.00 12,356,857 952,272 13,309,129 12,389,479 954,786 13,344,265
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2007-25
Cl 1A1 10/25/37 6.50 20,000,000 2,000,000 22,000,000(j) 19,646,875 1,964,688 21,611,563
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2007-OA9
Cl A2 06/25/47 5.86 -- 1,100,000 1,100,000(i) -- 1,051,909 1,051,909
Countrywide
Alternative
Loan Trust
Collateralized
Mtge Obligation
Series 2007-OH3
Cl A3 09/25/47 6.01 15,967,790 1,746,477 17,714,267(i) 14,637,770 1,601,006 16,238,776
Countrywide
Home Loans
Collateralized
Mtge Obligation
Series 2005-27
Cl 2A1 12/25/35 5.50 13,361,552 1,781,540 15,143,092 12,862,689 1,715,025 14,577,714
</Table>
12
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Countrywide
Home Loans
Collateralized
Mtge Obligation
Series 2005-R2
Cl 2A1 06/25/35 7.00% $ 6,574,642 $ 319,484 $ 6,894,126(d) $ 6,909,833 $ 335,772 $ 7,245,605
Countrywide
Home Loans
Collateralized
Mtge Obligation
Series 2006-
HYB1 Cl 1A1 03/20/36 5.36 3,756,789 632,152 4,388,941(k) 3,753,784 631,646 4,385,430
Countrywide
Home Loans
Collateralized
Mtge Obligation
Series 2007-17
Cl 2A1 10/25/37 6.50 18,000,000 2,500,000 20,500,000 17,907,188 2,487,109 20,394,297
Countrywide
Home Loans
Collateralized
Mtge Obligation
Series 2007-HY3
Cl 4A1 06/25/47 6.00 10,335,386 1,129,282 11,464,668(k) 10,121,814 1,105,946 11,227,760
CS First Boston
Mtge Securities
Collateralized
Mtge Obligation
Series 2003-29
Cl 8A1 11/25/18 6.00 2,027,217 -- 2,027,217 2,029,162 -- 2,029,162
Deutsche Bank
Alternate Mtge
Loan Trust
Collateralized
Mtge Obligation
Series 2007-AR3
Cl 2A1 05/25/37 5.62 -- 444,209 444,209(k) -- 443,429 443,429
Downey Savings
& Loan Assn
Mtge Loan Trust
Collateralized
Mtge Obligation
Interest Only
Series 2005-AR5
Cl X1 08/19/45 9.55 42,924,289 2,360,026 45,284,315(g) 382,294 21,019 403,313
Federal Home
Loan Mtge Corp 09/01/37 6.00 -- 3,785,000 3,785,000(j) -- 3,781,450 3,781,450
09/01/37 6.50 61,000,000 1,500,000 62,500,000(j) 61,914,999 1,522,500 63,437,499
Federal Home
Loan Mtge Corp
#170216 03/01/17 8.50 7,682 -- 7,682 8,171 -- 8,171
Federal Home
Loan Mtge Corp
#1J0283 02/01/37 5.83 -- 810,174 810,174(k) -- 811,447 811,447
Federal Home
Loan Mtge Corp
#1J1445 01/01/37 5.90 13,124,315 1,197,474 14,321,789(k) 13,200,534 1,204,428 14,404,962
Federal Home
Loan Mtge Corp
#284190 01/01/17 8.00 341 -- 341 358 -- 358
Federal Home
Loan Mtge Corp
#290970 04/01/17 8.00 9,885 -- 9,885 10,344 -- 10,344
Federal Home
Loan Mtge Corp
#295114 06/01/17 8.50 3,693 -- 3,693 3,929 -- 3,929
Federal Home
Loan Mtge Corp
#540861 09/01/19 8.50 33,499 -- 33,499 35,747 -- 35,747
Federal Home
Loan Mtge Corp
#A00304 04/01/21 9.00 46,970 -- 46,970 50,357 -- 50,357
Federal Home
Loan Mtge Corp
#A12692 10/01/32 6.00 -- 108,845 108,845 -- 109,540 109,540
Federal Home
Loan Mtge Corp
#A13854 09/01/33 6.00 -- 137,760 137,760 -- 138,453 138,453
Federal Home
Loan Mtge Corp
#A62544 06/01/37 6.00 8,106,420 -- 8,106,420 8,100,509 -- 8,100,509
Federal Home
Loan Mtge Corp
#A62695 06/01/37 6.00 -- 1,987,908 1,987,908 -- 1,986,805 1,986,805
Federal Home
Loan Mtge Corp
#B10254 10/01/18 5.50 -- 430,409 430,409 -- 428,846 428,846
Federal Home
Loan Mtge Corp
#B11835 01/01/19 5.50 502,437 -- 502,437 500,613 -- 500,613
Federal Home
Loan Mtge Corp
#B12280 02/01/19 5.50 -- 229,046 229,046 -- 228,215 228,215
Federal Home
Loan Mtge Corp
#C00103 03/01/22 8.50 122,079 -- 122,079 130,795 -- 130,795
Federal Home
Loan Mtge Corp
#C00144 08/01/22 8.50 111,358 -- 111,358 119,412 -- 119,412
Federal Home
Loan Mtge Corp
#C00356 08/01/24 8.00 390,728 -- 390,728 413,838 -- 413,838
Federal Home
Loan Mtge Corp
#C00666 10/01/28 7.00 46,602 -- 46,602 48,203 -- 48,203
Federal Home
Loan Mtge Corp
#C02951 07/01/37 6.50 24,963,125 2,995,575 27,958,700 25,340,171 3,040,821 28,380,992
Federal Home
Loan Mtge Corp
#C53878 12/01/30 5.50 1,617,997 -- 1,617,997 1,588,691 -- 1,588,691
Federal Home
Loan Mtge Corp
#C59161 10/01/31 6.00 -- 133,448 133,448 -- 134,144 134,144
Federal Home
Loan Mtge Corp
#C62993 01/01/32 6.50 1,135,757 -- 1,135,757 1,161,398 -- 1,161,398
Federal Home
Loan Mtge Corp
#C63552 01/01/32 6.50 1,735,467 -- 1,735,467 1,780,106 -- 1,780,106
Federal Home
Loan Mtge Corp
#C64703 03/01/32 6.50 991,391 -- 991,391 1,014,556 -- 1,014,556
Federal Home
Loan Mtge Corp
#C67723 06/01/32 7.00 797,346 -- 797,346 826,555 -- 826,555
Federal Home
Loan Mtge Corp
#C77372 03/01/33 6.00 -- 259,972 259,972 -- 261,569 261,569
Federal Home
Loan Mtge Corp
#C78031 04/01/33 5.50 8,896,394 -- 8,896,394 8,721,585 -- 8,721,585
Federal Home
Loan Mtge Corp
#C79930 06/01/33 5.50 7,723,071 -- 7,723,071 7,565,174 -- 7,565,174
Federal Home
Loan Mtge Corp
#C90613 01/01/23 5.00 -- 146,245 146,245 -- 141,703 141,703
Federal Home
Loan Mtge Corp
#C90683 06/01/23 5.00 -- 150,357 150,357 -- 145,687 145,687
Federal Home
Loan Mtge Corp
#C90767 12/01/23 6.00 7,307,024 127,372 7,434,396 7,375,724 128,570 7,504,294
Federal Home
Loan Mtge Corp
#D96300 10/01/23 5.50 5,004,713 -- 5,004,713 4,945,549 -- 4,945,549
Federal Home
Loan Mtge Corp
#E01127 02/01/17 6.50 1,138,468 -- 1,138,468 1,163,268 -- 1,163,268
Federal Home
Loan Mtge Corp
#E01419 05/01/18 5.50 4,247,554 -- 4,247,554 4,235,794 -- 4,235,794
</Table>
13
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Federal Home
Loan Mtge Corp
#E74288 12/01/13 6.00% $ -- $ 177,703 $ 177,703 $ -- $ 180,093 $ 180,093
Federal Home
Loan Mtge Corp
#E79810 11/01/14 7.50 952,062 -- 952,062 990,711 -- 990,711
Federal Home
Loan Mtge Corp
#E90216 05/01/17 6.00 1,320,121 -- 1,320,121 1,336,218 -- 1,336,218
Federal Home
Loan Mtge Corp
#E98725 08/01/18 5.00 9,615,590 186,083 9,801,673 9,429,100 182,474 9,611,574
Federal Home
Loan Mtge Corp
#E99684 10/01/18 5.00 9,634,698 -- 9,634,698 9,446,483 -- 9,446,483
Federal Home
Loan Mtge Corp
#G00286 02/01/25 8.00 153,612 -- 153,612 162,698 -- 162,698
Federal Home
Loan Mtge Corp
#G01108 04/01/30 7.00 2,957,443 -- 2,957,443 3,059,353 -- 3,059,353
Federal Home
Loan Mtge Corp
#G01410 04/01/32 7.00 -- 294,413 294,413 -- 303,601 303,601
Federal Home
Loan Mtge Corp
#G01441 07/01/32 7.00 2,685,445 -- 2,685,445 2,769,253 -- 2,769,253
Federal Home
Loan Mtge Corp
#G01535 04/01/33 6.00 10,192,550 -- 10,192,550 10,259,085 -- 10,259,085
Federal Home
Loan Mtge Corp
#G02757 06/01/36 5.00 26,392,109 2,140,160 28,532,269 25,135,440 2,038,256 27,173,696
Federal Home
Loan Mtge Corp
#G11302 07/01/17 7.00 3,189,876 -- 3,189,876 3,296,532 -- 3,296,532
Federal Home
Loan Mtge Corp
#G30225 02/01/23 6.00 10,088,513 -- 10,088,513 10,195,293 -- 10,195,293
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Interest Only
Series 237 Cl
IO 05/15/36 8.64 4,230,664 315,049 4,545,713(g) 1,131,703 84,276 1,215,979
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Interest Only
Series 2590 Cl
BI 02/15/14 10.67 1,504,506 -- 1,504,506(g) 39,767 -- 39,767
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Interest Only
Series 2718 Cl
IA 10/15/22 20.00 3,332,378 84,600 3,416,978(g) 73,048 1,855 74,903
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Interest Only
Series 2795 Cl
IY 07/15/17 12.98 -- 410,473 410,473(g) -- 39,846 39,846
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Interest Only
Series 2817 Cl
SA 06/15/32 9.13 6,831,038 595,656 7,426,694(g) 381,443 33,261 414,704
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Series 1241 Cl
K
03/15/22 7.00 570,583 -- 570,583 568,998 -- 568,998
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Series 2576 Cl
KJ 02/15/33 5.50 10,213,966 167,993 10,381,959 10,268,501 168,890 10,437,391
Federal Home
Loan Mtge Corp
Collateralized
Mtge Obligation
Series 2641 Cl
KC 01/15/18 6.50 3,584,188 168,385 3,752,573 3,690,279 173,369 3,863,648
Federal Natl
Mtge Assn 09/01/22 5.50 -- 3,000,000 3,000,000(j) -- 2,982,186 2,982,186
09/01/22 6.00 -- 2,275,000 2,275,000(j) -- 2,299,172 2,299,172
09/01/37 5.50 34,500,000 1,000,000 35,500,000(j) 33,691,388 976,562 34,667,950
09/01/37 6.00 41,500,000 5,300,000 46,800,000(j) 41,448,124 5,293,375 46,741,499
09/01/37 7.00 56,000,000 7,500,000 63,500,000(j) 57,557,471 7,708,589 65,266,060
10/01/37 6.00 48,000,000 3,000,000 51,000,000(j) 47,925,023 2,995,314 50,920,337
Federal Natl
Mtge Assn
#125479 04/01/27 7.50 236,065 -- 236,065 247,416 -- 247,416
Federal Natl
Mtge Assn
#190899 04/01/23 8.50 371,661 -- 371,661 392,144 -- 392,144
Federal Natl
Mtge Assn
#190944 05/01/24 6.00 5,759,455 -- 5,759,455 5,786,298 -- 5,786,298
Federal Natl
Mtge Assn
#190988 06/01/24 9.00 332,477 -- 332,477 354,447 -- 354,447
Federal Natl
Mtge Assn
#231309 09/01/23 6.50 151,085 -- 151,085 154,501 -- 154,501
Federal Natl
Mtge Assn
#231310 09/01/23 6.50 379,461 -- 379,461 388,039 -- 388,039
Federal Natl
Mtge Assn
#250330 09/01/25 8.00 246,521 -- 246,521 260,661 -- 260,661
Federal Natl
Mtge Assn
#250495 03/01/26 7.00 596,810 -- 596,810 619,041 -- 619,041
Federal Natl
Mtge Assn
#250765 12/01/26 8.00 230,929 -- 230,929 244,296 -- 244,296
Federal Natl
Mtge Assn
#251116 08/01/27 8.00 251,494 -- 251,494 266,167 -- 266,167
Federal Natl
Mtge Assn
#252440 05/01/29 7.00 -- 213,992 213,992 -- 222,095 222,095
</Table>
14
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Federal Natl
Mtge Assn
#252498 06/01/29 7.00% $ 5,772 $ -- $ 5,772 $ 5,990 $ -- $ 5,990
Federal Natl
Mtge Assn
#253883 08/01/16 6.00 2,772,025 -- 2,772,025 2,807,905 -- 2,807,905
Federal Natl
Mtge Assn
#254236 03/01/17 6.50 1,649,152 -- 1,649,152 1,683,180 -- 1,683,180
Federal Natl
Mtge Assn
#254383 06/01/32 7.50 354,545 -- 354,545 369,739 -- 369,739
Federal Natl
Mtge Assn
#254587 12/01/22 5.50 -- 581,428 581,428 -- 574,764 574,764
Federal Natl
Mtge Assn
#254802 07/01/18 4.50 2,884,873 -- 2,884,873 2,737,441 -- 2,737,441
Federal Natl
Mtge Assn
#254916 09/01/23 5.50 9,754,235 441,817 10,196,052 9,638,128 436,558 10,074,686
Federal Natl
Mtge Assn
#255788 06/01/15 5.50 2,870,981 624,126 3,495,107 2,900,432 630,529 3,530,961
Federal Natl
Mtge Assn
#256135 02/01/36 5.50 -- 3,834,499 3,834,499 -- 3,722,787 3,722,787
Federal Natl
Mtge Assn
#268071 01/01/24 6.50 103,967 -- 103,967 106,317 -- 106,317
Federal Natl
Mtge Assn
#303226 02/01/25 8.00 114,443 -- 114,443 120,939 -- 120,939
Federal Natl
Mtge Assn
#313049 08/01/11 8.50 696,950 -- 696,950 727,849 -- 727,849
Federal Natl
Mtge Assn
#323715 05/01/29 6.00 -- 447,880 447,880 -- 450,883 450,883
Federal Natl
Mtge Assn
#323933 09/01/29 7.00 3,824,956 -- 3,824,956 3,969,786 -- 3,969,786
Federal Natl
Mtge Assn
#386558 10/01/10 4.85 -- 474,464 474,464 -- 469,517 469,517
Federal Natl
Mtge Assn
#408207 01/01/28 6.50 145,213 -- 145,213 149,108 -- 149,108
Federal Natl
Mtge Assn
#455791 01/01/29 6.50 532,019 -- 532,019 544,838 -- 544,838
Federal Natl
Mtge Assn
#489888 05/01/29 6.50 2,018,616 -- 2,018,616 2,065,600 -- 2,065,600
Federal Natl
Mtge Assn
#493945 04/01/29 6.50 -- 92,834 92,834 -- 94,956 94,956
Federal Natl
Mtge Assn
#496029 01/01/29 6.50 2,369,919 -- 2,369,919 2,431,209 -- 2,431,209
Federal Natl
Mtge Assn
#50700 03/01/08 7.00 198,293 -- 198,293 199,693 -- 199,693
Federal Natl
Mtge Assn
#518159 09/01/14 7.00 -- 376,863 376,863 -- 389,013 389,013
Federal Natl
Mtge Assn
#545008 06/01/31 7.00 2,408,108 -- 2,408,108 2,504,103 -- 2,504,103
Federal Natl
Mtge Assn
#545216 03/01/09 5.89 -- 103,100 103,100 -- 103,213 103,213
Federal Natl
Mtge Assn
#545342 04/01/13 7.00 1,073,319 -- 1,073,319 1,080,895 -- 1,080,895
Federal Natl
Mtge Assn
#545684 05/01/32 7.50 303,366 -- 303,366 317,198 -- 317,198
Federal Natl
Mtge Assn
#545868 08/01/32 7.00 -- 99,707 99,707 -- 103,669 103,669
Federal Natl
Mtge Assn
#545869 07/01/32 6.50 2,136,329 -- 2,136,329 2,186,657 -- 2,186,657
Federal Natl
Mtge Assn
#545885 08/01/32 6.50 3,774,242 -- 3,774,242 3,916,909 -- 3,916,909
Federal Natl
Mtge Assn
#545910 08/01/17 6.00 4,768,777 -- 4,768,777 4,836,062 -- 4,836,062
Federal Natl
Mtge Assn
#555340 04/01/33 5.50 -- 280,883 280,883 -- 275,378 275,378
Federal Natl
Mtge Assn
#555343 08/01/17 6.00 4,632,714 -- 4,632,714 4,690,762 -- 4,690,762
Federal Natl
Mtge Assn
#555375 04/01/33 6.00 22,600,396 -- 22,600,396 22,734,627 -- 22,734,627
Federal Natl
Mtge Assn
#555458 05/01/33 5.50 20,422,396 -- 20,422,396 20,014,152 -- 20,014,152
Federal Natl
Mtge Assn
#555528 04/01/33 6.00 14,854,511 1,559,724 16,414,235 14,913,146 1,565,880 16,479,026
Federal Natl
Mtge Assn
#555734 07/01/23 5.00 7,982,726 94,369 8,077,095 7,720,003 91,263 7,811,266
Federal Natl
Mtge Assn
#555740 08/01/18 4.50 9,704,041 164,790 9,868,831 9,357,955 158,913 9,516,868
Federal Natl
Mtge Assn
#555794 09/01/28 7.50 776,184 85,985 862,169 813,807 90,152 903,959
Federal Natl
Mtge Assn
#567840 10/01/30 7.00 1,235,140 -- 1,235,140 1,281,908 -- 1,281,908
Federal Natl
Mtge Assn
#582154 05/01/31 6.50 -- 123,681 123,681 -- 126,480 126,480
Federal Natl
Mtge Assn
#587859 12/01/16 5.50 4,352,732 -- 4,352,732 4,344,096 -- 4,344,096
Federal Natl
Mtge Assn
#597374 09/01/31 7.00 671,534 109,638 781,172 698,920 114,109 813,029
Federal Natl
Mtge Assn
#606882 10/01/31 7.00 931,403 -- 931,403 966,140 -- 966,140
Federal Natl
Mtge Assn
#611831 02/01/31 7.50 -- 43,797 43,797 -- 45,888 45,888
Federal Natl
Mtge Assn
#615135 11/01/16 6.00 -- 278,837 278,837 -- 282,446 282,446
Federal Natl
Mtge Assn
#634650 04/01/32 7.50 161,171 -- 161,171 168,077 -- 168,077
Federal Natl
Mtge Assn
#638969 03/01/32 5.50 1,461,588 -- 1,461,588 1,436,014 -- 1,436,014
Federal Natl
Mtge Assn
#643362 04/01/17 6.50 695,230 -- 695,230 709,575 -- 709,575
Federal Natl
Mtge Assn
#646147 06/01/32 7.00 2,326,228 689,007 3,015,235 2,419,678 716,686 3,136,364
Federal Natl
Mtge Assn
#646446 06/01/17 6.50 1,061,298 -- 1,061,298 1,083,197 -- 1,083,197
Federal Natl
Mtge Assn
#649068 06/01/17 6.50 1,808,865 -- 1,808,865 1,851,210 -- 1,851,210
Federal Natl
Mtge Assn
#649263 08/01/17 6.50 1,840,466 -- 1,840,466 1,880,523 -- 1,880,523
Federal Natl
Mtge Assn
#650009 09/01/31 7.50 -- 98,137 98,137 -- 102,824 102,824
Federal Natl
Mtge Assn
#654208 10/01/32 6.50 1,911,644 238,956 2,150,600 1,952,926 244,116 2,197,042
</Table>
15
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Federal Natl
Mtge Assn
#654682 10/01/32 6.00% $ 1,274,448 $ -- $ 1,274,448 $ 1,279,679 $ -- $ 1,279,679
Federal Natl
Mtge Assn
#654689 11/01/32 6.00 1,355,865 -- 1,355,865 1,360,673 -- 1,360,673
Federal Natl
Mtge Assn
#656908 09/01/32 6.50 1,783,790 -- 1,783,790 1,829,712 -- 1,829,712
Federal Natl
Mtge Assn
#661815 10/01/32 6.00 -- 148,633 148,633 -- 149,533 149,533
Federal Natl
Mtge Assn
#662061 09/01/32 6.50 1,609,997 993,401 2,603,398 1,644,765 1,014,854 2,659,619
Federal Natl
Mtge Assn
#667604 10/01/32 5.50 -- 277,761 277,761 -- 272,171 272,171
Federal Natl
Mtge Assn
#667787 02/01/18 5.50 1,694,185 -- 1,694,185 1,688,069 -- 1,688,069
Federal Natl
Mtge Assn
#670382 09/01/32 6.00 10,674,149 -- 10,674,149 10,716,283 -- 10,716,283
Federal Natl
Mtge Assn
#670387 08/01/32 7.00 1,368,542 -- 1,368,542 1,420,550 -- 1,420,550
Federal Natl
Mtge Assn
#677089 01/01/33 5.50 -- 637,024 637,024 -- 624,205 624,205
Federal Natl
Mtge Assn
#678028 09/01/17 6.00 5,336,031 144,217 5,480,248 5,402,891 146,024 5,548,915
Federal Natl
Mtge Assn
#678065 02/01/33 6.50 377,284 -- 377,284 386,835 -- 386,835
Federal Natl
Mtge Assn
#678937 01/01/18 5.50 2,673,148 -- 2,673,148 2,667,448 -- 2,667,448
Federal Natl
Mtge Assn
#678941 02/01/18 5.50 3,304,914 -- 3,304,914 3,297,821 -- 3,297,821
Federal Natl
Mtge Assn
#679095 04/01/18 5.00 5,180,011 -- 5,180,011 5,074,530 -- 5,074,530
Federal Natl
Mtge Assn
#680961 01/01/33 6.00 552,356 -- 552,356 555,642 -- 555,642
Federal Natl
Mtge Assn
#681080 02/01/18 5.00 -- 1,057,178 1,057,178 -- 1,035,650 1,035,650
Federal Natl
Mtge Assn
#681166 04/01/32 6.50 -- 418,542 418,542 -- 428,012 428,012
Federal Natl
Mtge Assn
#681400 03/01/18 5.50 4,852,612 -- 4,852,612 4,840,650 -- 4,840,650
Federal Natl
Mtge Assn
#682825 01/01/33 6.00 1,796,545 -- 1,796,545 1,776,530 -- 1,776,530
Federal Natl
Mtge Assn
#683100 02/01/18 5.50 -- 187,856 187,856 -- 187,372 187,372
Federal Natl
Mtge Assn
#683116 02/01/33 6.00 -- 266,400 266,400 -- 267,452 267,452
Federal Natl
Mtge Assn
#683274 02/01/18 5.50 2,210,392 -- 2,210,392 2,204,700 -- 2,204,700
Federal Natl
Mtge Assn
#684586 03/01/33 6.00 3,160,173 -- 3,160,173 3,175,854 -- 3,175,854
Federal Natl
Mtge Assn
#686172 02/01/33 6.00 2,763,574 -- 2,763,574 2,774,482 -- 2,774,482
Federal Natl
Mtge Assn
#686528 02/01/33 6.00 3,509,276 -- 3,509,276 3,531,370 -- 3,531,370
Federal Natl
Mtge Assn
#687051 01/01/33 6.00 10,563,262 -- 10,563,262 10,543,456 -- 10,543,456
Federal Natl
Mtge Assn
#689026 05/01/33 5.50 -- 1,149,267 1,149,267 -- 1,126,539 1,126,539
Federal Natl
Mtge Assn
#689093 07/01/28 5.50 3,299,941 123,529 3,423,470 3,242,200 121,367 3,363,567
Federal Natl
Mtge Assn
#694628 04/01/33 5.50 6,514,264 -- 6,514,264 6,388,136 -- 6,388,136
Federal Natl
Mtge Assn
#694795 04/01/33 5.50 7,911,592 -- 7,911,592 7,757,919 -- 7,757,919
Federal Natl
Mtge Assn
#694988 03/01/33 5.50 11,017,160 -- 11,017,160 10,799,582 -- 10,799,582
Federal Natl
Mtge Assn
#695202 03/01/33 6.50 4,144,718 -- 4,144,718 4,228,328 -- 4,228,328
Federal Natl
Mtge Assn
#695909 05/01/18 5.50 2,185,816 -- 2,185,816 2,179,956 -- 2,179,956
Federal Natl
Mtge Assn
#699424 04/01/33 5.50 4,447,211 -- 4,447,211 4,360,288 -- 4,360,288
Federal Natl
Mtge Assn
#702427 04/01/33 5.50 4,235,697 -- 4,235,697 4,153,614 -- 4,153,614
Federal Natl
Mtge Assn
#704005 05/01/33 5.50 -- 1,101,715 1,101,715 -- 1,079,102 1,079,102
Federal Natl
Mtge Assn
#704049 05/01/18 5.50 2,633,722 -- 2,633,722 2,626,737 -- 2,626,737
Federal Natl
Mtge Assn
#705655 05/01/33 5.00 -- 489,558 489,558 -- 466,996 466,996
Federal Natl
Mtge Assn
#709093 06/01/33 6.00 -- 170,117 170,117 -- 170,573 170,573
Federal Natl
Mtge Assn
#709901 06/01/18 5.00 -- 523,187 523,187 -- 513,468 513,468
Federal Natl
Mtge Assn
#710823 05/01/33 5.50 642,725 -- 642,725 630,299 -- 630,299
Federal Natl
Mtge Assn
#711503 06/01/33 5.50 -- 133,405 133,405 -- 131,182 131,182
Federal Natl
Mtge Assn
#712057 07/01/18 4.50 -- 80,342 80,342 -- 77,308 77,308
Federal Natl
Mtge Assn
#720070 07/01/23 5.50 2,571,009 -- 2,571,009 2,540,406 -- 2,540,406
Federal Natl
Mtge Assn
#720378 06/01/18 4.50 5,987,721 167,880 6,155,601 5,761,605 161,540 5,923,145
Federal Natl
Mtge Assn
#723687 08/01/28 5.50 4,027,298 -- 4,027,298 3,956,829 -- 3,956,829
Federal Natl
Mtge Assn
#725217 02/01/14 4.72 -- 1,171,178 1,171,178 -- 1,135,482 1,135,482
Federal Natl
Mtge Assn
#725232 03/01/34 5.00 17,912,257 1,131,301 19,043,558 17,086,761 1,079,164 18,165,925
Federal Natl
Mtge Assn
#725424 04/01/34 5.50 18,710,807 1,831,096 20,541,903 18,326,764 1,793,512 20,120,276
Federal Natl
Mtge Assn
#725425 04/01/34 5.50 24,235,824 3,107,284 27,343,108 23,742,274 3,044,006 26,786,280
Federal Natl
Mtge Assn
#725431 08/01/15 5.50 -- 149,302 149,302 -- 149,286 149,286
Federal Natl
Mtge Assn
#725684 05/01/18 6.00 9,712,655 328,687 10,041,342 9,842,789 333,091 10,175,880
Federal Natl
Mtge Assn
#725719 07/01/33 4.85 6,851,569 252,426 7,103,995(k) 6,670,893 245,770 6,916,663
</Table>
16
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Federal Natl
Mtge Assn
#725773 09/01/34 5.50% $ -- $ 1,755,846 $ 1,755,846 $ -- $ 1,718,091 $ 1,718,091
Federal Natl
Mtge Assn
#725813 12/01/33 6.50 10,195,718 -- 10,195,718 10,401,393 -- 10,401,393
Federal Natl
Mtge Assn
#726940 08/01/23 5.50 -- 77,883 77,883 -- 76,954 76,954
Federal Natl
Mtge Assn
#730153 08/01/33 5.50 1,157,023 -- 1,157,023 1,133,274 -- 1,133,274
Federal Natl
Mtge Assn
#735029 09/01/13 5.28 -- 478,518 478,518 -- 474,505 474,505
Federal Natl
Mtge Assn
#735212 12/01/34 5.00 19,847,099 1,823,788 21,670,887 18,913,399 1,737,988 20,651,387
Federal Natl
Mtge Assn
#735224 02/01/35 5.50 34,296,906 4,209,166 38,506,072 33,592,952 4,122,772 37,715,724
Federal Natl
Mtge Assn
#735841 11/01/19 4.50 -- 1,842,158 1,842,158 -- 1,770,381 1,770,381
Federal Natl
Mtge Assn
#738921 11/01/32 6.50 788,277 -- 788,277 807,330 -- 807,330
Federal Natl
Mtge Assn
#743262 10/01/18 5.00 3,429,389 -- 3,429,389 3,362,716 -- 3,362,716
Federal Natl
Mtge Assn
#743347 10/01/33 6.00 -- 99,512 99,512 -- 99,946 99,946
Federal Natl
Mtge Assn
#743579 11/01/33 5.50 -- 301,651 301,651 -- 295,459 295,459
Federal Natl
Mtge Assn
#745355 03/01/36 5.00 14,145,539 4,862,529 19,008,068 13,467,154 4,629,334 18,096,488
Federal Natl
Mtge Assn
#745392 12/01/20 4.50 -- 1,006,893 1,006,893 -- 967,661 967,661
Federal Natl
Mtge Assn
#745563 08/01/34 5.50 -- 1,503,713 1,503,713 -- 1,472,849 1,472,849
Federal Natl
Mtge Assn
#747642 11/01/28 5.50 2,607,614 -- 2,607,614 2,561,987 -- 2,561,987
Federal Natl
Mtge Assn
#753074 12/01/28 5.50 7,004,277 199,182 7,203,459 6,881,718 195,696 7,077,414
Federal Natl
Mtge Assn
#753091 12/01/33 5.50 4,402,938 -- 4,402,938 4,312,566 -- 4,312,566
Federal Natl
Mtge Assn
#753919 12/01/33 4.95 5,758,451 -- 5,758,451(k) 5,645,203 -- 5,645,203
Federal Natl
Mtge Assn
#757581 01/01/19 5.50 -- 961,786 961,786 -- 958,313 958,313
Federal Natl
Mtge Assn
#759342 01/01/34 6.50 1,629,744 -- 1,629,744 1,663,809 -- 1,663,809
Federal Natl
Mtge Assn
#765183 01/01/19 5.50 595,602 -- 595,602 593,721 -- 593,721
Federal Natl
Mtge Assn
#765759 12/01/18 5.00 3,517,988 -- 3,517,988 3,446,351 -- 3,446,351
Federal Natl
Mtge Assn
#765760 02/01/19 5.00 -- 243,988 243,988 -- 239,020 239,020
Federal Natl
Mtge Assn
#766641 03/01/34 5.00 6,667,469 -- 6,667,469 6,353,800 -- 6,353,800
Federal Natl
Mtge Assn
#776962 04/01/29 5.00 16,977,928 -- 16,977,928 16,227,156 -- 16,227,156
Federal Natl
Mtge Assn
#779676 06/01/34 5.00 -- 2,348,388 2,348,388 -- 2,237,908 2,237,908
Federal Natl
Mtge Assn
#804442 12/01/34 6.50 1,255,828 -- 1,255,828 1,279,151 -- 1,279,151
Federal Natl
Mtge Assn
#815264 05/01/35 5.23 -- 702,609 702,609(k) -- 697,439 697,439
Federal Natl
Mtge Assn
#829227 08/01/35 6.00 -- 1,402,274 1,402,274 -- 1,402,227 1,402,227
Federal Natl
Mtge Assn
#831870 11/01/36 6.50 -- 1,973,235 1,973,235 -- 2,003,188 2,003,188
Federal Natl
Mtge Assn
#837258 09/01/35 4.93 2,710,141 -- 2,710,141(k) 2,698,108 -- 2,698,108
Federal Natl
Mtge Assn
#848482 12/01/35 6.00 -- 2,993,559 2,993,559 -- 2,993,458 2,993,458
Federal Natl
Mtge Assn
#878661 02/01/36 5.50 -- 1,835,806 1,835,806 -- 1,784,404 1,784,404
Federal Natl
Mtge Assn
#881629 02/01/36 5.50 -- 1,191,642 1,191,642 -- 1,158,276 1,158,276
Federal Natl
Mtge Assn
#882063 06/01/36 6.50 3,842,858 -- 3,842,858 3,913,141 -- 3,913,141
Federal Natl
Mtge Assn
#883201 07/01/36 6.50 -- 840,842 840,842 -- 854,911 854,911
Federal Natl
Mtge Assn
#886291 07/01/36 7.00 6,945,957 858,820 7,804,777 7,160,276 885,319 8,045,595
Federal Natl
Mtge Assn
#886464 08/01/36 6.50 -- 2,004,835 2,004,835 -- 2,035,267 2,035,267
Federal Natl
Mtge Assn
#915770 03/01/37 6.50 -- 3,187,335 3,187,335 -- 3,235,477 3,235,477
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Interest Only
Series 2003-24
Cl PI 12/25/12 20.00 482,725 -- 482,725(g) 2,965 -- 2,965
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Interest Only
Series 2003-63
Cl IP 07/25/33 12.86 14,982,101 1,304,431 16,286,532(g) 3,477,449 302,767 3,780,216
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Interest Only
Series 2003-71
Cl IM 12/25/31 10.85 2,878,962 231,301 3,110,263(g) 522,216 41,956 564,172
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Interest Only
Series 2004-84
Cl GI 12/25/22 9.48 773,245 133,831 907,076(g) 111,624 19,320 130,944
</Table>
17
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Interest Only
Series 2005-92
Cl SC 10/25/35 15.94% $ 25,263,829 $ 2,187,911 $ 27,451,740(g) $ 964,573 $ 83,534 $ 1,048,107
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Interest Only
Series 367 Cl 2 01/01/36 8.59 14,407,307 1,415,003 15,822,310(g) 3,853,955 378,513 4,232,468
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Principal Only
Series 43 Cl I 09/01/18 5.77 19,379 -- 19,379(h) 15,804 -- 15,804
Federal Natl
Mtge Assn
Collateralized
Mtge Obligation
Series 2003-133
Cl GB 12/25/26 8.00 3,411,789 142,117 3,553,906 3,619,474 150,768 3,770,242
Govt Natl Mtge
Assn #345538 02/15/24 8.00 135,245 -- 135,245 143,452 -- 143,452
Govt Natl Mtge
Assn #398831 08/15/26 8.00 129,921 -- 129,921 137,949 -- 137,949
Govt Natl Mtge
Assn #423782 05/15/26 7.50 437,532 -- 437,532 459,056 -- 459,056
Govt Natl Mtge
Assn #425004 10/15/33 5.50 3,678,115 -- 3,678,115 3,620,417 -- 3,620,417
Govt Natl Mtge
Assn #426170 06/15/26 8.00 107,855 -- 107,855 114,520 -- 114,520
Govt Natl Mtge
Assn #567717 06/15/32 7.50 -- 15,565 15,565 -- 16,293 16,293
Govt Natl Mtge
Assn #595256 12/15/32 6.00 6,182,445 -- 6,182,445 6,227,680 -- 6,227,680
Govt Natl Mtge
Assn #604580 08/15/33 5.00 3,742,717 -- 3,742,717 3,612,110 -- 3,612,110
Govt Natl Mtge
Assn #604708 10/15/33 5.50 9,923,822 104,461 10,028,283 9,768,150 102,823 9,870,973
Govt Natl Mtge
Assn #606844 09/15/33 5.00 9,063,479 -- 9,063,479 8,747,197 -- 8,747,197
Govt Natl Mtge
Assn
Collateralized
Mtge Obligation
Interest Only
Series 2002-70
Cl IC 08/20/32 11.73 7,891,946 -- 7,891,946(g) 1,556,411 -- 1,556,411
Govt Natl Mtge
Assn
Collateralized
Mtge Obligation
Interest Only
Series 2002-80
Cl CI 01/20/32 12.47 1,364,184 -- 1,364,184(g) 142,851 -- 142,851
Harborview Mtge
Loan Trust
Collateralized
Mtge Obligation
Series 2005-16
Cl 3A1B 01/19/36 5.88 -- 331,765 331,765(k) -- 331,838 331,838
Harborview Mtge
Loan Trust
Collateralized
Mtge Obligation
Series 2006-8
Cl 2A1B 08/21/36 5.76 -- 1,080,043 1,080,043(k) -- 986,257 986,257
Harborview Nim
Collateralized
Mtge Obligation
Series 2006-10
Cl N1 11/19/36 6.41 530,358 70,714 601,072(d) 527,707 70,361 598,068
IndyMac Index
Mtge Loan Trust
Collateralized
Mtge Obligation
Interest Only
Series 2005-AR8
Cl AX1 04/25/35 4.50 102,422,089 4,990,656 107,412,745(g) 640,138 31,192 671,330
IndyMac Index
Mtge Loan Trust
Collateralized
Mtge Obligation
Series 2005-
AR25 Cl 1A21 12/25/35 5.85 6,148,290 367,941 6,516,231(k) 5,999,746 359,051 6,358,797
IndyMac Index
Mtge Loan Trust
Collateralized
Mtge Obligation
Series 2007-AR5
Cl 1A1 05/25/37 6.36 11,899,514 1,046,379 12,945,893(k) 12,049,091 1,059,532 13,108,623
IndyMac Index
Nim
Collateralized
Mtge Obligation
Series 2006-AR6
Cl NI 06/25/46 6.65 594,989 45,189 640,178(d) 591,270 44,907 636,177
Lehman XS Net
Interest Margin
Nts
Collateralized
Mtge Obligation
Series 2006-2N
Cl A1 02/27/46 7.00 571,927 -- 571,927(d) 571,838 -- 571,838
Lehman XS Net
Interest Margin
Nts
Collateralized
Mtge Obligation
Series 2006-
GPM6 Cl A1 10/28/46 6.25 1,185,241 124,762 1,310,003(d) 1,166,722 122,813 1,289,535
Lehman XS Net
Interest Margin
Nts
Series 2006-AR8
Cl A1
10/28/46 6.25 360,757 -- 360,757(d) 359,711 -- 359,711
</Table>
18
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Lehman XS Trust
Collateralized
Mtge Obligation
Series 2007-5H
Cl 1A1 05/25/37 6.50% $ 19,549,641 $ 2,327,338 $ 21,876,979 $ 19,761,004 $ 2,352,500 $ 22,113,504
Master
Alternative
Loans Trust
Collateralized
Mtge Obligation
Series 2004-2
Cl 4A1 02/25/19 5.00 5,827,888 397,792 6,225,680 5,653,069 385,859 6,038,928
Master
Alternative
Loans Trust
Collateralized
Mtge Obligation
Series 2004-4
Cl 2A1 05/25/34 6.00 3,341,527 139,230 3,480,757 3,303,567 137,649 3,441,216
Master
Alternative
Loans Trust
Collateralized
Mtge Obligation
Series 2004-7
Cl 8A1 08/25/19 5.00 4,678,416 162,619 4,841,035 4,601,784 159,955 4,761,739
Master
Alternative
Loans Trust
Collateralized
Mtge Obligation
Series 2004-8
Cl 7A1 09/25/19 5.00 6,513,119 238,285 6,751,404 6,268,551 229,337 6,497,888
Master
Alternative
Loans Trust
Collateralized
Mtge Obligation
Series 2005-3
Cl 1A2 04/25/35 5.50 -- 950,000 950,000 -- 873,250 873,250
Mastr Asset
Securitization
Trust
Collateralized
Mtge Obligation
Series 2004-10
Cl 1A1 10/25/19 4.50 -- 1,177,455 1,177,455 -- 1,122,630 1,122,630
Merrill Lynch
Alternative Nt
Asset
Collateralized
Mtge Obligation
Series 2007-
OAR2 Cl A1 04/25/37 5.69 -- 1,045,622 1,045,622(i) -- 1,033,716 1,033,716
Morgan Stanley
Mtge Loan Trust
Collateralized
Mtge Obligation
Series 2007-12
Cl 3A22 08/25/37 6.00 16,988,485 1,998,645 18,987,130 16,611,510 1,954,295 18,565,805
Rali NIM
Collateralized
Mtge Obligation
Series 2006-QO4
Cl N1 04/25/46 6.05 553,910 -- 553,910(d) 548,371 -- 548,371
Residential
Accredit Loans
Collateralized
Mtge Obligation
Series 2006-QS3
Cl 1A10 03/25/36 6.00 6,008,788 456,668 6,465,456 6,100,265 463,620 6,563,885
Residential
Funding Mtge
Securities I
Collateralized
Mtge Obligation
Series 2005-S6
Cl A8 08/25/35 5.25 19,499,904 2,166,656 21,666,560 18,524,852 2,058,317 20,583,169
Structured
Adjustable Rate
Mtge Loan Trust
Collateralized
Mtge Obligation
Series 2006-5
Cl 4A1 06/25/36 5.94 -- 706,574 706,574(k) -- 691,973 691,973
Structured
Asset
Securities
Collateralized
Mtge Obligation
Series 2003-33H
Cl 1A1 10/25/33 5.50 13,088,921 1,056,523 14,145,444 12,600,309 1,017,083 13,617,392
Washington
Mutual
Alternative
Mtge Loan Trust
Pass-Through
Ctfs
Collateralized
Mtge Obligation
Interest Only
Series 2005-AR1
Cl X2 12/25/35 7.10 38,521,818 -- 38,521,818(g) 264,838 -- 264,838
Washington
Mutual Mtge
Pass-Through
Ctfs
Collateralized
Mtge Obligation
Series 2004-CB2
Cl 6A 07/25/19 4.50 4,495,809 117,885 4,613,694 4,260,049 111,703 4,371,752
Washington
Mutual Mtge
Pass-Through
Ctfs
Collateralized
Mtge Obligation
Series 2005-
AR14 Cl 2A1 12/25/35 5.29 5,256,421 401,092 5,657,513(k) 5,191,576 396,144 5,587,720
Washington
Mutual Mtge
Pass-Through
Ctfs
Collateralized
Mtge Obligation
Series 2005-AR8
Cl 2AB1 07/25/45 5.76 -- 87,834 87,834(k) -- 87,670 87,670
Washington
Mutual Mtge
Pass-Through
Ctfs
Collateralized
Mtge Obligation
Series 2006-
AR10 Cl 1A1 09/25/36 5.95 5,026,762 383,722 5,410,484(k) 5,012,621 382,643 5,395,264
Washington
Mutual Mtge
Pass-Through
Ctfs
Collateralized
Mtge Obligation
Series 2006-AR3
Cl A1A 02/25/46 6.02 7,800,707 -- 7,800,707(k) 7,561,849 -- 7,561,849
Wells Fargo
Mtge Backed
Securities
Trust
Collateralized
Mtge Obligation
Series 2005-10
Cl A1 10/25/35 5.00 17,397,295 1,688,845 19,086,140 16,470,715 1,598,897 18,069,612
</Table>
19
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MORTGAGE-BACKED (CONT.)
Wells Fargo
Mtge Backed
Securities
Trust
Collateralized
Mtge Obligation
Series 2005-14
Cl 2A1 12/25/35 5.50% $ -- $ 2,003,113 $ 2,003,113 $ -- $ 1,928,200 $ 1,928,200
Wells Fargo
Mtge Backed
Securities
Trust
Collateralized
Mtge Obligation
Series 2005-5
Cl 2A1 05/25/35 5.50 11,715,569 663,882 12,379,451 11,369,596 644,277 12,013,873
Wells Fargo
Mtge Backed
Securities
Trust
Collateralized
Mtge Obligation
Series 2006-16
Cl 1A1 12/25/18 4.75 15,965,609 1,505,175 17,470,784 15,339,242 1,446,124 16,785,366
Wells Fargo
Mtge Backed
Securities
Trust
Collateralized
Mtge Obligation
Series 2006-
AR12 Cl 1A1 09/25/36 6.03 4,800,062 366,417 5,166,479(k) 4,782,671 365,089 5,147,760
Wells Fargo
Mtge Backed
Securities
Trust
Collateralized
Mtge Obligation
Series 2006-AR6
Cl 5A1 03/25/36 5.11 11,035,958 877,611 11,913,569(k) 10,798,084 858,694 11,656,778
--------------------------------------------
Total 1,453,480,309 156,621,100 1,610,101,409
- ---------------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.2%)
Communications
& Power Inds 02/01/12 8.00 185,000 -- 185,000 185,925 -- 185,925
DRS
Technologies 11/01/13 6.88 1,535,000 -- 1,535,000 1,504,300 -- 1,504,300
02/01/18 7.63 1,925,000 -- 1,925,000 1,886,499 -- 1,886,499
L-3
Communications 01/15/15 5.88 1,565,000 -- 1,565,000 1,482,838 -- 1,482,838
L-3
Communications
Series B 10/15/15 6.38 1,675,000 -- 1,675,000 1,620,563 -- 1,620,563
TransDigm 07/15/14 7.75 195,000 -- 195,000 195,975 -- 195,975
--------------------------------------------
Total 6,876,100 -- 6,876,100
- ---------------------------------------------------------------------------------------------------------------------------------
BANKING (3.2%)
Bank of America
Sub Nts 03/15/17 5.30 20,295,000 2,160,000 22,455,000 19,552,162 2,080,940 21,633,102
Citigroup
Sub Nts 02/15/17 5.50 13,810,000 1,520,000 15,330,000 13,476,047 1,483,243 14,959,290
JPMorgan Chase
& Co
Sub Nts 10/01/15 5.15 2,760,000 300,000 3,060,000 2,631,889 286,075 2,917,964
06/27/17 6.13 7,535,000 880,000 8,415,000 7,648,884 893,300 8,542,184
Manufacturers &
Traders Trust
Sub Nts 12/01/16 5.63 -- 1,720,000 1,720,000 -- 1,655,167 1,655,167
12/01/21 5.63 17,095,000 -- 17,095,000 16,450,624 -- 16,450,624
Popular North
America
Sr Nts 10/01/08 3.88 28,122,000 2,180,000 30,302,000 27,537,260 2,134,671 29,671,931
Regions Bank
Sub Nts 06/26/37 6.45 7,245,000 875,000 8,120,000 7,325,057 884,669 8,209,726
--------------------------------------------
Total 94,621,923 9,418,065 104,039,988
- ---------------------------------------------------------------------------------------------------------------------------------
BROKERAGE (1.3%)
Discover
Financial
Services 06/12/17 6.45 3,985,000 440,000 4,425,000(d,o) 3,959,217 437,153 4,396,370
Lehman Brothers
Holdings
Sr Nts 07/19/12 6.00 22,700,000 2,500,000 25,200,000 22,673,032 2,497,030 25,170,062
Morgan Stanley
Sr Unsecured 08/31/12 5.75 10,675,000 1,135,000 11,810,000 10,666,759 1,134,124 11,800,883
--------------------------------------------
Total 37,299,008 4,068,307 41,367,315
- ---------------------------------------------------------------------------------------------------------------------------------
CHEMICALS (0.2%)
NALCO
Sr Unsecured 11/15/11 7.75 4,605,000 -- 4,605,000 4,685,588 -- 4,685,588
NewMarket 12/15/16 7.13 1,815,000 -- 1,815,000 1,724,250 -- 1,724,250
--------------------------------------------
Total 6,409,838 -- 6,409,838
- ---------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS (--%)
Jarden 05/01/17 7.50 635,000 -- 635,000 593,725 -- 593,725
Visant 10/01/12 7.63 285,000 -- 285,000 285,713 -- 285,713
--------------------------------------------
Total 879,438 -- 879,438
- ---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING (0.1%)
Balder Electric 02/15/17 8.63 2,985,000 -- 2,985,000 3,082,013 -- 3,082,013
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
20
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
ELECTRIC (2.4%)
Consumers
Energy
1st Mtge Series
F 05/15/10 4.00% $ 1,040,000 $ 105,000 $ 1,145,000 $ 1,004,968 $ 101,463 $ 1,106,431
Consumers
Energy
1st Mtge Series
H 02/17/09 4.80 13,520,000 1,165,000 14,685,000 13,413,463 1,155,820 14,569,283
Edison Mission
Energy
Sr Nts 05/15/17 7.00 2,855,000 -- 2,855,000(d) 2,712,250 -- 2,712,250
Entergy Gulf
States
1st Mtge 06/01/08 3.60 5,500,000 425,000 5,925,000 5,391,304 416,601 5,807,905
Exelon 06/15/10 4.45 13,085,000 1,585,000 14,670,000 12,732,228 1,542,268 14,274,496
Indiana
Michigan Power
Sr Nts 03/15/37 6.05 3,825,000 330,000 4,155,000 3,629,405 313,125 3,942,530
IPALCO
Enterprises
Secured 11/14/08 8.38 400,000 -- 400,000 405,000 -- 405,000
11/14/11 8.63 3,680,000 -- 3,680,000 3,781,200 -- 3,781,200
Metropolitan
Edison
Sr Nts 03/15/10 4.45 1,810,000 140,000 1,950,000(o) 1,777,485 137,485 1,914,970
Midwest
Generation LLC
Pass-Through
Ctfs Series B 01/02/16 8.56 163,621 -- 163,621 174,052 -- 174,052
Northern States
Power
Sr Nts 08/01/09 6.88 5,730,000 515,000 6,245,000 5,909,641 531,146 6,440,787
NRG Energy 02/01/14 7.25 695,000 -- 695,000 688,050 -- 688,050
01/15/17 7.38 800,000 -- 800,000 786,000 -- 786,000
Oncor Electric
Delivery
Sr Unsecured 01/15/15 6.38 830,000 75,000 905,000 846,095 76,454 922,549
Portland
General
Electric 03/15/10 7.88 2,935,000 230,000 3,165,000(o) 3,121,889 244,645 3,366,534
Potomac
Electric Power
Secured 06/01/35 5.40 3,040,000 240,000 3,280,000(o) 2,687,102 212,140 2,899,242
Public Service
Company of
Colorado
Sr Nts Series A 07/15/09 6.88 2,005,000 160,000 2,165,000 2,066,415 164,901 2,231,316
Sierra Pacific
Power
Series M 05/15/16 6.00 8,280,000 -- 8,280,000 8,145,690 -- 8,145,690
Sierra Pacific
Power
Series P 07/01/37 6.75 915,000 -- 915,000 893,552 -- 893,552
Xcel Energy
Sr Nts 07/01/08 3.40 3,315,000 145,000 3,460,000 3,257,385 142,480 3,399,865
--------------------------------------------
Total 73,423,174 5,038,528 78,461,702
- ---------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT (0.2%)
United Artists
Theatre Circuit
Pass-Through
Ctfs 07/01/15 9.30 5,706,707 -- 5,706,707(p) 5,934,975 -- 5,934,975
- ---------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL (--%)
Allied Waste
North America 06/01/17 6.88 1,320,000 -- 1,320,000 1,280,400 -- 1,280,400
- ---------------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE (1.7%)
Cadbury
Schweppes US
Finance LLC 10/01/08 3.88 31,950,000 3,500,000 35,450,000(d) 31,465,703 3,446,947 34,912,650
Cott Beverages
USA 12/15/11 8.00 1,740,000 -- 1,740,000 1,722,600 -- 1,722,600
Del Monte 02/15/15 6.75 220,000 -- 220,000 209,000 -- 209,000
HJ Heinz 12/01/08 6.43 5,920,000 640,000 6,560,000(d) 5,982,515 646,758 6,629,273
Molson Coors
Capital Finance 09/22/10 4.85 12,180,000 1,055,000 13,235,000(c) 11,937,849 1,034,026 12,971,875
--------------------------------------------
Total 51,317,667 5,127,731 56,445,398
- ---------------------------------------------------------------------------------------------------------------------------------
GAMING (--%)
Mohegan Tribal
Gaming
Authority
Sr Sub Nts 04/01/12 8.00 750,000 -- 750,000 760,313 -- 760,313
Wynn Las Vegas
LLC/Capital
1st Mtge 12/01/14 6.63 690,000 -- 690,000 667,575 -- 667,575
--------------------------------------------
Total 1,427,888 -- 1,427,888
- ---------------------------------------------------------------------------------------------------------------------------------
GAS DISTRIBUTORS (0.1%)
Atmos Energy
Sr Unsub 10/15/09 4.00 4,005,000 310,000 4,315,000 3,920,074 303,426 4,223,500
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
21
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
GAS PIPELINES (1.0%)
CenterPoint
Energy
Resources 02/15/11 7.75% $ 3,685,000 $ 285,000 $ 3,970,000 $ 3,910,920 $ 302,473 $ 4,213,393
Colorado
Interstate Gas
Sr Nts 11/15/15 6.80 10,510,000 970,000 11,480,000 10,845,720 1,000,984 11,846,704
Northern
Natural Gas
Sr Unsecured 02/15/37 5.80 1,535,000 165,000 1,700,000(d) 1,448,553 155,708 1,604,261
Northwest
Pipeline
Sr Unsecured 04/15/17 5.95 1,615,000 -- 1,615,000 1,566,550 -- 1,566,550
Southern
Natural Gas 04/01/17 5.90 5,925,000 805,000 6,730,000(d) 5,759,171 782,470 6,541,641
Southern Star
Central
Sr Nts 03/01/16 6.75 1,460,000 -- 1,460,000 1,401,600 -- 1,401,600
Transcontinen-
tal Gas Pipe
Line
Series B 08/15/11 7.00 1,915,000 -- 1,915,000 1,996,388 -- 1,996,388
Transcontinen-
tal Gas Pipe
Line
Sr Unsecured 04/15/16 6.40 2,221,000 -- 2,221,000 2,237,658 -- 2,237,658
Williams
Companies
Sr Nts 07/15/19 7.63 2,079,000 -- 2,079,000 2,208,938 -- 2,208,938
--------------------------------------------
Total 31,375,498 2,241,635 33,617,133
- ---------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.2%)
Coventry Health
Care
Sr Unsecured 08/15/14 6.30 3,040,000 330,000 3,370,000 3,035,540 329,516 3,365,056
Omnicare 12/15/13 6.75 2,370,000 -- 2,370,000 2,204,100 -- 2,204,100
12/15/15 6.88 355,000 -- 355,000 331,038 -- 331,038
--------------------------------------------
Total 5,570,678 329,516 5,900,194
- ---------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE INSURANCE (0.5%)
UnitedHealth
Group 06/15/37 6.50 5,700,000 630,000 6,330,000(d) 5,924,522 654,816 6,579,338
WellPoint
Sr Unsub 01/15/36 5.85 5,920,000 745,000 6,665,000 5,381,440 677,225 6,058,665
06/15/37 6.38 2,910,000 255,000 3,165,000 2,848,483 249,609 3,098,092
--------------------------------------------
Total 14,154,445 1,581,650 15,736,095
- ---------------------------------------------------------------------------------------------------------------------------------
HOME CONSTRUCTION (0.2%)
DR Horton
Sr Unsub 04/15/16 6.50 6,875,000 695,000 7,570,000 6,035,205 610,104 6,645,309
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT ENERGY (0.8%)
Anadarko
Petroleum
Sr Unsecured 09/15/16 5.95 4,015,000 425,000 4,440,000 3,992,809 422,651 4,415,460
Canadian
Natural
Resources 03/15/38 6.25 6,845,000 730,000 7,575,000(c) 6,567,332 700,388 7,267,720
Chesapeake
Energy 01/15/16 6.63 4,892,000 -- 4,892,000 4,733,010 -- 4,733,010
01/15/18 6.25 925,000 -- 925,000 866,031 -- 866,031
Denbury
Resources 04/01/13 7.50 250,000 -- 250,000 249,375 -- 249,375
Denbury
Resources
Sr Sub Nts 12/15/15 7.50 180,000 -- 180,000 179,100 -- 179,100
EnCana
Sr Unsecured 08/15/37 6.63 3,035,000 330,000 3,365,000(c) 3,085,008 335,437 3,420,445
Forest Oil
Sr Nts 06/15/19 7.25 265,000 -- 265,000(d) 255,063 -- 255,063
Range Resources 03/15/15 6.38 425,000 -- 425,000 408,000 -- 408,000
05/15/16 7.50 180,000 -- 180,000 181,800 -- 181,800
XTO Energy
Sr Unsecured 08/01/37 6.75 3,245,000 350,000 3,595,000 3,325,995 358,736 3,684,731
--------------------------------------------
Total 23,843,523 1,817,212 25,660,735
- ---------------------------------------------------------------------------------------------------------------------------------
MEDIA CABLE (1.1%)
Comcast 03/15/37 6.45 17,105,000 1,860,000 18,965,000 16,517,066 1,796,068 18,313,134
Comcast MO of
Delaware LLC 09/01/08 9.00 9,500,000 1,000,000 10,500,000 9,799,060 1,031,480 10,830,540
CSC Holdings
Sr Nts Series B 07/15/09 8.13 3,200,000 -- 3,200,000 3,224,000 -- 3,224,000
EchoStar DBS 10/01/13 7.00 225,000 -- 225,000 222,188 -- 222,188
10/01/14 6.63 363,000 -- 363,000 351,203 -- 351,203
02/01/16 7.13 940,000 -- 940,000 918,850 -- 918,850
</Table>
22
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
MEDIA CABLE (CONT.)
Videotron Ltee 01/15/14 6.88% $ 1,310,000 $ -- $ 1,310,000(c) $ 1,247,775 $ -- $ 1,247,775
--------------------------------------------
Total 32,280,142 2,827,548 35,107,690
- ---------------------------------------------------------------------------------------------------------------------------------
MEDIA NON CABLE (1.4%)
British Sky
Broadcasting
Group 02/23/09 6.88 6,270,000 850,000 7,120,000(c) 6,430,155 871,712 7,301,867
Dex Media West
LLC/Finance
Sr Unsecured
Series B 08/15/10 8.50 560,000 -- 560,000 567,000 -- 567,000
Idearc 11/15/16 8.00 1,530,000 -- 1,530,000 1,510,875 -- 1,510,875
News America 12/15/35 6.40 13,160,000 1,390,000 14,550,000(o) 12,580,328 1,328,773 13,909,101
Rainbow Natl
Services LLC
Sr Nts 09/01/12 8.75 1,565,000 -- 1,565,000(d) 1,602,169 -- 1,602,169
RH Donnelley
Sr Disc Nts
Series A-1 01/15/13 6.88 680,000 -- 680,000 640,900 -- 640,900
RH Donnelley
Sr Disc Nts
Series A-2 01/15/13 6.88 1,800,000 -- 1,800,000 1,696,500 -- 1,696,500
RR Donnelley &
Sons
Sr Unsecured 01/15/17 6.13 15,800,000 1,730,000 17,530,000 15,704,252 1,719,516 17,423,768
Sinclair
Broadcast Group 03/15/12 8.00 338,000 -- 338,000 341,380 -- 341,380
--------------------------------------------
Total 41,073,559 3,920,001 44,993,560
- ---------------------------------------------------------------------------------------------------------------------------------
METALS (0.2%)
Freeport-
McMoRan Copper
& Gold
Sr Unsecured 04/01/15 8.25 3,600,000 -- 3,600,000 3,816,000 -- 3,816,000
04/01/17 8.38 535,000 -- 535,000 569,775 -- 569,775
Peabody Energy 11/01/16 7.38 1,885,000 -- 1,885,000 1,899,138 -- 1,899,138
Peabody Energy
Series B 03/15/13 6.88 560,000 -- 560,000 558,600 -- 558,600
--------------------------------------------
Total 6,843,513 -- 6,843,513
- ---------------------------------------------------------------------------------------------------------------------------------
NON CAPTIVE CONSUMER (0.1%)
SLM 01/15/13 5.38 2,125,000 195,000 2,320,000(o) 1,881,853 172,688 2,054,541
10/01/13 5.00 2,460,000 200,000 2,660,000 2,148,564 174,680 2,323,244
--------------------------------------------
Total 4,030,417 347,368 4,377,785
- ---------------------------------------------------------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
OPTI Canada
Secured 12/15/14 7.88 2,585,000 -- 2,585,000(c,d) 2,597,925 -- 2,597,925
- ---------------------------------------------------------------------------------------------------------------------------------
PACKAGING (0.2%)
Ball 03/15/18 6.63 240,000 -- 240,000 229,800 -- 229,800
Crown Americas
LLC/Capital 11/15/13 7.63 680,000 -- 680,000 683,400 -- 683,400
11/15/15 7.75 1,685,000 -- 1,685,000(o) 1,701,850 -- 1,701,850
Owens-Brockway
Glass Container 05/15/13 8.25 3,345,000 -- 3,345,000 3,428,625 -- 3,428,625
--------------------------------------------
Total 6,043,675 -- 6,043,675
- ---------------------------------------------------------------------------------------------------------------------------------
PAPER (0.1%)
Cascades
Sr Nts 02/15/13 7.25 905,000 -- 905,000(c) 864,275 -- 864,275
NewPage 05/01/12 10.00 2,090,000 -- 2,090,000 2,163,150 -- 2,163,150
Smurfit-Stone
Container
Enterprises
Sr Unsecured 03/15/17 8.00 1,900,000 -- 1,900,000 1,812,125 -- 1,812,125
--------------------------------------------
Total 4,839,550 -- 4,839,550
- ---------------------------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY (0.2%)
Travelers
Companies
Sr Unsecured 06/15/37 6.25 5,810,000 605,000 6,415,000 5,629,309 586,185 6,215,494
- ---------------------------------------------------------------------------------------------------------------------------------
RAILROADS (0.2%)
Burlington
Northern Santa
Fe 05/01/37 6.15 6,205,000 660,000 6,865,000 6,015,232 639,815 6,655,047
- ---------------------------------------------------------------------------------------------------------------------------------
REITS (0.4%)
Brandywine
Operating
Partnership LP 05/01/17 5.70 4,635,000 490,000 5,125,000 4,407,143 465,912 4,873,055
ERP Operating
LP 06/15/17 5.75 6,955,000 605,000 7,560,000 6,801,921 591,684 7,393,605
--------------------------------------------
Total 11,209,064 1,057,596 12,266,660
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
23
<Table>
<Caption>
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
RETAILERS (1.0%)
Home Depot
Sr Unsecured 12/16/36 5.88% $ 15,650,000 $ 1,705,000 $ 17,355,000 $ 13,485,621 $ 1,469,200 $ 14,954,821
Macys Retail
Holdings 07/15/09 4.80 16,219,000 1,735,000 17,954,000 15,992,501 1,710,771 17,703,272
Neiman Marcus
Group 10/15/15 10.38 600,000 -- 600,000 645,000 -- 645,000
--------------------------------------------
Total 30,123,122 3,179,971 33,303,093
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION SERVICES (0.1%)
Hertz 01/01/14 8.88 1,925,000 -- 1,925,000 1,992,375 -- 1,992,375
- ---------------------------------------------------------------------------------------------------------------------------------
WIRELESS (--%)
American Tower
Sr Nts 10/15/12 7.13 220,000 -- 220,000 220,000 -- 220,000
- ---------------------------------------------------------------------------------------------------------------------------------
WIRELINES
(1.7%)
AT&T 03/15/11 6.25 11,786,000 1,290,000 13,076,000(o) 12,088,653 1,323,126 13,411,779
AT&T
Sr Unsub 09/15/09 4.13 1,090,000 135,000 1,225,000 1,066,289 132,063 1,198,352
Citizens
Communications
Sr Unsecured 03/15/19 7.13 425,000 -- 425,000 404,813 -- 404,813
Telecom Italia
Capital 11/15/13 5.25 11,405,000 1,180,000 12,585,000(c) 10,988,056 1,136,862 12,124,918
11/15/33 6.38 7,175,000 785,000 7,960,000(c) 6,846,385 749,047 7,595,432
Telefonica
Europe 09/15/10 7.75 17,311,000 1,860,000 19,171,000(c) 18,452,885 1,982,691 20,435,576
TELUS 06/01/11 8.00 35,878,500 3,727,500 39,606,000(c) 38,917,624 4,043,242 42,960,866
Verizon New
York
Series A 04/01/12 6.88 22,863,000 1,900,000 24,763,000 24,089,463 2,001,924 26,091,387
Verizon
Pennsylvania
Series A 11/15/11 5.65 8,000,000 1,485,000 9,485,000 8,083,040 1,500,415 9,583,455
Windstream 08/01/16 8.63 4,915,000 -- 4,915,000 5,136,175 -- 5,136,175
03/15/19 7.00 420,000 -- 420,000 395,850 -- 395,850
--------------------------------------------
Total 126,469,233 12,869,370 139,338,603
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost:
$3,428,413,827) $3,095,106,712 $318,395,025 $3,413,501,737
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
MUNICIPAL BONDS (0.4%)
NAME OF ISSUER
AND TITLE OF
ISSUE COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
TOBACCO
Tobacco
Settlement
Financing
Corporation
Revenue Bonds
Series 2007A-1 06/01/46 6.71 13,850,000 1,480,000 15,330,000 12,539,236 1,339,933 13,879,169
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL
BONDS
(Cost:
$15,316,040) $ 12,539,236 $ 1,339,933 $ 13,879,169
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
SENIOR LOANS (2.2%)(L)
BORROWER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
CHEMICALS (0.1%)
Celanese
Tranche B Term
Loan 04/06/14 5.32-7.11 2,939,125 -- 2,939,125(c) 2,838,695 -- 2,838,695
- ---------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS (0.2%)
Jarden
Tranche B3 Term
Loan 01/24/12 2.50 5,940,000 -- 5,940,000(j) 5,836,050 -- 5,836,050
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
24
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
BORROWER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
FOOD AND BEVERAGE (0.2%)
Aramark
Letter of
Credit 01/26/14 7.36% $ 226,462 $ -- $ 226,462 $ 217,888 $ -- $ 217,888
Aramark
Tranche B Term
Loan 01/20/14 7.36 3,218,915 -- 3,218,915 3,097,047 -- 3,097,047
Pinnacle Foods
Finance
Term Loan 04/02/14 8.11 2,560,000 -- 2,560,000 2,438,400 -- 2,438,400
--------------------------------------------
Total 5,753,335 -- 5,753,335
- ---------------------------------------------------------------------------------------------------------------------------------
GAMING (0.1%)
Fontainebleau
Las Vegas
Delayed Draw
Term Loan 06/05/14 0.00 959,355 -- 959,355(j,m) 889,802 -- 889,802
Fontainebleau
Las Vegas
Term Loan 06/05/14 8.61 1,918,711 -- 1,918,711 1,779,604 -- 1,779,604
--------------------------------------------
Total 2,669,406 -- 2,669,406
- ---------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.7%)
Community
Health
Delayed Draw
Term Loan 06/28/14 0.00 447,641 -- 447,641(j,m) 429,176 -- 429,176
Community
Health
Term Loan 06/28/14 7.76 6,787,359 -- 6,787,359 6,507,380 -- 6,507,380
HCA
Tranche B Term
Loan 01/21/13 7.61 12,984,750 -- 12,984,750 12,479,513 -- 12,479,513
Vanguard Health
Holding II
Term Loan 09/23/11 7.61 2,970,000 -- 2,970,000(j) 2,840,063 -- 2,840,063
--------------------------------------------
Total 22,256,132 -- 22,256,132
- ---------------------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE (0.1%)
Asurion
Term Loan 07/03/14 8.36 4,090,000 -- 4,090,000(j) 3,844,600 -- 3,844,600
- ---------------------------------------------------------------------------------------------------------------------------------
MEDIA CABLE (0.3%)
Charter
Communications
Term Loan 03/06/14 7.36 6,130,000 -- 6,130,000 5,792,850 -- 5,792,850
Univision
Communications
Delayed Draw
Term Loan 09/23/14 0.00 351,242 -- 351,242(j,m) 324,681 -- 324,681
Univision
Communications
Tranche B Term
Loan 09/23/14 7.61 5,463,758 -- 5,463,758 5,050,589 -- 5,050,589
--------------------------------------------
Total 11,168,120 -- 11,168,120
- ---------------------------------------------------------------------------------------------------------------------------------
MEDIA NON CABLE (0.2%)
Idearc
Tranche B Term
Loan 11/17/14 2.00 1,485,000 -- 1,485,000(j) 1,434,881 -- 1,434,881
VNU
Tranche B Term
Loan 08/09/13 7.36 5,442,569 -- 5,442,569(c) 5,184,047 -- 5,184,047
--------------------------------------------
Total 6,618,928 -- 6,618,928
- ---------------------------------------------------------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
Dresser
1st Lien Term
Loan 05/04/14 8.01-8.04 2,059,000 -- 2,059,000 1,973,201 -- 1,973,201
- ---------------------------------------------------------------------------------------------------------------------------------
PAPER (--%)
Domtar
Tranche B Term
Loan 03/07/14 6.93 1,539,000 -- 1,539,000(c) 1,473,593 -- 1,473,593
- ---------------------------------------------------------------------------------------------------------------------------------
RETAILERS (0.1%)
Michaels Stores
Term Loan 10/31/13 7.63-7.69 1,201,206 -- 1,201,206 1,130,131 -- 1,130,131
Neiman Marcus
Group
Tranche B Term
Loan 04/27/13 7.09-7.11 1,677,574 -- 1,677,574 1,624,444 -- 1,624,444
--------------------------------------------
Total 2,754,575 -- 2,754,575
- ---------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (0.1%)
West Corp
Tranche B Term
Loan 10/24/13 7.74-7.88 2,687,952 -- 2,687,952 2,585,138 -- 2,585,138
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
25
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
BORROWER COUPON PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
RATE AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
WIRELINES (0.1%)
Level 3
Communications
Tranche B Term
Loan 03/13/14 7.61% $ 3,340,000 $ -- $ 3,340,000 $ 3,178,578 $ -- $ 3,178,578
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SENIOR
LOANS
(Cost:
$76,112,324) $ 72,950,351 $ -- $ 72,950,351
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
COMMON STOCKS (--%)
ISSUER PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
PAPER & FOREST
PRODUCTS
Crown Paper
Escrow $ 6,950,000 $ -- $ 6,950,000(b) $ 7 $ -- $ 7
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON
STOCKS
(Cost: $--) $ 7 $ -- $ 7
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (2.4%)(R)
ISSUER PRINCIPAL PRINCIPAL PRINCIPAL VALUE(A) VALUE(A) VALUE(A)
AMOUNT AMOUNT AMOUNT
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED BOND FUND BOND FUND COMBINED
RiverSource
Short-Term Cash
Fund $ 45,885,729 $33,717,195 $ 79,602,924(t) $ 45,885,729 $ 33,717,195 $ 79,602,924
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MONEY
MARKET FUND
(Cost:
$79,602,924) $ 45,885,729 $ 33,717,195 $ 79,602,924
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL
INVESTMENTS IN
SECURITIES
(Cost:
$3,599,445,115-
)(u) $3,226,482,035 $353,452,153 $3,579,934,188
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
NOTES TO COMBINED INVESTMENTS IN SECURITIES
</Table>
(A) Securities are valued by procedures described in Note 1 to the financial
statements in the annual report.
(B) Non-income producing. For long-term debt securities, item identified is
in default as to payment of interest and/or principal.
(C) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in U.S. dollar currency unless
otherwise noted. At Aug. 31, 2007, the value of foreign securities
represented 4.2% of net assets.
(D) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
Fund's Board of Directors. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
Aug. 31, 2007, the value of these securities amounted to $157,766,931 or
4.8% or net assets.
(E) The following abbreviations are used in the portfolio security
descriptions to identify the insurer of the issue:
AMBAC -- Ambac Assurance Corporation
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 only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of
an interest only is extremely sensitive to the rate of principal payments
on the underlying mortgage assets. A rapid (slow) rate of principal
repayments may have an adverse (positive) effect on yield to maturity.
The principal amount shown is the notional amount of the underlying
mortgages. Interest rate disclosed represents yield based upon the
estimated timing and amount of future cash flows at Aug. 31, 2007.
(H) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of
a principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Aug. 31, 2007.
(I) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Aug. 31, 2007.
(J) At Aug. 31, 2007, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$306,996,929.
(K) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 2007.
(L) 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.
26
NOTES TO COMBINED INVESTMENTS IN SECURITIES (CONTINUED)
(M) At Aug. 31, 2007, the Fund had unfunded senior loan commitments pursuant
to the term of the loan agreement. The Fund receives a stated coupon rate
until the borrower draws on the loan commitment, at which time the rate
will become the stated rate in the loan agreement.
<Table>
<Caption>
BORROWER UNFUNDED COMMITMENT
Community Health $ 447,641
Fontainebleau Las Vegas 956,957
Univision Communications 351,242
- -------------------------------------------------------------------------------------------------
Total $1,755,840
- -------------------------------------------------------------------------------------------------
</Table>
(N) Comparable securities are held to satisfy future delivery requirements of
the following open forward sale commitments at Aug. 31, 2007:
<Table>
<Caption>
SECURITY PRINCIPAL PRINCIPAL PROCEEDS PROCEEDS
AMOUNT AMOUNT RECEIVABLE RECEIVABLE
RIVERSOURCE RIVERSOURCE RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE PRO FORMA SETTLEMENT DIVERSIFIED CORE PRO FORMA
BOND FUND BOND FUND COMBINED DATE BOND FUND BOND FUND COMBINED
Federal Natl Mtge Assn 09-01-22
5.50% $10,000,000 $-- $10,000,000 9-18-07 $9,884,375 $-- $9,884,375
<Caption>
SECURITY VALUE VALUE
RIVERSOURCE RIVERSOURCE
DIVERSIFIED CORE BOND
BOND FUND FUND PRO FORMA COMBINED
Federal Natl Mtge Assn 09-01-22
5.50% $9,940,620 $-- $9,940,620
</Table>
(O) Partially pledged as initial margin deposit on the following open
interest rate futures contracts:
<Table>
<Caption>
TYPE OF SECURITY NOTIONAL AMOUNT
PURCHASE CONTRACTS
U.S. Treasury Note, Dec. 2007, 2-year $ 9,400,000
U.S. Treasury Note, Dec. 2007, 10-year 6,100,000
SALE CONTRACTS
U.S. Long Bond, Dec. 2007, 20-year 32,200,000
U.S. Treasury Note, Dec. 2007, 2-year 22,400,000
U.S. Treasury Note, Dec. 2007, 5-year 86,100,000
U.S. Treasury Note, Dec. 2007, 10-year 47,100,000
</Table>
(P) Identifies issues considered to be illiquid as to their marketability.
These securities are valued at fair value according to methods selected
in good faith by the Fund's Board of Directors. Information concerning
such security holdings at Aug. 31, 2007, is as follows:
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
United Artists Theatre Circuit 9.30% Pass-Through Ctfs 2015 02-23-96 thru 08-01-96 $5,520,575
</Table>
(Q) At Aug. 31, 2007, security was partially or fully on loan.
(R) Cash collateral received from security lending activity is invested in an
affiliated money market fund.
(S) 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.
(T) Affiliated Money Market Fund -- See Note 7 and/or 8 to the financial
statements in the annual report.
(U) At Aug. 31, 2007, the approximate cost of securities for federal income
tax purposes and the approximate aggregate gross unrealized appreciation
and depreciation based on that cost was:
<Table>
<Caption>
RIVERSOURCE
DIVERSIFIED BOND RIVERSOURCE CORE PRO FORMA
FUND BOND FUND COMBINED
Cost of securities for federal income tax purposes: $3,254,169,000 $353,729,000 $3,607,898,000
Unrealized appreciation $ 18,711,000 $ 2,106,000 $ 20,817,000
Unrealized depreciation (46,398,000) (2,383,000) (48,781,000)
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation $ (27,687,000) $ (277,000) $ (27,964,000)
- ------------------------------------------------------------------------------------------------------------------------
</Table>
27
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND)
RIVERSOURCE INTERNATIONAL EQUITY FUND (SELLING FUND)
INTRODUCTION TO PROPOSED FUND MERGER
April 30, 2007
The accompanying unaudited pro forma combining statement of assets and
liabilities and the statement of operations reflect the accounts of the two
funds at and for the 12-month period ending April 30, 2007. These statements
have been derived from financial statements prepared for RiverSource Disciplined
International Equity Fund and RiverSource International Equity Fund as of April
30, 2007. RiverSource Disciplined International Equity Fund and RiverSource
International Equity Fund invest primarily in equity securities of foreign
issuers or in instruments that provide exposure to foreign equity markets.
Under the proposed Agreement and Plan of Reorganization, Class A shares of the
RiverSource International Equity Fund would be exchanged for Class A shares of
the RiverSource Disciplined International Equity Fund. Class B shares of the
RiverSource International Equity Fund would be exchanged for Class B shares of
the RiverSource Disciplined International Equity Fund. Class C shares of the
RiverSource International Equity Fund would be exchanged for Class C shares of
the RiverSource Disciplined International Equity Fund. Class I shares of the
RiverSource International Equity Fund would be exchanged for Class I shares of
the RiverSource Disciplined International Equity Fund. Class R4 shares of the
RiverSource International Equity Fund would be exchanged for Class R4 shares of
the RiverSource Disciplined International Equity Fund. RiverSource Disciplined
International Equity Fund also offers Class W shares.
The pro forma combining statements have been prepared to give effect to the
proposed transaction on the historical operations of the accounting survivor,
RiverSource Disciplined International Equity Fund, as if the transaction had
occurred at the beginning of the fiscal year ending April 30, 2007.
28
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND)
RIVERSOURCE INTERNATIONAL EQUITY FUND (SELLING FUND)
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
<Table>
<Caption>
RIVERSOURCE
DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA PRO FORMA
APRIL 30, 2007 (UNAUDITED) EQUITY FUND EQUITY FUND ADJUSTMENTS COMBINED
ASSETS
Investments in securities, at cost
Unaffiliated issuers $205,477,370 $178,140,235 $ -- $383,617,605
Affiliated money market fund $ 10,506,574 $ 3,243,442 $ -- $ 13,750,016
-----------------------------------------------------------------
Investments in securities, at value
Unaffiliated issuers $221,390,138 $209,276,904 $ -- $430,667,042
Affiliated money market fund $ 10,506,574 $ 3,243,442 $ -- $ 13,750,016
Foreign currency holdings (identified cost $2,196,094
for RiverSource
Disciplined International Equity Fund and $1,283,850
for RiverSource International Equity Fund) 2,197,096 1,287,115 -- 3,484,211
Capital shares receivable 8,795,353 29,110 -- 8,824,463
Dividends and accrued interest receivable 807,875 844,006 -- 1,651,881
Receivable for investment securities sold 181,850 1,966,692 -- 2,148,542
Margin deposits on future contracts 920,236 -- -- 920,236
Unrealized appreciation on foreign currency contracts
held, at value -- 838 -- 838
Receivable from RiverSource Investments, LLC (Note 2) -- -- 143,599(a) 143,599
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 244,799,122 216,648,107 143,599 461,590,828
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Disbursements in excess of cash on demand deposit -- 12,460 -- 12,460
Capital shares payable 2,252,581 49,082 -- 2,301,663
Payable for investment securities purchased 25,630 1,035,740 -- 1,061,370
Payable to RiverSource Investments, LLC (Note 2) -- -- 102,562(g) 102,562
Unrealized depreciation on foreign currency contracts
held, at value -- 288 -- 288
Accrued investment management services fee (Note 2) 15,897 17,318 (33,215)(a) --
Accrued distribution fee 1,800 4,514 -- 6,314
Accrued transfer agency fee (Note 2) 1,279 1,482 30,800(b) 33,561
Accrued administrative services fee (Note 2) 1,590 1,428 9,229(d) 12,247
Accrued plan administration services fee 1 2 -- 3
Other accrued expenses (Note 2) 26,775 74,717 (55,255)(c),(e),(f) 46,237
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,325,553 1,197,031 54,121 3,576,705
- ---------------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $242,473,569 $215,451,076 $ 89,478 $458,014,123
- ---------------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value (Note 3) $ 212,580 $ 272,085 $(82,905) $ 401,760
Additional paid-in capital (Note 3) 222,081,472 169,021,796 82,905 391,186,173
Undistributed (excess of distributions over) net
investment income (Note 2) 998,153 (5,396) 89,478 1,082,235
Accumulated net realized gain (loss) 3,312,247 15,011,800 -- 18,324,047
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in
foreign currencies 15,869,117 31,150,791 -- 47,019,908
- ---------------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to
outstanding capital stock $242,473,569 $215,451,076 $ 89,478 $458,014,123
- ---------------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding
shares: Class A $ 9,744,469 $105,284,636 $ 43,725 $115,072,830
Class B $ 1,146,998 $ 26,309,730 $ 10,927 $ 27,467,655
Class C $ 162,126 $ 1,814,967 $ 754 $ 1,977,847
Class I $157,282,453 $ 81,963,771 $ 34,040 $239,280,264
Class R4 $ 50,546 $ 77,972 $ 32 $ 128,550
Class W $ 74,086,977 N/A $ -- $ 74,086,977
Shares outstanding
(Note 3): Class A shares 854,949 13,292,238 -- 10,094,279
Class B shares 101,302 3,368,851 -- 2,426,448
Class C shares 14,310 232,389 -- 174,568
Class I shares 13,779,349 10,305,183 -- 20,965,836
Class R4 shares 4,433 9,850 -- 11,275
Class W shares 6,503,622 N/A -- 6,503,622
Net asset value per share of outstanding capital
stock: Class A $ 11.40 $ 7.92 $ -- $ 11.40
Class B $ 11.32 $ 7.81 $ -- $ 11.32
Class C $ 11.33 $ 7.81 $ -- $ 11.33
Class I $ 11.41 $ 7.95 $ -- $ 11.41
Class R4 $ 11.40 $ 7.92 $ -- $ 11.40
Class W $ 11.39 N/A $ -- $ 11.39
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to pro forma financial statements.
29
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND)
RIVERSOURCE INTERNATIONAL EQUITY FUND (SELLING FUND)
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
<Table>
<Caption>
RIVERSOURCE
DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA PRO FORMA
YEAR ENDED APRIL 30, 2007 (UNAUDITED) EQUITY FUND EQUITY FUND ADJUSTMENTS COMBINED
INVESTMENT INCOME
Income:
Dividends $ 2,511,944 $ 4,494,641 $ -- $ 7,006,585
Interest 133,315 331,915 -- 465,230
Income distributions from affiliated money market
fund 184,358 118,412 -- 302,770
Less foreign taxes withheld (304,379) (478,961) -- (783,340)
- ---------------------------------------------------------------------------------------------------------------------
Total income 2,525,238 4,466,007 -- 6,991,245
- ---------------------------------------------------------------------------------------------------------------------
Expenses:
Investment management services fee (Note 2) 577,859 1,838,156 (176,814)(a) 2,239,201
Distribution fee
Class A 27,614 251,105 -- 278,719
Class B 2,849 261,278 -- 264,127
Class C 528 17,697 -- 18,225
Class W 13,343 N/A -- 13,343
Transfer agency fee (Note 2)
Class A 4,149 213,371 23,268(b) 240,788
Class B 222 60,002 6,910(b) 67,134
Class C 37 4,018 622(b) 4,677
Class R4 8 284 -- 292
Class W 10,674 N/A -- 10,674
Service fee -- Class R4 (Note 2) 8 134 (142)(c) --
Administrative services fees and expenses (Note 2) 56,772 155,174 9,229(d) 221,175
Plan administration services fee -- Class R4 32 175 -- 207
Compensation of board members 1,392 7,214 -- 8,606
Custodian fees 84,470 177,522 -- 261,992
Printing and postage 27,694 48,952 -- 76,646
Registration fees (Note 2) 120,951 64,999 (32,500)(e) 153,450
Professional fees (Note 2) 32,691 23,907 (22,613)(f) 33,985
Other 3,993 14,800 -- 18,793
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 965,286 3,138,788 (192,040) 3,912,034
Expenses waived/reimbursed by RiverSource
Investments, LLC (Note 2) (93,779) (76,628) 102,562(g) (67,845)
- ---------------------------------------------------------------------------------------------------------------------
871,507 3,062,160 (89,478) 3,844,189
Earnings and bank fee credits on cash balances (1,494) (6,461) -- (7,955)
- ---------------------------------------------------------------------------------------------------------------------
Total net expenses 870,013 3,055,699 (89,478) 3,836,234
- ---------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 1,655,225 1,410,308 89,478 3,155,011
- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 2,912,266 30,639,554 -- 33,551,820
Foreign currency transactions (60,158) 111,944 -- 51,786
Futures contracts 556,634 -- -- 556,634
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 3,408,742 30,751,498 -- 34,160,240
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 16,714,801 (8,035,041) -- 8,679,760
- ---------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments and foreign
currencies 20,123,543 22,716,457 -- 42,840,000
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $21,778,768 $24,126,765 $ 89,478 $45,995,011
- ---------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to pro forma financial statements.
30
RIVERSOURCE DISCIPLINED INTERNATIONAL EQUITY FUND (BUYING FUND)
RIVERSOURCE INTERNATIONAL EQUITY FUND (SELLING FUND)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited as to April 30, 2007)
1. BASIS OF COMBINATION
The unaudited pro forma combining statement of assets and liabilities and the
statement of operations reflect the accounts of the two funds at and for the 12-
month period ending April 30, 2007. These statements have been derived from
financial statements prepared for the RiverSource Disciplined International
Equity Fund and RiverSource International Equity Fund as of April 30, 2007.
Each Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The primary investments
of each Fund are as follows:
RiverSource Disciplined International Equity Fund and RiverSource International
Equity Fund invest primarily in equity securities of foreign issuers or in
instruments that provide exposure to foreign equity markets.
The pro forma statements give effect to the proposed transfer of the assets and
liabilities of RiverSource International Equity Fund in exchange for Class A, B,
C, I and R4 shares of RiverSource Disciplined International Equity Fund under
U.S. generally accepted accounting principles. The pro forma statements reflect
estimates for the combined RiverSource Disciplined International Equity Fund
based on the increased asset level of the merger and associated economies of
scale, adjusted to reflect current fees.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the funds incorporated by reference in the
Statement of Additional Information.
The pro forma statement of operations give effect to the proposed transaction on
the historical operations of the accounting survivor, RiverSource Disciplined
International Equity Fund, as if the transaction had occurred at the beginning
of the year presented.
2. PRO FORMA ADJUSTMENTS
(a) To reflect the reduction in investment management services fee due to the
Reorganization. In addition, the Performance Incentive Adjustment (PIA) for
RiverSource International Equity Fund was removed and a new PIA adjustment
was calculated based on the RiverSource International Equity Fund average
net assets as of April 30, 2007 and the RiverSource Disciplined
International Equity Fund PIA rate.
(b) To adjust for closed account fees for each RiverSource International Equity
Fund shareholder account that will be closed on the system as a result of
this merger.
(c) To reflect the elimination of the service fee for Class R4.
(d) To reflect the change in administrative services fees due to the
Reorganization.
(e) To reflect the reduction in the registration fees due to the Reorganization.
(f) To reflect the reduction in audit fees due to the Reorganization.
(g) To adjust the expense reimbursement to reflect the net reduction in fees
resulting from the reorganization per the agreement by RiverSource
Investments, LLC and its affiliates to waive certain fees and absorb certain
expenses following the merger.
31
3. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of additional Class
A, Class B, Class C, Class I and Class R4 shares of RiverSource Disciplined
International Equity Fund if the reorganization were to have taken place on
April 30, 2007. The pro forma number of Class A shares outstanding of 10,094,279
consists of 9,239,330 shares assumed to be issued to Class A shareholders of the
RiverSource International Equity Fund, plus 854,949 Class A shares of the
RiverSource Disciplined International Equity Fund outstanding as of April 30,
2007. The pro forma number of Class B shares outstanding of 2,426,448 consists
of 2,325,146 shares assumed to be issued to Class B shareholders of the
RiverSource International Equity Fund, plus 101,302 Class B shares of the
RiverSource Disciplined International Equity Fund outstanding as of April 30,
2007. The pro forma number of Class C shares outstanding of 174,568 consists of
160,258 shares assumed to be issued to Class C shareholders of the RiverSource
International Equity Fund, plus 14,310 Class C shares of the RiverSource
Disciplined International Equity Fund outstanding as of April 30, 2007. The pro
forma number of Class I shares outstanding of 20,965,836 consists of 7,186,487
shares assumed to be issued to Class I shareholders of the RiverSource
International Equity Fund, plus 13,779,349 Class I shares of the RiverSource
Disciplined International Equity Fund outstanding as of April 30, 2007. The pro
forma number of Class R4 shares outstanding of 11,275 consists of 6,842 shares
assumed to be issued to Class R4 shareholders of the RiverSource International
Equity Fund, plus 4,433 Class R4 shares of the RiverSource Disciplined
International Equity Fund outstanding as of April 30, 2007. RiverSource
Disciplined International Equity Fund had Class W outstanding shares of
6,503,622 as of April 30, 2007.
32
COMBINED INVESTMENTS IN SECURITIES
RiverSource Disciplined International Equity Fund
APRIL 30, 2007 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
<Table>
<Caption>
COMMON STOCKS (93.6%)(C)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
AUSTRALIA (5.4%)
AIRLINES (0.1%)
Qantas Airways 128,752 -- 128,752 $ 565,567 $ -- $ 565,567
--------------------------------------------
BIOTECHNOLOGY (0.6%)
CSL 21,395 16,526 37,921 1,541,027 1,190,326 2,731,353
--------------------------------------------
CAPITAL MARKETS (0.8%)
Macquarie Bank -- 48,799 48,799 -- 3,496,607 3,496,607
--------------------------------------------
COMMERCIAL BANKS (0.2%)
Natl Australia Bank -- 28,265 28,265 -- 1,003,978 1,003,978
--------------------------------------------
COMMERCIAL SERVICES & SUPPLIES
(0.1%)
Brambles 28,404 -- 28,404(b) 309,830 -- 309,830
--------------------------------------------
CONTAINERS & PACKAGING (0.2%)
Amcor -- 148,711 148,711 -- 915,957 915,957
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.3%)
Telstra 248,582 99,600 348,182 960,260 384,750 1,345,010
--------------------------------------------
FOOD & STAPLES RETAILING (0.2%)
Woolworths 46,036 -- 46,036 1,078,159 -- 1,078,159
--------------------------------------------
HOTELS, RESTAURANTS & LEISURE
(0.2%)
Tabcorp Holdings -- 65,567 65,567 -- 982,477 982,477
--------------------------------------------
INSURANCE (0.5%)
Insurance Australia Group -- 63,000 63,000 -- 311,405 311,405
QBE Insurance Group 42,825 -- 42,825 1,085,943 -- 1,085,943
Suncorp-Metway -- 38,367 38,367 -- 679,128 679,128
--------------------------------------------
Total 1,085,943 990,533 2,076,476
--------------------------------------------
METALS & MINING (0.8%)
BlueScope Steel 67,678 -- 67,678 671,931 -- 671,931
Rio Tinto 10,745 -- 10,745 733,769 -- 733,769
Zinifex 175,963 -- 175,963 2,403,144 -- 2,403,144
--------------------------------------------
Total 3,808,844 -- 3,808,844
--------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
(REITS) (0.8%)
Centro Properties Group 63,491 -- 63,491 491,247 -- 491,247
DB RREEF Trust 558,575 -- 558,575 831,417 -- 831,417
Macquarie Goodman Group 57,025 -- 57,025 334,444 -- 334,444
Mirvac Group 56,697 -- 56,697 246,163 -- 246,163
Stockland 106,208 -- 106,208 756,199 -- 756,199
Westfield Group 63,562 -- 63,562 1,100,470 -- 1,100,470
--------------------------------------------
Total 3,759,940 -- 3,759,940
--------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT (0.1%)
Lend Lease 14,436 -- 14,436 237,839 -- 237,839
--------------------------------------------
ROAD & RAIL (0.2%)
Toll Holdings 54,885 -- 54,885 999,625 -- 999,625
--------------------------------------------
TRANSPORTATION INFRASTRUCTURE
(0.3%)
Macquarie Airports 96,945 -- 96,945 319,348 -- 319,348
Macquarie Infrastructure Group 97,532 275,569 373,101 305,638 863,555 1,169,193
--------------------------------------------
Total 624,986 863,555 1,488,541
--------------------------------------------
</Table>
33
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
AUSTRIA (1.0%)
COMMERCIAL BANKS (0.8%)
Erste Bank der Oesterreichischen
Sparkassen -- 41,411 41,411 $ -- $ 3,315,410 $ 3,315,410
Raiffeisen Intl Bank Holding 1,085 -- 1,085 149,891 -- 149,891
--------------------------------------------
Total 149,891 3,315,410 3,465,301
--------------------------------------------
METALS & MINING (0.1%)
voestalpine 7,678 -- 7,678 515,696 -- 515,696
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.1%)
OMV 4,668 -- 4,668 295,428 -- 295,428
--------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT ( -- %)
IMMOFINANZ 11,252 -- 11,252(b) 182,875 -- 182,875
--------------------------------------------
BELGIUM (1.0%)
CHEMICALS ( -- %)
Solvay 1,114 -- 1,114 176,347 -- 176,347
--------------------------------------------
COMMERCIAL BANKS (0.4%)
Dexia 20,021 -- 20,021 652,945 -- 652,945
KBC Groep 10,238 -- 10,238 1,354,383 -- 1,354,383
--------------------------------------------
Total 2,007,328 -- 2,007,328
--------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
(0.2%)
Fortis 3,326 21,540 24,866 149,450 968,063 1,117,513
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.3%)
Belgacom 29,657 -- 29,657 1,303,333 -- 1,303,333
--------------------------------------------
FOOD & STAPLES RETAILING (0.1%)
Delhaize Group 2,472 -- 2,472 237,317 -- 237,317
--------------------------------------------
BERMUDA ( -- %)
OIL, GAS & CONSUMABLE FUELS
Frontline 4,000 -- 4,000 149,724 -- 149,724
--------------------------------------------
BRAZIL (0.8%)
COMMERCIAL BANKS (0.4%)
UNIBANCO -- Uniao de Bancos
Brasileiros GDR -- 17,595 17,595 -- 1,707,771 1,707,771
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.1%)
Tele Norte Leste Participacoes ADR -- 33,630 33,630 -- 550,523 550,523
--------------------------------------------
HOUSEHOLD DURABLES (0.1%)
Gafisa -- 44,099 44,099 -- 625,676 625,676
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.1%)
Petroleo Brasileiro ADR -- 4,010 4,010 -- 405,932 405,932
--------------------------------------------
REAL ESTATE (0.1%)
JHSF Participacoes -- 73,600 73,600(b) -- 302,836 302,836
--------------------------------------------
CANADA (0.5%)
FOOD & STAPLES RETAILING (0.2%)
Shoppers Drug Mart -- 24,351 24,351 -- 1,109,835 1,109,835
--------------------------------------------
ROAD & RAIL (0.3%)
Canadian Natl Railway -- 23,934 23,934 -- 1,202,444 1,202,444
--------------------------------------------
CHINA (0.7%)
COMMERCIAL BANKS (0.2%)
Industrial & Commercial Bank of
China Series H -- 1,846,000 1,846,000(b) -- 1,003,124 1,003,124
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.3%)
CNOOC -- 1,355,300 1,355,300 -- 1,164,131 1,164,131
--------------------------------------------
TRANSPORTATION INFRASTRUCTURE
(0.2%)
China Merchants Holdings Intl -- 258,000 258,000 -- 1,140,282 1,140,282
--------------------------------------------
</Table>
34
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
DENMARK (0.4%)
BEVERAGES (0.1%)
Carlsberg Series B 2,425 -- 2,425 $ 271,693 $ -- $ 271,693
--------------------------------------------
COMMERCIAL BANKS (0.1%)
Danske Bank 13,700 -- 13,700 639,976 -- 639,976
--------------------------------------------
ELECTRICAL EQUIPMENT (0.1%)
Vestas Wind Systems 6,300 -- 6,300(b) 407,462 -- 407,462
--------------------------------------------
MARINE (0.1%)
AP Moller-Maersk 47 -- 47 530,990 -- 530,990
--------------------------------------------
FINLAND (1.2%)
COMMUNICATIONS EQUIPMENT (0.2%)
Nokia -- 29,180 29,180(b) -- 736,015 736,015
Nokia ADR -- 13,540 13,540(b) -- 341,885 341,885
--------------------------------------------
Total -- 1,077,900 1,077,900
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES ( -- %)
Elisa Series A 5,285 -- 5,285 153,773 -- 153,773
--------------------------------------------
FOOD & STAPLES RETAILING ( -- %)
Kesko Series B 3,257 -- 3,257 225,940 -- 225,940
--------------------------------------------
INSURANCE (0.2%)
Sampo Series A 35,841 -- 35,841 1,116,491 -- 1,116,491
--------------------------------------------
METALS & MINING (0.1%)
Outokumpu 7,464 -- 7,464 247,986 -- 247,986
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.1%)
Neste Oil 14,845 -- 14,845 524,080 -- 524,080
--------------------------------------------
PAPER & FOREST PRODUCTS (0.6%)
M-real Series B -- 8,680 8,680 -- 59,227 59,227
Stora Enso Series R 68,299 -- 68,299 1,246,195 -- 1,246,195
UPM-Kymmene 18,073 35,934 54,007 445,367 885,509 1,330,876
--------------------------------------------
Total 1,691,562 944,736 2,636,298
--------------------------------------------
FRANCE (10.0%)
AIRLINES (0.2%)
Air France-KLM 16,977 -- 16,977 865,734 -- 865,734
--------------------------------------------
AUTO COMPONENTS (0.5%)
Michelin Series B 16,954 -- 16,954 2,159,860 -- 2,159,860
Valeo 5,158 -- 5,158 296,321 -- 296,321
--------------------------------------------
Total 2,456,181 -- 2,456,181
--------------------------------------------
AUTOMOBILES (0.9%)
Peugeot 15,445 6,860 22,305 1,253,020 556,537 1,809,557
Renault 16,502 -- 16,502 2,141,973 -- 2,141,973
--------------------------------------------
Total 3,394,993 556,537 3,951,530
--------------------------------------------
BUILDING PRODUCTS (0.4%)
Compagnie de Saint-Gobain 5,239 13,330 18,569 559,358 1,423,219 1,982,577
--------------------------------------------
COMMERCIAL BANKS (2.0%)
BNP Paribas 34,396 10,020 44,416 3,989,867 1,162,300 5,152,167
Credit Agricole 48,735 28,820 77,555 2,051,973 1,213,458 3,265,431
Societe Generale 2,663 -- 2,663 564,292 -- 564,292
--------------------------------------------
Total 6,606,132 2,375,758 8,981,890
--------------------------------------------
CONSTRUCTION & ENGINEERING (0.1%)
VINCI 4,080 -- 4,080 656,210 -- 656,210
--------------------------------------------
CONSTRUCTION MATERIALS (0.1%)
Lafarge 2,311 -- 2,311 375,144 -- 375,144
--------------------------------------------
</Table>
35
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.5%)
France Telecom 32,979 53,070 86,049 $ 964,274 $ 1,551,715 $ 2,515,989
--------------------------------------------
ELECTRIC EQUIPMENT (0.1%)
ALSTOM 1,813 -- 1,813(b) 269,541 -- 269,541
--------------------------------------------
ELECTRICAL UTILITIES (0.1%)
Electricite de France -- 7,325 7,325 -- 636,540 636,540
--------------------------------------------
FOOD & STAPLES RETAILING (0.2%)
Carrefour 7,371 -- 7,371 566,481 -- 566,481
Casino Guichard Perrachon 2,920 -- 2,920 313,653 -- 313,653
--------------------------------------------
Total 880,134 -- 880,134
--------------------------------------------
FOOD PRODUCTS (0.2%)
Groupe Danone 4,499 -- 4,499 739,644 -- 739,644
--------------------------------------------
HOTELS, RESTAURANTS & LEISURE
(0.9%)
Accor 6,085 34,780 40,865 573,098 3,275,651 3,848,749
Sodexho Alliance 5,735 -- 5,735 454,527 -- 454,527
--------------------------------------------
Total 1,027,625 3,275,651 4,303,276
--------------------------------------------
HOUSEHOLD DURABLES (0.2%)
Thomson -- 40,260 40,260 -- 775,742 775,742
--------------------------------------------
INSURANCE (0.7%)
AXA -- 59,849 59,849 -- 2,747,587 2,747,587
CNP Assurances 2,454 -- 2,454 312,798 -- 312,798
--------------------------------------------
Total 312,798 2,747,587 3,060,385
--------------------------------------------
MEDIA (0.5%)
JC Decaux -- 46,176 46,176 -- 1,433,970 1,433,970
Lagardere -- 11,260 11,260 -- 884,889 884,889
--------------------------------------------
Total -- 2,318,859 2,318,859
--------------------------------------------
MULTILINE RETAIL ( -- %)
PPR 1,160 -- 1,160 201,573 -- 201,573
--------------------------------------------
MULTI-UTILITIES (0.8%)
SUEZ 15,685 -- 15,685 893,811 -- 893,811
Veolia Environnement 1,909 29,867 31,776 157,537 2,464,725 2,622,262
--------------------------------------------
Total 1,051,348 2,464,725 3,516,073
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.5%)
Total -- 30,522 30,522 -- 2,249,781 2,249,781
--------------------------------------------
PHARMACEUTICALS (0.6%)
Sanofi-Aventis -- 27,580 27,580 -- 2,524,314 2,524,314
--------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
(REITS) (0.3%)
Klepierre 1,168 -- 1,168 225,211 -- 225,211
Unibail 3,514 -- 3,514 973,934 -- 973,934
--------------------------------------------
Total 1,199,145 -- 1,199,145
--------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES (0.2%)
Bouygues 12,972 -- 12,972 1,033,512 -- 1,033,512
--------------------------------------------
GERMANY (6.8%)
AIR FREIGHT & LOGISTICS (0.4%)
Deutsche Post -- 49,810 49,810 -- 1,712,564 1,712,564
--------------------------------------------
AIRLINES (0.1%)
Deutsche Lufthansa 13,040 -- 13,040 389,024 -- 389,024
--------------------------------------------
AUTO COMPONENTS (0.9%)
Continental -- 30,701 30,701 -- 4,272,998 4,272,998
--------------------------------------------
</Table>
36
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
AUTOMOBILES (1.7%)
BMW -- 12,850 12,850 $ -- $ 792,773 $ 792,773
DaimlerChrysler 61,695 -- 61,695 4,987,867 -- 4,987,867
Volkswagen 12,282 -- 12,282 1,854,217 -- 1,854,217
--------------------------------------------
Total 6,842,084 792,773 7,634,857
--------------------------------------------
CAPITAL MARKETS ( -- %)
Deutsche Bank -- 840 840 -- 128,948 128,948
--------------------------------------------
CHEMICALS (0.3%)
BASF 6,980 -- 6,980 832,703 -- 832,703
Linde -- 6,209 6,209 -- 695,464 695,464
--------------------------------------------
Total 832,703 695,464 1,528,167
--------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
(0.3%)
Deutsche Boerse 5,709 -- 5,709 1,338,243 -- 1,338,243
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (1.0%)
Deutsche Telekom 183,133 74,550 257,683 3,351,847 1,364,474 4,716,321
--------------------------------------------
ELECTRIC UTILITIES (0.2%)
E.ON -- 7,350 7,350 -- 1,104,380 1,104,380
--------------------------------------------
HOTELS, RESTAURANTS & LEISURE
(0.1%)
TUI 16,338 -- 16,338 448,530 -- 448,530
--------------------------------------------
INDUSTRIAL CONGLOMERATES (0.3%)
Siemens -- 12,830 12,830 -- 1,548,533 1,548,533
--------------------------------------------
INSURANCE (0.5%)
Allianz -- 3,590 3,590 -- 816,589 816,589
Hannover Rueckversicherung -- 6,830 6,830(b) -- 346,514 346,514
Munich Re Group -- 5,540 5,540 -- 989,517 989,517
--------------------------------------------
Total -- 2,152,620 2,152,620
--------------------------------------------
MACHINERY (0.3%)
Heidelberger Druckmaschinen -- 5,890 5,890 -- 277,808 277,808
MAN 7,265 -- 7,265 967,601 -- 967,601
--------------------------------------------
Total 967,601 277,808 1,245,409
--------------------------------------------
METALS & MINING (0.3%)
Salzgitter 3,109 -- 3,109 510,987 -- 510,987
ThyssenKrupp 16,870 -- 16,870 900,911 -- 900,911
--------------------------------------------
Total 1,411,898 -- 1,411,898
--------------------------------------------
MULTI-UTILITIES (0.1%)
RWE 3,400 -- 3,400 359,301 -- 359,301
--------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (0.1%)
Infineon Technologies 16,035 -- 16,035(b) 248,937 -- 248,937
--------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS
(0.2%)
Adidas -- 15,600 15,600 -- 927,908 927,908
--------------------------------------------
GREECE (0.3%)
COMMERCIAL BANKS (0.1%)
Piraeus Bank 8,592 -- 8,592 311,323 -- 311,323
--------------------------------------------
ELECTRIC UTILITIES (0.2%)
Public Power -- 36,700 36,700 -- 961,769 961,769
--------------------------------------------
HONG KONG (3.1%)
AIRLINES ( -- %)
Cathay Pacific Airways 55,000 -- 55,000 142,226 -- 142,226
--------------------------------------------
</Table>
37
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
COMMERCIAL BANKS (0.3%)
Bank of East Asia 101,585 -- 101,585 $ 623,512 $ -- $ 623,512
BOC Hong Kong Holdings -- 252,500 252,500 -- 619,807 619,807
--------------------------------------------
Total 623,512 619,807 1,243,319
--------------------------------------------
DISTRIBUTORS (0.1%)
Li & Fung 114,000 -- 114,000 354,179 -- 354,179
--------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
(0.1%)
Hong Kong Exchanges and Clearing 44,500 -- 44,500 423,946 -- 423,946
--------------------------------------------
ELECTRIC UTILITIES (0.4%)
CLP Holdings 82,000 -- 82,000 598,965 -- 598,965
HongKong Electric Holdings 263,000 12,500 275,500 1,315,870 62,541 1,378,411
--------------------------------------------
Total 1,914,835 62,541 1,977,376
--------------------------------------------
ELECTRICAL EQUIPMENT (0.1%)
Johnson Electric Holdings -- 495,000 495,000 -- 299,322 299,322
--------------------------------------------
HOTELS, RESTAURANTS & LEISURE
(0.6%)
Melco PBL Entertainment Macau ADR -- 93,693 93,693(b) -- 1,632,132 1,632,132
Shangri-La Asia -- 444,000 444,000 -- 1,085,753 1,085,753
--------------------------------------------
Total -- 2,717,885 2,717,885
--------------------------------------------
INDUSTRIAL CONGLOMERATES (0.1%)
Hutchison Whampoa -- 74,500 74,500 -- 717,389 717,389
--------------------------------------------
MARINE (0.1%)
Orient Overseas Intl 46,500 -- 46,500 393,215 -- 393,215
--------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT (0.2%)
Hang Lung Properties 104,000 -- 104,000 308,091 -- 308,091
Henderson Land Development 39,000 -- 39,000 233,060 -- 233,060
Swire Pacific Series A 23,500 -- 23,500 268,353 -- 268,353
--------------------------------------------
Total 809,504 -- 809,504
--------------------------------------------
SPECIALTY RETAIL (0.5%)
Esprit Holdings 40,000 139,000 179,000 484,803 1,684,692 2,169,495
--------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES (0.7%)
China Mobile -- 343,000 343,000 -- 3,089,494 3,089,494
--------------------------------------------
INDIA (0.2%)
COMMERCIAL BANKS
ICICI Bank ADR -- 23,255 23,255 -- 951,595 951,595
--------------------------------------------
IRELAND (0.1%)
BEVERAGES ( -- %)
C&C Group 10,629 -- 10,629 178,163 -- 178,163
--------------------------------------------
COMMERCIAL BANKS (0.1%)
Bank of Ireland 6,283 16,378 22,661 134,834 351,336 486,170
--------------------------------------------
ISRAEL (0.2%)
PHARMACEUTICALS
Teva Pharmaceutical Inds ADR -- 19,420 19,420 -- 743,980 743,980
--------------------------------------------
ITALY (3.6%)
AUTOMOBILES (0.2%)
Fiat 37,291 -- 37,291(b) 1,095,411 -- 1,095,411
--------------------------------------------
COMMERCIAL BANKS (1.2%)
Banco Popolare di Milano Societa
Cooperativa 9,624 -- 9,624 161,781 -- 161,781
Intesa Sanpaolo -- 460,011 460,011(b) -- 3,854,037 3,854,037
UniCredito Italiano -- 106,800 106,800 -- 1,097,179 1,097,179
Unione di Banche Italiane 16,436 -- 16,436 497,283 -- 497,283
--------------------------------------------
Total 659,064 4,951,216 5,610,280
--------------------------------------------
</Table>
38
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.4%)
Telecom Italia 681,272 -- 681,272 $ 1,733,289 $ -- $ 1,733,289
--------------------------------------------
GAS UTILITIES (0.1%)
Snam Rete Gas 38,530 -- 38,530 246,077 -- 246,077
--------------------------------------------
INSURANCE (0.2%)
Unipol -- 196,500 196,500 -- 781,175 781,175
--------------------------------------------
MEDIA (0.2%)
Mediaset -- 98,540 98,540 -- 1,114,176 1,114,176
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (1.3%)
Eni 132,808 26,510 159,318 4,403,934 879,076 5,283,010
Saras -- 106,580 106,580(b) -- 663,962 663,962
--------------------------------------------
Total 4,403,934 1,543,038 5,946,972
--------------------------------------------
JAPAN (13.5%)
AUTO COMPONENTS (0.3%)
Aisin Seiki 13,500 -- 13,500 443,870 -- 443,870
Bridgestone 15,900 -- 15,900 322,441 -- 322,441
NOK -- 42,500 42,500 -- 790,634 790,634
--------------------------------------------
Total 766,311 790,634 1,556,945
--------------------------------------------
AUTOMOBILES (2.1%)
Honda Motor 122,400 -- 122,400 4,203,797 -- 4,203,797
Nissan Motor 61,700 126,000 187,700 620,579 1,267,308 1,887,887
Toyota Motor -- 58,500 58,500 -- 3,553,082 3,553,082
--------------------------------------------
Total 4,824,376 4,820,390 9,644,766
--------------------------------------------
BUILDING PRODUCTS (0.4%)
Daikin Inds -- 33,093 33,093 -- 1,118,370 1,118,370
JS Group -- 24,500 24,500 -- 553,244 553,244
--------------------------------------------
Total -- 1,671,614 1,671,614
--------------------------------------------
CAPITAL MARKETS (0.2%)
Nomura Holdings -- 55,200 55,200 -- 1,054,894 1,054,894
--------------------------------------------
CHEMICALS (0.3%)
Kuraray -- 42,100 42,100 -- 467,818 467,818
Mitsui Chemicals 44,000 -- 44,000 365,129 -- 365,129
Sumitomo Chemical -- 13,000 13,000 -- 85,858 85,858
Teijin -- 108,600 108,600 -- 559,324 559,324
--------------------------------------------
Total 365,129 1,113,000 1,478,129
--------------------------------------------
COMMERCIAL BANKS (1.9%)
77 Bank -- 84,400 84,400 -- 553,306 553,306
Mitsubishi UFJ Financial Group -- 137 137 -- 1,425,027 1,425,027
Mitsui Trust Holdings 22,000 178,400 200,400 198,750 1,611,679 1,810,429
Mizuho Financial Group -- 161 161 -- 968,815 968,815
Resona Holdings 177 -- 177 399,435 -- 399,435
Shinsei Bank 315,000 117,900 432,900 1,358,243 508,371 1,866,614
Sumitomo Mitsui Financial Group -- 210 210 -- 1,834,498 1,834,498
--------------------------------------------
Total 1,956,428 6,901,696 8,858,124
--------------------------------------------
COMMERCIAL SERVICES & SUPPLIES
(0.2%)
Dai Nippon Printing 53,000 -- 53,000 844,782 -- 844,782
--------------------------------------------
COMPUTERS & PERIPHERALS (0.1%)
Seiko Epson 14,500 -- 14,500 439,160 -- 439,160
--------------------------------------------
</Table>
39
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
CONSUMER FINANCE (0.2%)
Credit Saison -- 23,600 23,600 $ -- $ 670,962 $ 670,962
SFCG -- 1,810 1,810 -- 318,280 318,280
Takefuji -- 490 490 -- 16,468 16,468
--------------------------------------------
Total -- 1,005,710 1,005,710
--------------------------------------------
CONTAINERS & PACKAGING (0.1%)
Toyo Seikan Kaisha 12,700 -- 12,700 252,719 -- 252,719
--------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS
(0.9%)
Hitachi 442,000 -- 442,000 3,356,762 -- 3,356,762
Nippon Electric Glass -- 31,500 31,500 -- 539,088 539,088
--------------------------------------------
Total 3,356,762 539,088 3,895,850
--------------------------------------------
FOOD & STAPLES RETAILING (0.5%)
AEON -- 74,100 74,100 -- 1,355,286 1,355,286
Lawson -- 12,800 12,800 -- 472,008 472,008
Matsumotokiyoshi -- 22,531 22,531 -- 529,398 529,398
--------------------------------------------
Total -- 2,356,692 2,356,692
--------------------------------------------
HOUSEHOLD DURABLES (0.5%)
Funai Electric -- 2,500 2,500 -- 198,244 198,244
SANYO Electric 114,000 -- 114,000(b) 182,177 -- 182,177
Sekisui Chemical -- 108,900 108,900 -- 844,913 844,913
Sekisui House -- 71,200 71,200 -- 1,050,764 1,050,764
--------------------------------------------
Total 182,177 2,093,921 2,276,098
--------------------------------------------
HOUSEHOLD PRODUCTS (0.1%)
Kao -- 11,100 11,100 -- 304,678 304,678
--------------------------------------------
LEISURE EQUIPMENT & PRODUCTS
(0.2%)
FUJIFILM Holdings 7,500 12,200 19,700 308,930 502,526 811,456
Sankyo -- 2,000 2,000 -- 87,657 87,657
--------------------------------------------
Total 308,930 590,183 899,113
--------------------------------------------
MACHINERY (0.3%)
Hino Motors -- 153,700 153,700 -- 846,350 846,350
THK -- 20,100 20,100 -- 489,784 489,784
--------------------------------------------
Total -- 1,336,134 1,336,134
--------------------------------------------
MARINE (0.2%)
Kawasaki Kisen Kaisha 30,000 -- 30,000 325,811 -- 325,811
Mitsui OSK Lines 50,000 -- 50,000 630,098 -- 630,098
Nippon Yusen Kabushiki Kaisha 19,000 -- 19,000 163,394 -- 163,394
--------------------------------------------
Total 1,119,303 -- 1,119,303
--------------------------------------------
MEDIA (0.3%)
Dentsu -- 418 418 -- 1,190,232 1,190,232
--------------------------------------------
METALS & MINING (0.3%)
JFE Holdings 11,000 -- 11,000 604,622 -- 604,622
Nippon Steel 134,000 -- 134,000 864,480 -- 864,480
--------------------------------------------
Total 1,469,102 -- 1,469,102
--------------------------------------------
OFFICE ELECTRONICS (0.3%)
Canon -- 11,006 11,006 -- 617,458 617,458
Ricoh -- 34,400 34,400 -- 754,988 754,988
--------------------------------------------
Total -- 1,372,446 1,372,446
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.1%)
Nippon Oil 82,000 -- 82,000 629,666 -- 629,666
--------------------------------------------
PAPER & FOREST PRODUCTS (0.1%)
Nippon Paper Group -- 187 187 -- 632,794 632,794
--------------------------------------------
</Table>
40
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
PHARMACEUTICALS (0.8%)
Astellas Pharma -- 13,900 13,900 $ -- $ 608,025 $ 608,025
Chugai Pharmaceutical -- 90,800 90,800 -- 2,315,236 2,315,236
Daiichi Sankyo 21,300 -- 21,300 635,434 -- 635,434
--------------------------------------------
Total 635,434 2,923,261 3,558,695
--------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
(REITS) (0.2%)
Nippon Building Fund 67 -- 67 1,082,958 -- 1,082,958
--------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT (0.2%)
Mitsubishi Estate 31,000 -- 31,000 961,068 -- 961,068
--------------------------------------------
ROAD & RAIL (0.3%)
Nippon Express -- 202,600 202,600 -- 1,254,113 1,254,113
--------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (0.5%)
Advantest -- 17,900 17,900 -- 792,223 792,223
Rohm -- 16,600 16,600 -- 1,499,283 1,499,283
--------------------------------------------
Total -- 2,291,506 2,291,506
--------------------------------------------
SOFTWARE (0.4%)
Nintendo 6,400 -- 6,400 1,999,103 -- 1,999,103
--------------------------------------------
SPECIALTY RETAIL (0.3%)
Yamada Denki -- 15,300 15,300 -- 1,413,649 1,413,649
--------------------------------------------
TRADING COMPANIES & DISTRIBUTORS
(1.1%)
Marubeni -- 270,000 270,000 -- 1,621,183 1,621,183
Mitsubishi 81,200 35,000 116,200 1,730,812 746,040 2,476,852
Mitsui & Co 38,000 -- 38,000 683,274 -- 683,274
Sojitz 52,000 -- 52,000 196,498 -- 196,498
--------------------------------------------
Total 2,610,584 2,367,223 4,977,807
--------------------------------------------
MEXICO (1.4%)
BEVERAGES (0.4%)
Coca-Cola Femsa ADR -- 12,450 12,450 -- 484,181 484,181
Fomento Economico Mexicano ADR -- 10,698 10,698 -- 1,152,067 1,152,067
--------------------------------------------
Total -- 1,636,248 1,636,248
--------------------------------------------
CONSTRUCTION MATERIALS (0.2%)
CEMEX ADR -- 31,192 31,192(b) -- 1,013,740 1,013,740
--------------------------------------------
MEDIA (0.4%)
Grupo Televisa ADR -- 68,325 68,325 -- 1,916,516 1,916,516
--------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES (0.4%)
America Movil ADR Series L -- 37,011 37,011 -- 1,944,188 1,944,188
--------------------------------------------
NETHERLANDS (7.2%)
CHEMICALS ( -- %)
Akzo Nobel 2,676 -- 2,676 214,739 -- 214,739
--------------------------------------------
COMMERCIAL BANKS (1.4%)
ABN AMRO Holding 135,665 -- 135,665 6,581,602 -- 6,581,602
--------------------------------------------
COMMERCIAL SERVICES & SUPPLIES
(0.1%)
Vedior -- 18,650 18,650 -- 495,308 495,308
--------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
(0.5%)
ING Groep 46,202 -- 46,202 2,104,219 -- 2,104,219
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.2%)
Koninklijke (Royal) KPN 51,102 -- 51,102 867,530 -- 867,530
--------------------------------------------
FOOD & STAPLES RETAILING (0.1%)
Koninklijke Ahold 22,956 -- 22,956(b) 292,364 -- 292,364
--------------------------------------------
FOOD PRODUCTS (0.3%)
Unilever 44,718 -- 44,718 1,364,513 -- 1,364,513
--------------------------------------------
</Table>
41
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
HOUSEHOLD DURABLES (0.1%)
Koninklijke Philips Electronics -- 14,140 14,140 $ -- $ 580,613 $ 580,613
--------------------------------------------
INSURANCE (0.5%)
Aegon 76,983 44,717 121,700 1,588,695 922,823 2,511,518
--------------------------------------------
MEDIA (0.2%)
Reed Elsevier 40,650 -- 40,650 764,007 -- 764,007
--------------------------------------------
METALS & MINING (0.9%)
Arcelor Mittal 73,721 -- 73,721 3,940,039 -- 3,940,039
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (2.7%)
Royal Dutch Shell Series A 289,097 52,341 341,438 10,041,371 1,817,600 11,858,971
Royal Dutch Shell Series B 14,689 -- 14,689 517,256 -- 517,256
--------------------------------------------
Total 10,558,627 1,817,600 12,376,227
--------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
(REITS) (0.2%)
Corio 2,911 -- 2,911 257,850 -- 257,850
Rodamco Europe 1,983 -- 1,983 292,002 -- 292,002
Wereldhave 1,276 -- 1,276 184,570 -- 184,570
--------------------------------------------
Total 734,422 -- 734,422
--------------------------------------------
NORWAY (0.9%)
CHEMICALS (0.1%)
Yara Intl 16,100 -- 16,100 469,698 -- 469,698
--------------------------------------------
COMMERCIAL BANKS (0.2%)
DNB NOR 60,300 -- 60,300 860,576 -- 860,576
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.1%)
Telenor 23,100 -- 23,100 430,025 -- 430,025
--------------------------------------------
INDUSTRIAL CONGLOMERATES (0.2%)
Orkla 74,500 -- 74,500 1,188,013 -- 1,188,013
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.3%)
Norsk Hydro 18,750 -- 18,750 646,488 -- 646,488
Statoil 18,350 -- 18,350 513,716 -- 513,716
--------------------------------------------
Total 1,160,204 -- 1,160,204
--------------------------------------------
PORTUGAL (0.1%)
ELECTRIC UTILITIES
Energias de Portugal 73,517 -- 73,517 402,259 -- 402,259
--------------------------------------------
SINGAPORE (1.4%)
AIRLINES (0.1%)
Singapore Airlines 48,000 -- 48,000 571,578 -- 571,578
--------------------------------------------
COMMERCIAL BANKS (0.6%)
DBS Group Holdings -- 81,020 81,020 -- 1,124,285 1,124,285
Oversea-Chinese Banking 197,000 -- 197,000 1,157,659 -- 1,157,659
United Overseas Bank -- 32,700 32,700 -- 457,203 457,203
--------------------------------------------
Total 1,157,659 1,581,488 2,739,147
--------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
(0.1%)
Singapore Exchange 59,000 -- 59,000 282,864 -- 282,864
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.1%)
SingTel 199,000 -- 199,000 432,185 -- 432,185
--------------------------------------------
INDUSTRIAL CONGLOMERATES ( -- %)
SembCorp Inds 53,000 -- 53,000 168,949 -- 168,949
--------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT (0.5%)
CapitaLand 73,000 293,000 366,000 403,847 1,620,919 2,024,766
City Developments 44,000 -- 44,000 460,804 -- 460,804
--------------------------------------------
Total 864,651 1,620,919 2,485,570
--------------------------------------------
</Table>
42
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
SOUTH AFRICA (0.1%)
COMMERCIAL BANKS
Nedbank Group -- 27,545 27,545 $ -- $ 587,029 $ 587,029
--------------------------------------------
SOUTH KOREA (0.6%)
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.1%)
KT ADR -- 23,980 23,980 -- 543,387 543,387
--------------------------------------------
ELECTRIC UTILITIES (0.1%)
Korea Electric Power ADR -- 20,880 20,880 -- 431,798 431,798
--------------------------------------------
HOUSEHOLD DURABLES (0.1%)
LG Electronics -- 5,380 5,380 -- 359,168 359,168
--------------------------------------------
METALS & MINING (0.1%)
POSCO -- 1,260 1,260 -- 528,915 528,915
--------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (0.1%)
Samsung Electronics -- 921 921 -- 563,791 563,791
--------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES (0.1%)
SK Telecom ADR -- 22,800 22,800 -- 566,124 566,124
--------------------------------------------
SPAIN (1.7%)
AIRLINES ( -- %)
Iberia Lineas Aereas de Espana 49,917 -- 49,917 256,654 -- 256,654
--------------------------------------------
COMMERCIAL BANKS (0.3%)
Banco Bilbao Vizcaya Argentaria 8,719 -- 8,719 208,453 -- 208,453
Banco Popular Espanol 25,307 -- 25,307 501,208 -- 501,208
Banco Santander Central Hispano -- 42,690 42,690 -- 768,324 768,324
--------------------------------------------
Total 709,661 768,324 1,477,985
--------------------------------------------
CONSTRUCTION & ENGINEERING (0.2%)
ACS Actividades de Construccion y
Servicios 7,471 -- 7,471 463,046 -- 463,046
Fomento de Construcciones y
Contratas 1,383 -- 1,383 128,584 -- 128,584
Sacyr Vallehermoso 4,667 -- 4,667 243,697 -- 243,697
--------------------------------------------
Total 835,327 -- 835,327
--------------------------------------------
ELECTRIC UTILITIES (0.2%)
Iberdrola 15,303 -- 15,303 758,493 -- 758,493
--------------------------------------------
ELECTRICAL EQUIPMENT ( -- %)
Gamesa Tecnologica 7,349 -- 7,349 253,160 -- 253,160
--------------------------------------------
GAS UTILITIES (0.2%)
Gas Natural SDG 15,346 -- 15,346 771,953 -- 771,953
--------------------------------------------
METALS & MINING ( -- %)
Acerinox 9,847 -- 9,847 232,457 -- 232,457
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.6%)
Repsol YPF 55,217 23,690 78,907 1,818,961 780,397 2,599,358
--------------------------------------------
SPECIALTY RETAIL (0.2%)
Inditex 13,338 -- 13,338 820,451 -- 820,451
--------------------------------------------
SWEDEN (2.6%)
COMMERCIAL BANKS (0.1%)
Nordea Bank 9,500 -- 9,500 164,297 -- 164,297
Svenska Handelsbanken Series A 8,200 -- 8,200 250,029 -- 250,029
--------------------------------------------
Total 414,326 -- 414,326
--------------------------------------------
COMMUNICATIONS EQUIPMENT (0.1%)
Telefonaktiebolaget LM Ericsson
ADR -- 2,710 2,710 -- 103,441 103,441
Telefonaktiebolaget LM Ericsson
Series B -- 89,500 89,500 -- 342,043 342,043
--------------------------------------------
Total -- 445,484 445,484
--------------------------------------------
</Table>
43
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.2%)
TeliaSonera 101,500 -- 101,500 $ 821,600 $ -- $ 821,600
--------------------------------------------
HOUSEHOLD DURABLES (0.2%)
Electrolux Series B 30,600 -- 30,600 795,606 -- 795,606
--------------------------------------------
MACHINERY (1.4%)
Alfa Laval 5,000 -- 5,000 303,970 -- 303,970
Sandvik 88,600 -- 88,600 1,690,147 -- 1,690,147
Scania Series B 7,650 -- 7,650 731,029 -- 731,029
Volvo Series A 12,500 -- 12,500(b) 46,649 -- 46,649
Volvo Series A 62,500 -- 62,500 1,240,052 -- 1,240,052
Volvo Series B 89,000 34,240 123,240 1,747,051 672,124 2,419,175
Volvo Series B 17,800 6,848 24,648(b) 66,428 25,556 91,984
--------------------------------------------
Total 5,825,326 697,680 6,523,006
--------------------------------------------
PAPER & FOREST PRODUCTS (0.2%)
Svenska Cellulosa Series B 16,200 2,440 18,640 833,310 125,511 958,821
--------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT (0.1%)
Fabege 11,200 -- 11,200 298,372 -- 298,372
--------------------------------------------
SPECIALTY RETAIL (0.3%)
Hennes & Mauritz Series B 22,850 -- 22,850 1,510,793 -- 1,510,793
--------------------------------------------
SWITZERLAND (6.4%)
BIOTECHNOLOGY (0.1%)
Actelion -- 2,447 2,447(b) -- 581,389 581,389
--------------------------------------------
BUILDING PRODUCTS (0.1%)
Geberit 171 -- 171 303,695 -- 303,695
--------------------------------------------
CAPITAL MARKETS (0.9%)
UBS -- 61,906 61,906 -- 4,023,371 4,023,371
--------------------------------------------
CHEMICALS (1.5%)
Ciba Specialty Chemicals 3,922 19,347 23,269 259,135 1,278,297 1,537,432
Clairant -- 24,870 24,870(b) -- 411,230 411,230
Lonza Group -- 22,777 22,777 -- 2,225,983 2,225,983
Syngenta 1,478 11,494 12,972(b) 293,618 2,283,389 2,577,007
--------------------------------------------
Total 552,753 6,198,899 6,751,652
--------------------------------------------
CONSTRUCTION MATERIALS (0.6%)
Holcim -- 24,691 24,691 -- 2,645,018 2,645,018
--------------------------------------------
ELECTRICAL EQUIPMENT (0.5%)
ABB 47,280 61,814 109,094 944,822 1,235,263 2,180,085
--------------------------------------------
FOOD PRODUCTS (0.6%)
Nestle -- 7,033 7,033 -- 2,784,258 2,784,258
--------------------------------------------
INSURANCE (0.7%)
Swiss Reinsurance -- 22,854 22,854 -- 2,148,364 2,148,364
Zurich Financial Services 4,555 -- 4,555 1,321,781 -- 1,321,781
--------------------------------------------
Total 1,321,781 2,148,364 3,470,145
--------------------------------------------
MACHINERY ( -- %)
Sulzer 201 -- 201 264,230 -- 264,230
--------------------------------------------
METALS & MINING (0.2%)
Xstrata 18,858 -- 18,858 981,272 -- 981,272
--------------------------------------------
PHARMACEUTICALS (1.1%)
Novartis -- 41,130 41,130 -- 2,389,576 2,389,576
Roche Holding -- 12,992 12,992 -- 2,446,587 2,446,587
--------------------------------------------
Total -- 4,836,163 4,836,163
--------------------------------------------
</Table>
44
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT ( -- %)
OC Oerlikon 392 -- 392(b) $ 210,929 $ -- $ 210,929
--------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS
(0.1%)
Swatch Group Series B 1,623 -- 1,623 465,059 -- 465,059
--------------------------------------------
TAIWAN (0.1%)
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT
United Microelectronics ADR -- 183,525 183,525 -- 601,962 601,962
--------------------------------------------
UNITED KINGDOM (20.0%)
AEROSPACE & DEFENSE (0.6%)
BAE Systems -- 286,341 286,341 -- 2,595,559 2,595,559
--------------------------------------------
AIRLINES (0.1%)
British Airways 27,460 -- 27,460(b) 276,233 -- 276,233
--------------------------------------------
AUTO COMPONENTS (0.1%)
GKN 35,743 -- 35,743 273,249 -- 273,249
--------------------------------------------
BEVERAGES (0.5%)
Diageo -- 51,550 51,550 -- 1,086,626 1,086,626
SABMiller -- 46,890 46,890 -- 1,108,350 1,108,350
--------------------------------------------
Total -- 2,194,976 2,194,976
--------------------------------------------
CAPITAL MARKETS (0.7%)
3i Group 8,612 -- 8,612 197,820 -- 197,820
Man Group 86,165 189,896 276,061 964,746 2,126,168 3,090,914
--------------------------------------------
Total 1,162,566 2,126,168 3,288,734
--------------------------------------------
CHEMICALS (0.1%)
Imperial Chemical Inds 62,954 -- 62,954 666,565 -- 666,565
--------------------------------------------
COMMERCIAL BANKS (3.0%)
Barclays 152,776 -- 152,776 2,205,495 -- 2,205,495
HBOS 108,145 38,606 146,751 2,320,658 828,437 3,149,095
HSBC Holdings -- 130,857 130,857 -- 2,414,351 2,414,351
Lloyds TSB Group 194,132 -- 194,132 2,241,616 -- 2,241,616
Royal Bank of Scotland Group 46,598 45,873 92,471 1,784,108 1,756,350 3,540,458
--------------------------------------------
Total 8,551,877 4,999,138 13,551,015
--------------------------------------------
COMMERCIAL SERVICES & SUPPLIES
(0.6%)
Capita Group 12,930 -- 12,930 181,641 -- 181,641
Rentokil Initial -- 378,110 378,110 -- 1,303,125 1,303,125
Serco Group 21,455 -- 21,455 210,513 -- 210,513
--------------------------------------------
Total 392,154 1,303,125 1,695,279
--------------------------------------------
CONTAINERS & PACKAGING (0.1%)
Rexam -- 45,800 45,800 -- 479,410 479,410
--------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES (0.8%)
BT Group 451,685 -- 451,685 2,841,145 -- 2,841,145
Cable & Wireless 180,943 -- 180,943 665,896 -- 665,896
--------------------------------------------
Total 3,507,041 -- 3,507,041
--------------------------------------------
ELECTRIC UTILITIES (0.3%)
British Energy Group -- 49,419 49,419(b) -- 508,918 508,918
Scottish & Southern Energy 32,868 -- 32,868 982,527 -- 982,527
--------------------------------------------
Total 982,527 508,918 1,491,445
--------------------------------------------
FOOD & STAPLES RETAILING (1.5%)
Alliance Boots 29,784 -- 29,784 664,514 -- 664,514
J Sainsbury 95,120 -- 95,120 1,083,803 -- 1,083,803
Tesco 81,782 479,024 560,806 752,015 4,404,799 5,156,814
--------------------------------------------
Total 2,500,332 4,404,799 6,905,131
--------------------------------------------
</Table>
45
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
FOOD PRODUCTS (0.8%)
Tate & Lyle 14,211 -- 14,211 $ 176,210 $ -- $ 176,210
Unilever 40,871 77,103 117,974 1,278,671 2,412,210 3,690,881
--------------------------------------------
Total 1,454,881 2,412,210 3,867,091
--------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES
(0.1%)
Smith & Nephew 35,362 -- 35,362 441,212 -- 441,212
--------------------------------------------
HOTELS, RESTAURANTS & LEISURE
(0.5%)
Compass Group 108,935 -- 108,935 787,797 -- 787,797
Enterprise Inns 14,332 -- 14,332 182,553 -- 182,553
InterContinental Hotels Group 13,941 -- 13,941 336,331 -- 336,331
Ladbrokes 33,509 -- 33,509 271,625 -- 271,625
Punch Taverns 14,044 -- 14,044 362,678 -- 362,678
Whitbread 13,458 -- 13,458 505,337 -- 505,337
--------------------------------------------
Total 2,446,321 -- 2,446,321
--------------------------------------------
HOUSEHOLD DURABLES (0.3%)
Barratt Developments 7,857 -- 7,857 169,139 -- 169,139
Bellway 7,539 -- 7,539 227,008 -- 227,008
Berkeley Group Holdings Unit 5,875 -- 5,875(b) 202,252 -- 202,252
George Wimpey 34,569 -- 34,569 400,452 -- 400,452
Taylor Woodrow 53,729 -- 53,729 517,656 -- 517,656
--------------------------------------------
Total 1,516,507 -- 1,516,507
--------------------------------------------
HOUSEHOLD PRODUCTS (0.3%)
Reckitt Benckiser -- 23,524 23,524 -- 1,286,863 1,286,863
--------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS ( -- %)
Intl Power 25,692 -- 25,692 224,633 -- 224,633
--------------------------------------------
INDUSTRIAL CONGLOMERATES (0.2%)
Smiths Group -- 32,210 32,210 -- 694,516 694,516
Tomkins 46,074 -- 46,074 242,892 -- 242,892
--------------------------------------------
Total 242,892 694,516 937,408
--------------------------------------------
INSURANCE (1.1%)
Aviva 67,905 -- 67,905 1,065,307 -- 1,065,307
Friends Provident -- 268,490 268,490 -- 1,010,842 1,010,842
Legal & General Group 68,432 -- 68,432 209,854 -- 209,854
Old Mutual 411,237 313,830 725,067 1,459,418 1,113,735 2,573,153
--------------------------------------------
Total 2,734,579 2,124,577 4,859,156
--------------------------------------------
MACHINERY (0.1%)
Invensys 49,165 -- 49,165(b) 322,726 -- 322,726
--------------------------------------------
MEDIA (1.1%)
British Sky Broadcasting Group ADR -- 146,901 146,901 -- 1,682,462 1,682,462
Reed Elsevier 112,425 84,470 196,895 1,423,577 1,069,598 2,493,175
Reuters Group 33,011 -- 33,011 313,643 -- 313,643
Trinity Mirror -- 61,020 61,020 -- 649,513 649,513
--------------------------------------------
Total 1,737,220 3,401,573 5,138,793
--------------------------------------------
METALS & MINING (0.5%)
BHP Billiton -- 34,100 34,100 -- 761,910 761,910
Rio Tinto -- 26,325 26,325 -- 1,599,572 1,599,572
--------------------------------------------
Total -- 2,361,482 2,361,482
--------------------------------------------
</Table>
46
<Table>
<Caption>
COMMON STOCKS (CONTINUED)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
MULTILINE RETAIL (0.3%)
Debenhams -- 196,530 196,530 $ -- $ 565,187 $ 565,187
Marks & Spencer Group 51,132 -- 51,132 754,203 -- 754,203
--------------------------------------------
Total 754,203 565,187 1,319,390
--------------------------------------------
MULIT-UTILITIES (1.7%)
Centrica 266,822 73,170 339,992 2,055,933 563,794 2,619,727
Natl Grid 83,758 -- 83,758 1,315,056 -- 1,315,056
United Utilities 39,907 -- 39,907 594,821 -- 594,821
--------------------------------------------
Total 3,965,810 563,794 4,529,604
--------------------------------------------
OIL, GAS & CONSUMABLE FUELS (0.9%)
BP 168,895 207,927 376,822 1,894,692 2,332,560 4,227,252
--------------------------------------------
PHARMACEUTICALS (0.7%)
AstraZeneca 18,650 -- 18,650 1,014,261 -- 1,014,261
GlaxoSmithKline -- 84,145 84,145 -- 2,426,919 2,426,919
--------------------------------------------
Total 1,014,261 2,426,919 3,441,180
--------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
(REITS) (0.3%)
British Land 13,471 -- 13,471 393,460 -- 393,460
Great Portland Estates 12,039 -- 12,039 172,235 -- 172,235
Hammerson 13,843 -- 13,843 418,634 -- 418,634
Land Securities Group 5,693 -- 5,693 221,621 -- 221,621
Liberty Intl 6,110 -- 6,110 146,501 -- 146,501
--------------------------------------------
Total 1,352,451 -- 1,352,451
--------------------------------------------
ROAD & RAIL (0.1%)
FirstGroup 19,116 -- 19,116 250,986 -- 250,986
Natl Express Group 11,676 -- 11,676 283,706 -- 283,706
Stagecoach Group 41,900 -- 41,900 154,709 -- 154,709
--------------------------------------------
Total 689,401 -- 689,401
--------------------------------------------
SPECIALTY RETAIL (0.2%)
DSG Intl 53,358 -- 53,358 170,801 -- 170,801
Kingfisher 125,771 -- 125,771 680,994 -- 680,994
--------------------------------------------
Total 851,795 -- 851,795
--------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS
(0.1%)
Burberry Group 18,079 -- 18,079 248,361 -- 248,361
--------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.3%)
Northern Rock -- 70,320 70,320 -- 1,503,637 1,503,637
--------------------------------------------
TOBACCO (0.1%)
Imperial Tobacco Group 9,014 -- 9,014 392,879 -- 392,879
--------------------------------------------
WATER UTILITIES ( -- %)
Severn Trent 6,159 -- 6,159 182,160 -- 182,160
--------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES (1.7%)
Vodafone Group 2,179,708 584,840 2,764,548 6,200,927 1,663,778 7,864,705
--------------------------------------------
UNITED STATES (3.0%)
DIVERSIFIED FINANCIAL SERVICES
(2.5%)
iShares MSCI Emerging Markets
Index Fund 85,500 -- 85,500 10,302,749 -- 10,302,749
Vanguard Emerging Markets Index
Fund 14,000 -- 14,000 1,142,400 -- 1,142,400
--------------------------------------------
Total 11,445,149 -- 11,445,149
--------------------------------------------
ENERGY EQUIPMENT & SERVICES (0.5%)
Schlumberger -- 28,803 28,803 -- 2,126,525 2,126,525
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $382,035,005) $219,871,196 $208,896,469 $428,767,665
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
47
<Table>
<Caption>
PREFERRED STOCKS (0.4%)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
GERMANY
Henkel 2,839 2,420 5,259 $ 446,304 $ 380,435 $ 826,739
Porsche 161 -- 161 269,641 -- 269,641
Volkswagen 7,945 -- 7,945 802,997 -- 802,997
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost: $1,582,600) $ 1,518,942 $ 380,435 $ 1,899,377
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (3.0%)(D)
ISSUER SHARES SHARES SHARES VALUE(A) VALUE(A) VALUE(A)
RIVERSOURCE RIVERSOURCE
DISCIPLINED RIVERSOURCE DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
RiverSource Short-Term Cash Fund 10,506,574 3,243,442 13,750,016(e) $ 10,506,574 $ 3,243,442 $ 13,750,016
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $13,750,016) $ 10,506,574 $ 3,243,442 $ 13,750,016
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $397,367,621)(f) $231,896,712 $212,520,346 $444,417,058
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
NOTES TO COMBINED INVESTMENTS IN SECURITIES
</Table>
(A) Securities are valued by procedures described in Note 1 to the financial
statements in the annual report.
(B) Non-income producing.
(C) Foreign security values are stated in U.S. dollars.
(D) Partially pledged as initial margin deposit on the following open stock
index futures contracts:
<Table>
<Caption>
TYPE OF SECURITY CONTRACTS
- ----------------------------------------------------------------------------------------
PURCHASE CONTRACTS
Dow Jones Euro STOXX 50, June 2007 159
Financial Times Stock Exchange 100 Index, June 2007 38
Nikkei 225, June 2007 53
</Table>
(E) Affiliated Money Market Fund -- See Note 6 and/or 7 to the financial
statements in the annual report.
(F) At April 30, 2007, the approximate cost of securities for federal income
tax purposes and the approximate aggregate gross unrealized appreciation
and depreciation based on that cost was:
<Table>
<Caption>
RIVERSOURCE
DISCIPLINED RIVERSOURCE
INTERNATIONAL INTERNATIONAL PRO FORMA
EQUITY FUND EQUITY FUND COMBINED
Cost of securities for federal income tax purposes: $215,984,000 $181,384,000 $397,368,000
Unrealized appreciation $ 17,531,000 $ 33,613,000 $ 51,144,000
Unrealized depreciation (1,618,000) (2,477,000) (4,095,000)
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation $ 15,913,000 $ 31,136,000 $ 47,049,000
- ----------------------------------------------------------------------------------------------------------
</Table>
The Global Industry Classification Standard (GICS) 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.
48
PART C. OTHER INFORMATION
Item 15. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
Item 16. Exhibits
(1)(a) Articles of Incorporation, as amended Oct. 17, 1988, filed
electronically as Exhibit 1 to Registrant's Post-Effective Amendment No.
28 to Registration Statement No. 2-51586, are incorporated by reference.
(1)(b) Articles of Amendment, dated June 16, 1999, filed electronically as
Exhibit (a)(2) to Registrant's Post-Effective Amendment No. 53 to
Registration Statement No. 2-51586 filed on or about Oct. 25, 2001 is
incorporated by reference.
(1)(c) Articles of Amendment, dated Nov. 14, 2002, filed electronically as
Exhibit (a)(3) to Registrant's Post-Effective Amendment No. 55 to
Registration Statement No. 2-51586 is incorporated by reference.
(1)(d) Articles of Amendment, dated April 21, 2006, filed electronically on or
about Aug. 25, 2006 as Exhibit (a)(4) to Registrant's Post-Effective
Amendment No. 60 to Registration Statement No. 2-51586 are incorporated
by reference.
(2) By-laws, as amended Jan. 11, 2001, filed electronically as Exhibit (b)
to Registrant's Post-Effective Amendment No. 53 to Registration
Statement No. 2-51586 filed on or about Oct. 25, 2001 is incorporated by
reference.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization is included herein as
Exhibit A to Part A of this Registration Statement.
(5) Not applicable.
(6) Investment Management Services Agreement, amended and restated, dated
May 1, 2006, between Registrant and RiverSource Investments, LLC filed
electronically on or about Aug. 25, 2006 as Exhibit (d) to Registrant's
Post-Effective Amendment No. 60 to Registration Statement No. 2-51586 is
incorporated by reference.
(7)(a) Distribution Agreement, effective Oct. 1, 2005, amended and restated as
of May 1, 2007, between Registrant and Ameriprise Financial Services,
Inc. filed electronically on or about May 29, 2007 as Exhibit (e)(1) to
RiverSource Selected Series, Inc. Post-Effective Amendment No. 47 to
Registration Statement No. 2-93745 is incorporated by reference.
(7)(b) Distribution Agreement, effective Aug. 1, 2006, amended and restated as
of May 1, 2007, between Registrant and RiverSource Distributors, Inc.
filed electronically on or about May 29, 2007 as Exhibit (e)(2) to
RiverSource Selected Series, Inc. Post-Effective Amendment No. 47 to
Registration Statement No. 2-93745 is incorporated by reference.
(7)(c) Form of Service Agreement for RiverSource Distributors, Inc. and
RiverSource Service Corporation filed electronically on or about Aug.
27, 2007 as Exhibit (e)(3) to RiverSource Sector Series, Inc.
Post-Effective Amendment No. 39 to Registration Statement No. 33-20872
is incorporated by reference.
(7)(d) Form of RiverSource Funds Dealer Agreement filed electronically on or
about Aug. 27, 2007 as Exhibit (e)(4) to RiverSource Sector Series, Inc.
Post-Effective Amendment No. 39 to Registration Statement No. 33-20872
is incorporated by reference.
(8) Not applicable.
(9)(a) Custody Agreement, dated Nov. 10, 2005, between Registrant and U.S. Bank
National Association filed electronically on or about Jan. 27, 2006 as
Exhibit (g) to AXP High Yield Tax-Exempt Series, Inc. Post-Effective
Amendment No. 47 to Registration Statement No. 2-63552 is incorporated
by reference.
(9)(b) Amendment, dated July 13, 2006, to the Custody Agreement between
Registrant and U.S. Bank National Association filed electronically on or
about Oct. 25, 2006 as Exhibit (g)(2) to Registrant's Post-Effective
Amendment No. 62 to Registration Statement No. 2-51586 is incorporated
by reference.
(10)(a) Plan and Agreement of Distribution, dated May 1, 2006, amended and
restated as of May 1, 2007, between Registrant and Ameriprise Financial
Services, Inc. filed electronically on or about May 29, 2007 as Exhibit
(m)(1) to RiverSource Selected Series, Inc. Post-Effective Amendment No.
47 to Registration Statement No. 2-93745 is incorporated by reference.
(10)(b) Plan and Agreement of Distribution, dated Aug. 1, 2006, amended and
restated as of May 1, 2007, between Registrant and RiverSource
Distributors, Inc. filed electronically on or about May 29, 2007 as
Exhibit (m)(2) to RiverSource Selected Series, Inc. Post-Effective
Amendment No. 47 to Registration Statement No. 2-93745 is incorporated
by reference.
(10)(c) Rule 18f - 3(d) Plan, amended and restated as of Dec. 11, 2006, filed
electronically on or about Jan. 26, 2007 as Exhibit (n) to RiverSource
Equity Series, Inc. Post-Effective Amendment No. 103 to Registration
Statement No. 2-13188 is incorporated by reference.
(11) Opinion and consent of counsel as to the legality of the securities
being registered to be filed by Amendment.
(12) Tax opinion to be filed by Amendment.
(13)(a) Administrative Services Agreement, dated Oct. 1, 2005, amended and
restated as of May 1, 2007, between Registrant and Ameriprise Financial,
Inc. filed electronically on or about June 28, 2007 as Exhibit (h)(1) to
RiverSource Retirement Series Trust Post-Effective Amendment No. 3 to
Registration Statement No. 333-131683 is incorporated by reference.
(13)(b) Transfer Agency Agreement, dated Oct. 1, 2005, amended and restated as
of May 1, 2007, between Registrant and RiverSource Service Corporation
filed electronically on or about May 29, 2007 as Exhibit (h)(2) to
RiverSource Selected Series, Inc. Post-Effective Amendment No. 47 to
Registration Statement No. 2-93745 is incorporated by reference.
(13)(c) Master Plan Administration Services Agreement, dated Dec. 1, 2006,
amended and restated as of May 1, 2007, between Registrant and
RiverSource Service Corporation filed electronically on or about May 29,
2007 as Exhibit (h)(3) to RiverSource Selected Series, Inc.
Post-Effective Amendment No. 47 to Registration Statement No. 2-93745 is
incorporated by reference.
(13)(d) License Agreement, amended and restated, dated May 1, 2006, between
Ameriprise Financial, Inc. and RiverSource Funds filed electronically on
or about May 24, 2006 as Exhibit (h)(5) to RiverSource Selected Series,
Inc. Post-Effective Amendment No. 44 to Registration Statement No.
2-93745 is incorporated by reference.
(13)(e) Master Fee Cap/Fee Waiver Agreement, dated, Oct. 1, 2005, as amended May
1, 2007, between RiverSource Investments, LLC, Ameriprise Financial,
Inc., RiverSource Service Corporation, Ameriprise Financial Services,
Inc., RiverSource Distributors, Inc. and the RiverSource Funds filed
electronically on or about June 28, 2007 as Exhibit (h)(4) to
RiverSource Retirement Series Trust Post-Effective Amendment No. 3 to
Registration Statement No. 333-131683 is incorporated by reference.
(14) Consent of Independent Registered Public Accounting Firm to be filed by
Amendment.
(15) Financial Statements: Not applicable.
(16) Directors Power of Attorney to sign this Registration Statement and its
amendments, dated Sept. 11, 2007, is filed electronically herewith as
Exhibit (16).
(17)(a) Code of Ethics adopted under Rule 17j-1 for Registrant filed
electronically on or about Aug. 27, 2007 as Exhibit (p)(1) to
RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to
Registration Statement No. 33-20872 is incorporated by reference.
(17)(b) Codes of Ethics adopted under Rule 17j-1 for Registrant's investment
adviser and Registrant's principal underwriter, dated Jan. 2007 and
April 2006, filed electronically on or about Jan. 26, 2007 as Exhibit
(p)(2) to RiverSource Equity Series, Inc. Post-Effective Amendment No.
103 to Registration Statement No. 2-13188 are incorporated by reference.
(17)(c) Prospectus, dated Oct. 30, 2007, for RiverSource Diversified Bond Fund
to be filed by Amendment.
(17)(d) Prospectus, dated Sept. 28, 2007, for RiverSource Core Bond Fund to be
filed by Amendment.
(17)(e) Statement of Additional Information, dated Nov. 29, 2007, for
RiverSource Diversified Bond Fund and RiverSource Core Bond Fund to be
filed by Amendment.
(17)(f) Annual Report for the period ended Aug. 31, 2007 for RiverSource
Diversified Bond Fund to be filed by Amendment.
(17)(g) Annual Report for the period ended July 31, 2007 for RiverSource Core
Bond Fund to be filed by Amendment.
Item 17. Undertakings.
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a
part of this registration statement by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the Securities
Act, the reoffering prospectus will contain the information called for
by the applicable registration form for the reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The Registrant undertakes to file by Post-Effective Amendment an Opinion
of Counsel supporting the tax consequences of the proposed
reorganization within a reasonable time after receipt of such opinion.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of
Minneapolis, and State of Minnesota on the 12th day of Oct., 2007.
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer
As required by the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities indicated on the 12th
day of Oct., 2007.
Signature Capacity
- --------- --------
/s/ Stephen R. Lewis, Jr.* Chair of the Board
- -------------------------------------
Stephen R. Lewis, Jr.
/s/ Kathleen A. Blatz* Director
- -------------------------------------
Kathleen A. Blatz
/s/ Arne H. Carlson* Director
- -------------------------------------
Arne H. Carlson
/s/ Pamela G. Carlton* Director
- -------------------------------------
Pamela G. Carlton
/s/ Patricia M. Flynn* Director
- -------------------------------------
Patricia M. Flynn
/s/ Anne P. Jones* Director
- -------------------------------------
Anne P. Jones
/s/ Jeffrey Laikind* Director
- -------------------------------------
Jeffrey Laikind
/s/ Catherine James Paglia* Director
- -------------------------------------
Catherine James Paglia
/s/ Alison Taunton-Rigby* Director
- -------------------------------------
Alison Taunton-Rigby
/s/ William F. Truscott* Director
- -------------------------------------
William F. Truscott
* Signed pursuant to Directors/Trustees Power of Attorney, dated Sept. 11,
2007, filed electronically herewith as Exhibit (16), by:
/s/ Scott R. Plummer
- -------------------------------------
Scott R. Plummer
EXHIBIT INDEX
(16) Directors Power of Attorney to sign this Registration Statement and its
amendments, dated Sept. 11, 2007.